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Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program

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[Federal Register: May 26, 2009 (Volume 74, Number 99)]
[Proposed Rules]
[Page 25053-25102]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26my09-24]

Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel
Standard Program

[[Continued from page 25052]]

[[Page 25053]]

of biodiesel made from waste greases/oils met the 50% GHG threshold by
a wide margin, and since it is common industry practice for biodiesel
facilities to use these two feedstock sources, we believe it may be
appropriate to allow a biodiesel production facility to average the GHG
benefit generated through the use of waste grease with the lower GHG
performance of biodiesel produced from soybean oil at the same facility.
    We recognize that an approach in which we allow a biodiesel
production facility to average the GHG benefit of waste grease with
that from soybean oil raises questions about whether similar averaging
could be allowed for other combinations of feedstocks, other types of
fuel, or across multiple facilities within the same company. While we
believe that the circumstances surrounding biodiesel production are
somewhat unique--two different feedstocks subjected to essentially the
same production process in a single facility--we nevertheless request
comment on the appropriateness of such an averaging approach for biodiesel.
    Based on our lifecycle analyses, biodiesel produced from waste
grease has a GHG performance of 80% reduction from the conventional
diesel baseline, while biodiesel produced from soybean oil has a GHG
performance of 22% reduction. In order to meet the GHG threshold of 50%
for biomass-based diesel, a biodiesel production facility would need to
use a minimum of 48% waste grease and a maximum of 52% soybean oil.
Thus, a pathway that would allow a biodiesel production facility to
designate all of its biodiesel as biomass-based diesel would include a
requirement that the producer demonstrate that every batch has been
produced from no less than 48% waste grease and no more than 52% soybean oil.
    Although this approach would allow the total volume of biomass-
based diesel to be larger than if waste greases/oils alone qualified,
it is still possible than the 1.0 billion gallon requirement would not
be met due to limits on the availability of waste greases and oils. For
instance, we estimate that the total volume of waste greases and oils
may be no larger than 0.3-0.4 billion gallons. As a result, we request
comment on whether it would also be appropriate to lower the GHG
threshold for biomass-based diesel. If this GHG threshold were lowered
to 40%, a biodiesel production facility would only need to use a
minimum of 31% waste greases/oils instead of 48%.
    We recognize that it may be difficult for a biodiesel production
facility to process a consistent mixture of waste grease and soybean
oil every day. Therefore, we request comment on alternative approaches.
For instance, if a biodiesel production facility processed only waste
grease for the first 175 days (48% x 365 days) of a calendar year, we
could allow it to designate any biodiesel produced from soybean oil for
the remainder of the year as biomass-based diesel. However, this may be
difficult for some producers who must contend with cold temperature
storage and blending issues in the early part of a calendar year by
processing only soybean oil. Alternatively, we could allow a company to
average the production at all of its facilities, where one facility
processed only waste grease and another processed only soybean oil.
    Finally, we request comment on an alternative approach in which an
obligated party, rather than the biodiesel production facility, would
demonstrate that a minimum number of waste grease-based biodiesel RINs
is used to meet the biomass-based diesel standard in comparison to the
number of soybean oil-based biodiesel RINs. In essence, the averaging
would be carried out by the obligated party instead of the biodiesel
producer. In this approach, biodiesel RINs would not be placed into
biomass-based diesel category shown in Table VI.E.1-1, but instead
would be placed into two separate categories as waste grease RINs or
soybean oil RINs. This designation would require that the list of
applicable D codes for use in the RIN be expanded from four to six as
shown in Table VI.E.3.c-1.

  Table VI.E.3.c-1--Alternative Approach to D Codes for Averaging Waste
           Grease and Soybean Oil Biodiesel RINs in Compliance
------------------------------------------------------------------------
                                                  Alternative approach
     D value            Proposal meaning                meaning
------------------------------------------------------------------------
1................  Cellulosic biofuel........  Cellulosic biofuel
2................  Biomass-based diesel......  Biomass-based diesel
3................  Advanced biofuel..........  Biodiesel made from
                                                soybean oil
4................  Renewable fuel............  Biodiesel made from waste
                                                grease
5................  (Not applicable)..........  Advanced biofuel
6................  (Not applicable)..........  Renewable fuel
------------------------------------------------------------------------

    Since other types of renewable fuel may still qualify as biomass-
based diesel, we would retain a separate D code for this category under
this approach. This could allow biodiesel producers who choose the
process a minimum of 48% waste greases/oils each day to continue to
assign a D code of 2 to their biodiesel.
    An obligated party could use any combination of RINs with a D code
of 2, 3, or 4 in order to comply with the biomass-based diesel
standard. However, he would also be subject to an additional
requirement that the ratio of D=3 RINs to D=4 RINs must be less than
1.08. This criterion would ensure that a minimum of 47 RINs
representing biodiesel from waste grease would be used for compliance
purposes for every 53 RINs representing biodiesel from soybean oil that
are also used for compliance.
    We request comment on these alternative approaches to the treatment
of biodiesel.
d. Renewable Diesel Through Hydrotreating
    We did not conduct a lifecycle analysis for the production of non-
ester renewable diesel through a hydrotreating process. However, we
believe that our analysis of biodiesel provides sufficient information
to allow us to designate the renewable fuel category for various
pathways leading to the production of renewable diesel.
    Renewable diesel is generally made from the same feedstocks as
biodiesel, namely soybean oil, waste greases/oils, tallow, and chicken
fat. Therefore, the GHG impacts associated with producing/collecting
the feedstock and transporting it to the production facility would be
the same regardless of whether the final product is biodiesel or
renewable diesel.
    The fossil energy requirements of the production process contribute
a relatively small amount to the overall GHG performance for biodiesel.
For example, the 50% GHG threshold would still be met for biodiesel
produced from waste grease even if the fossil energy requirements
doubled. As a result, compared to the transesterification process used
to produce biodiesel, any small variations in fossil energy
requirements for renewable diesel production in a hydrotreater would be
unlikely to change compliance with the broad categories created by the
GHG thresholds for biomass-based diesel and generic renewable fuel.
Therefore, we believe that it would be appropriate to assign applicable
renewable fuel categories to renewable diesel pathways in parallel with
the assignments we are proposing for biodiesel, including the potential
for averaging of soyoil and waste grease derived volumes. Renewable
diesel produced from waste grease, tallow, or chicken fat in a
hydrotreater that does not coprocess petroleum feedstocks would be

[[Page 25054]]

categorized as biomass-based diesel. Renewable diesel produced from
waste grease, tallow, or chicken fat in a hydrotreater that does
coprocess petroleum feedstocks would be categorized as advanced
biofuel. Finally, renewable diesel produced from soybean oil in a
hydrotreater would be categorized as generic renewable fuel.
4. Summary
    Based on the discussion above, we have identified 15 pathways that
we propose could be used to produce fuel that would meet the volume
requirements in EISA assuming a 100 year analysis time frame and
discounting GHG emissions over time by 2%. As noted above, these
pathways would be adjusted should we adopt other time frames or
discount rates (including a zero discount rate) for the final rule.
Each pathway would be assigned a D code for use in generating RINs that
corresponds to one of the four renewable fuel categories. Our proposed
list of allowable pathways is shown in Table VI.E.4-1.

                         Table VI.E.4-1--Applicable Categories for Each Fuel Pathway \a\
----------------------------------------------------------------------------------------------------------------
                                                                   Production process
              Fuel type                       Feedstock               requirements               Category
----------------------------------------------------------------------------------------------------------------
Ethanol..............................  Starch from corn,        --Process heat derived   Renewable fuel.
                                        wheat, barley, oats,     from biomass.
                                        rice, or sorghum.
Ethanol..............................  Starch from corn,        --Dry mill plant.......  Renewable fuel.
                                        wheat, barley, oats,
                                        rice, or sorghum.
                                                                --Process heat derived
                                                                 from natural gas.
                                                                --Combined heat and
                                                                 power (CHP).
                                                                --Fractionation of
                                                                 feedstocks.
                                                                --Some or all
                                                                 distillers grains are
                                                                 dried.
Ethanol..............................  Starch from corn,        --Dry mill plant.......  Renewable fuel.
                                        wheat, barley, oats,
                                        rice, or sorghum.
                                                                --Process heat derived
                                                                 from natural gas.
                                                                --All distillers grains
                                                                 are wet.
Ethanol..............................  Starch from corn,        --Dry mill plant.......  Renewable fuel.
                                        wheat, barley, oats,
                                        rice, or sorghum.
                                                                --Process heat derived
                                                                 from coal.
                                                                --Combined heat and
                                                                 power (CHP).
                                                                --Fractionation of
                                                                 feedstocks.
                                                                --Membrane separation
                                                                 of ethanol.
                                                                --Raw starch hydrolysis
                                                                --Some or all
                                                                 distillers grains are
                                                                 dried.
Ethanol..............................  Starch from corn,        --Dry mill plant.......  Renewable fuel.
                                        wheat, barley, oats,
                                        rice, or sorghum.
                                                                --Process heat derived
                                                                 from coal.
                                                                --Combined heat and
                                                                 power (CHP).
                                                                --Fractionation of
                                                                 feedstocks.
                                                                --Membrane separation
                                                                 of ethanol.
                                                                --All distillers grains
                                                                 are wet.
Ethanol..............................  Cellulose and            --Enzymatic hydrolysis   Cellulosic biofuel.
                                        hemicellulose from       of cellulose.
                                        corn stover,
                                        switchgrass,
                                        miscanthus, wheat
                                        straw, rice straw,
                                        sugarcane bagasse,
                                        forest waste, yard
                                        waste, or planted
                                        trees.
                                                                --Fermentation of
                                                                 sugars.
                                                                --Process heat derived
                                                                 from lignin.
Ethanol..............................  Cellulose and            --Thermochemical         Cellulosic biofuel.
                                        hemicellulose from       gasification of
                                        corn stover,             biomass.
                                        switchgrass,
                                        miscanthus, wheat
                                        straw, rice straw,
                                        sugarcane bagasse,
                                        forest waste, yard
                                        waste, or planted
                                        trees.
                                                                --Fischer-Tropsch
                                                                 process.
Ethanol..............................  Sugarcane sugar........  --Process heat derived   Advanced biofuel.
                                                                 from sugarcane bagasse.
Biodiesel (mono alkyl ester).........  Waste grease, waste      --Transesterification..  Biomass-based diesel.
                                        oils, tallow, chicken
                                        fat, or non-food grade
                                        corn oil.
Biodiesel (mono alkyl ester).........  Soybean oil and other    --Transesterification..  Renewable fuel.
                                        virgin plant oils.

[[Page 25055]]

Cellulosic diesel....................  Cellulose and            --Thermochemical         Cellulosic biofuel or
                                        hemicellulose from       gasification of          biomass-based diesel.
                                        corn stover,             biomass.
                                        switchgrass,
                                        miscanthus, wheat
                                        straw, rice straw,
                                        sugarcane bagasse,
                                        forest waste, yard
                                        waste, or planted
                                        trees.
                                                                --Fischer-Tropsch
                                                                 process.
                                                                --Catalytic
                                                                 depolymerization.
Non-ester renewable diesel...........  Waste grease, waste      --Hydrotreating........
                                        oils, tallow, chicken
                                        fat, or corn oil.
                                                                --Dedicated facility     Biomass-based diesel.
                                                                 that processes only
                                                                 renewable biomass.
Non-ester renewable diesel...........  Waste grease, waste      --Hydrotreating........  Advanced biofuel.
                                        oils, tallow, chicken
                                        fat, or non-food grade
                                        corn oil.
                                                                --Coprocessing facility
                                                                 that also processes
                                                                 petroleum feedstocks.
Non-ester renewable diesel...........  Soybean oil and other    --Hydrotreating........  Renewable fuel.
                                        virgin plant oils.
Cellulosic gasoline..................  Cellulose and            --Thermochemical         Cellulosic biofuel.
                                        hemicellulose from       gasification of
                                        corn stover,             biomass.
                                        switchgrass,
                                        miscanthus, wheat
                                        straw, rice straw,
                                        sugarcane bagasse,
                                        forest waste, yard
                                        waste, or planted
                                        trees.
                                                                --Fischer-Tropsch
                                                                 process.
                                                                --Catalytic
                                                                 depolymerization.
----------------------------------------------------------------------------------------------------------------
\a\ Under our assumed 100-year timeframe and 2% discount rate.

    As stated earlier, there may be other potential pathways that could
lead to qualifying renewable fuel. While we do not have sufficient
information at this time to evaluate the likely lifecycle GHG impact
and thus assign those pathways to one of the four renewable fuel
categories, we do plan on doing these evaluations for the final rule.
Pathways that we intend to subject to lifecycle analysis include
butanol from starches or oils and renewable diesel from biomass using
pyrolysis or catalytic reforming. We request comment on the inputs
necessary to apply lifecycle analysis to these pathways. We also
request comment on other pathways that should be analyzed and the data
that would be necessary for those analyses.
    For pathways that are not included in the lookup table in the final
rule, we are also proposing a regulatory mechanism whereby a producer
could temporarily assign their renewable fuel to one of the four
renewable fuel categories under certain conditions. For further
discussion of this issue, see Section III.D.5.

F. Total GHG Emission Reductions

    Our analysis of the overall GHG emission impacts of this proposed
rulemaking was performed in parallel with the lifecycle analysis
performed to develop the individual fuel thresholds described in
previous sections. The same system boundaries apply such that this
analysis includes the effects of three main areas: (a) emissions
related to the production of biofuels, including the growing of
feedstock (corn, soybeans, etc.) with associated domestic and
international land use change impacts, transport of feedstock to fuel
production plants, fuel production, and distribution of finished fuel;
(b) emissions related to the extraction, production and distribution of
petroleum gasoline and diesel fuel that is replaced by use of biofuels;
and (c) difference in tailpipe combustion of the renewable and
petroleum based fuels. As discussed in the previous sections we will be
updating our lifecycle approach for the final rule and there are some
areas that we were not able to quantify at this time, such as secondary
impacts in the energy sector. We are working to include this for our
final rule analysis.
    Consistent with the fuel volume feasibility analysis and criteria
pollutant emissions, our analysis of the GHG impacts of increased
renewable fuel use was conducted by comparing the impacts of the 2022
36 Bgal of renewable fuel volumes required by EISA to a projected 2022
reference case of approximately 14 Bgal of renewable fuel volumes.
Similar to what was done to calculate lifecycle thresholds for
individual fuels we considered the change in 2022 of these two volume
scenarios of renewable fuels to determine overall GHG impacts of the
rule. The reference case for the GHG emission comparisons was taken
from the AEO 2007 projected renewable fuel production levels for 2022
prior to enactment of EISA. This scenario provided a point of
comparison for assessing the impacts of the RFS2 standard volumes on
GHG emissions. We ran these multi-fuel scenarios through our FASOM and
FAPRI models and applied the Winrock land use change assumptions to
determine to overall GHG impacts. We were only able to analyze 2022
reference and control cases. However, in reality the impacts of corn
ethanol and soybean biodiesel will be experienced beginning in 2009,
with the impacts of cellulosic ethanol and sugarcane ethanol growing in
later years as their volumes increase.
    The main difference between this overall impacts analysis and the
analysis conducted to develop the threshold values for the individual
fuels is that we analyzed the total change in renewable fuels in one
scenario as opposed to looking at individual fuel impacts. When
analyzing the impact of the total 36 billion gallons of renewable fuel,
we also took into account the agricultural sector interactions
necessary to produce the full complement of feedstock. We also

[[Page 25056]]

considered a mix of plant types and configurations for the 2022
renewable fuel production representing the mix of plants we project to
be in operation in 2022. This is based on the same analysis used in the
plant location and fuel feasibility analysis described in Section V.B.
    For this overall impacts analysis we used a different petroleum
baseline fuel that is offset from renewable fuel use. The lifecycle
threshold values are required by EISA to be based on a 2005 petroleum
fuel baseline. For this inventory analysis of the overall impacts of
the rule we considered the crude oil and finished product that would be
replaced in 2022. Displaced petroleum product analysis was consistent
with work performed for the energy security analysis described in
Section IX.B. For this analysis we consider that 25% of displaced
gasoline will be imported gasoline. For the domestic production we
assumed replacement of the 2022 crude mix which is projected to include
7.6% tar sands and 3.8% Venezuelan heavy crude which is higher then the
projected mix in 2005 which includes 5% tar sands and 1% Venezuelan
heavy crude.
    Given these many differences, simply adding up the individual
lifecycle results determined in Section VI.C. multiplied by their
respective volumes would yield a different assessment of the overall
rule impacts. The two analyses are separate in that the overall rule
impacts capture interactions between the different fuels that can not
be broken out into per fuels impacts, while the threshold values represent
impacts of specific fuels but do not account for all the interactions.
    For example, when we consider the combined impact of the different
fuel volumes when analyzed separately, the overall land use change is
9.0 million acres. However, when we analyze the volume changes all
together, the overall land use change is approximately 10% higher.
    The primary reason for the difference in acre change between the
sum of the individual fuel scenarios and the combined fuel scenarios is
that when looking at individual fuels there is some interaction between
different crops (e.g., corn replacing soybeans), but with combined
volume scenario when all mandates need to be met there is less
opportunity for crop replacement (e.g., both corn and soybean acres
needed) and therefore more land is required.
    Important findings of our analysis include:
    • As with the threshold lifecycle calculations, assumptions
about timing to consider impacts over and discount rates will have a
significant impact on results.
    • We estimate the largest overall agricultural sector impact
is an increase in land use change impacts, reflecting the shift of crop
production internationally to meet the biofuel demand in the U.S.
Increased crop production internationally resulted in land use change
emissions associated with converting land into crop production.
    • Our analysis indicates that overall domestic agriculture
emissions would increase. There is a relatively small increase in total
domestic crop acres however, there are additional inputs required due
to the removal of crop residues. The assumption is that removal will
require more inputs to make up for lost residue nutrients. These
additional inputs result in GHG emissions from production and from
N2O releases from application. This effect is somewhat
offset by reductions due to lower livestock production. These results
are dependent on our agricultural sector input and emission assumptions
that are being updated for the final rule (e.g., N2O
emission factor work).
    • In particular due to this international impact, the
potential overall GHG emission reductions of biofuels produced from
food crops such as corn ethanol and soy biodiesel are significantly
impacted. Large near term emission increases due to land use change
require a number of years before the emission reductions due to corn
ethanol and soy biodiesel use will offset the near term emission
increase as discussed in the threshold calculation section.
    • Cellulosic biofuels contribute by far the most to the
total emission reductions due to both their superior per gallon
emission reductions and the large volume of these fuels anticipated to
be used by 2022.
    The timing of the impact of land use change and ongoing renewable
fuels benefits were discussed in the previous lifecycle fuel threshold
section. The issue is slightly different for this analysis since we are
considering absolute tons of emissions and not determining a threshold
comparison to petroleum fuels. However the results can be presented in
a similar manner to our individual fuels analysis in that we can
determine net benefits over time with different discount rates and over
a different time frame for consideration.
    As discussed in previous sections on lifecycle GHG thresholds there
is an initial one time release from land conversion and smaller ongoing
releases but there are also ongoing benefits of using renewable fuels
over time replacing petroleum fuel use. Based on the volume scenario
considered, the one time land use change impacts result in 448 million
metric tons of CO2-eq. emissions increase. There are, however, based on
the biofuel use replacing petroleum fuels, GHG reductions in each year.
When modeling the program as if all fuel volume changes occur in 2022,
and considering 100 years of emission impacts that are discounted by 2%
per year, we get an estimated total discounted NPV reduction in GHG
emissions of 6.8 billion tons over 100 years. Totaling the emissions
impacts over 30 years but assuming a 0% discount rate over this 30 year
period would result in an estimated total NPV reduction in GHG
emissions of 4.5 billion tons over 30 years.
    This total NPV reduction can be converted into annual average GHG
reductions, which can be used for the calculations of the monetized GHG
benefits as shown in Section IX.C.4. This annualized value is based on
converting the lump sum present values described above into their
annualized equivalents. For this analysis we convert the NPV results
for the 100 year 2% discount rate into an annualized average such that
the NPV of the annualized average emissions will equal the NPV of the
actual emission stream over 100 years with a 2% discount rate. This
results in an annualized average emission reduction of approximately160
million metric tons of CO2-eq. emissions. A comparable value assuming
30 years of GHG emissions changes but not applying a discount rate to
those emissions results in an estimated annualized average emission
reduction of approximately 150 million metrics tons of CO2-eq. emissions.

G. Effects of GHG Emission Reductions and Changes in Global Temperature
and Sea Level

1. Introduction
    The reductions in CO2 and other GHGs associated with the
proposal will affect climate change projections. Because GHGs mix well
in the atmosphere and have long atmospheric lifetimes, changes in GHG
emissions will affect future climate for decades to centuries. One
common indicator of climate change is global mean surface temperature
and sea level rise. This section estimates the response in global mean
surface temperature projections to the estimated net global GHG
emissions reductions associated with the proposed rulemaking (See
Section VI.F for the estimated net reductions in global emissions over
time by GHG).

[[Page 25057]]

2. Estimated Projected Reductions in Global Mean Surface Temperatures
    EPA estimated changes in projected global mean surface temperatures
to 2100 using the MiniCAM (Mini Climate Assessment Model) integrated
assessment model \320\ coupled with the MAGICC (Model for the
Assessment of Greenhouse-gas Induced Climate Change) simple climate
model.\321\ MiniCAM was used to create the globally and temporally
consistent set of climate relevant variables required for running
MAGICC. MAGICC was then used to estimate the change in the global mean
surface temperature over time. Given the magnitude of the estimated
emissions reductions associated with the proposed rule, a simple climate
model such as MAGICC is reasonable for estimating the climate response.
---------------------------------------------------------------------------

    \320\ MiniCAM is a long-term, global integrated assessment model
of energy, economy, agriculture and land use, that considers the
sources of emissions of a suite of greenhouse gases (GHG's), emitted
in 14 globally disaggregated global regions (i.e., U.S., Western
Europe, China), the fate of emissions to the atmosphere, and the
consequences of changing concentrations of greenhouse related gases
for climate change. MiniCAM begins with a representation of
demographic and economic developments in each region and combines
these with assumptions about technology development to describe an
internally consistent representation of energy, agriculture, land-
use, and economic developments that in turn shape global emissions.
Brenkert A, S. Smith, S. Kim, and H. Pitcher, 2003: Model
Documentation for the MiniCAM. PNNL-14337, Pacific Northwest
National Laboratory, Richland, Washington. For a recent report and
detailed description and discussion of MiniCAM, see Clarke, L., J.
Edmonds, H. Jacoby, H. Pitcher, J. Reilly, R. Richels, 2007.
Scenarios of Greenhouse Gas Emissions and Atmospheric
Concentrations. Sub-report 2.1A of Synthesis and Assessment Product
2.1 by the U.S. Climate Change Science Program and the Subcommittee
on Global Change Research. Department of Energy, Office of
Biological & Environmental Research, Washington, DC., USA, 154 pp.
    \321\ MAGICC consists of a suite of coupled gas-cycle, climate
and ice-melt models integrated into a single framework. The
framework allows the user to determine changes in GHG
concentrations, global-mean surface air temperature and sea-level
resulting from anthropogenic emissions of carbon dioxide (CO2),
methane (CH4), nitrous oxide (N2O), reactive gases (e.g., CO,
NOX, VOCs), the halocarbons (e.g. HCFCs, HFCs, PFCs) and
sulfur dioxide (SO2). MAGICC emulates the global-mean temperature
responses of more sophisticated coupled Atmosphere/Ocean General
Circulation Models (AOGCMs) with high accuracy. Wigley, T.M.L. and
Raper, S.C.B. 1992. Implications for Climate and Sea-Level of
Revised IPCC Emissions Scenarios Nature 357, 293-300. Raper, S.C.B.,
Wigley T.M.L. and Warrick R.A. 1996. in Sea-Level Rise and Coastal
Subsidence: Causes, Consequences and Strategies J.D. Milliman, B.U.
Haq, Eds., Kluwer Academic Publishers, Dordrecht, The Netherlands,
pp. 11-45. Wigley, T.M.L. and Raper, S.C.B. 2002. Reasons for larger
warming projections in the IPCC Third Assessment Report J. Climate
15, 2945-2952.
---------------------------------------------------------------------------

    EPA applied the estimated annual GHG emissions changes for the
proposal to the MiniCAM U.S. Climate Change Science Program (CCSP)
Synthesis and Assessment Product baseline emissions.\322\ Specifically,
the CO2, N2O, and CH4 annual emission
changes from 2022-2121 from Section VI.F were applied as net reductions
to the MiniCAM CCSP global baseline net emissions for each GHG. Post-
2121, we assumed no change in emissions from the baseline. This assumption
is more conservative than allowing the emissions reductions to continue.
---------------------------------------------------------------------------

    \322\ Clarke et al., 2007.
---------------------------------------------------------------------------

    Table VI.G.2 provides our estimated reductions in projected global
mean surface temperatures and sea level associated with the proposed
increase in renewable fuels in 2022. To capture some of the uncertainty
in the climate system, we estimated the changes in projected
temperatures and sea level across the most current Intergovernmental
Panel on Climate Change (IPCC) range of climate sensitivities, 1.5
[deg]C to 6.0 [deg]C.\323\ To illustrate the time profile of the
estimated reductions in projected global mean surface temperatures and
sea level, we have also provided Figures VI.G.2-1 and VI.G.2-2.
---------------------------------------------------------------------------

    \323\ In IPCC reports, equilibrium climate sensitivity refers to
the equilibrium change in the annual mean global surface temperature
following a doubling of the atmospheric equivalent carbon dioxide
concentration. The IPCC states that climate sensitivity is
``likely'' to be in the range of 2 [deg]C to 4.5 [deg]C and
described 3 [deg]C as a ``best estimate.'' The IPCC goes on to note
that climate sensitivity is ``very unlikely'' to be less than 1.5
[deg]C and ``values substantially higher than 4.5 [deg]C cannot be
excluded.'' IPCC WGI, 2007, Climate Change 2007--The Physical
Science Basis, Contribution of Working Group I to the Fourth
Assessment Report of the IPCC, http://www.ipcc.ch/. Exit Disclaimer

Table VI.G.2-1--Estimated Reductions in Projected Global Mean Surface Temperature and Global Mean Sea Level From
                    Baseline in 2030, 2050, 2100, and 2200 for the Proposed Standard in 2022
----------------------------------------------------------------------------------------------------------------
                                                                       Climate sensitivity
                                                ----------------------------------------------------------------
                                                     1.5           2            3           4.5           6
----------------------------------------------------------------------------------------------------------------
                          Change in global mean surface temperatures (degrees Celsius)
----------------------------------------------------------------------------------------------------------------
2030...........................................        0.000        0.000       -0.001       -0.001       -0.001
2050...........................................       -0.001       -0.002       -0.002       -0.002       -0.003
2100...........................................       -0.003       -0.004       -0.005       -0.006       -0.007
2200...........................................       -0.003       -0.004       -0.006       -0.008       -0.009
----------------------------------------------------------------------------------------------------------------
                               Change in global mean sea level rise (centimeters)
----------------------------------------------------------------------------------------------------------------
2030...........................................       -0.002       -0.002       -0.003       -0.003       -0.003
2050...........................................       -0.012       -0.014       -0.017       -0.020       -0.022
2100...........................................       -0.045       -0.052       -0.063       -0.074       -0.082
2200...........................................       -0.077       -0.091       -0.114       -0.143       -0.172
----------------------------------------------------------------------------------------------------------------

    The results in Table VI.G.2-1 and Figures VI.G.2-1 and VI.G.2-2
show small, but detectable, reductions in the global mean surface
temperature and sea level rise projections across all climate
sensitivities. Overall, the reductions are small relative to the IPCC's
``best estimate'' temperature increases by 2100 of 1.8 [deg]C to 4.0
[deg]C.\324\ Although IPCC does not issue ``best estimate'' sea level
rise projections, the model-based range across SRES scenarios is 18 to
59 cm by 2099.\325\ Both figures illustrate that the overall emissions
reductions can decrease projected annual temperature and sea level for
all climate sensitivities. This means that the distribution of
potential temperatures in any particular year is shifting down.
However, the shift is not uniform. The magnitude of the decrease is
larger for higher climate

[[Page 25058]]

sensitivities. Thus, the probability of a higher temperature or sea
level in any year is lowered more than the probability of a lower
temperature or sea level. For instance, in 2100, the reduction in
projected temperature for climate sensitivities of 3 and 6 is
approximately 65% and 140% greater than the reduction for a climate
sensitivity of 1.5. This difference grows over time, to approximately
80% and 185% by 2200. The same pattern appears in the reductions in the
sea level rise projections.\326\ Also noteworthy in Figures VI.G.2-1
and VI.G.2-2 is that the size of the decreases grows over time due to
the cumulative effect of a lower stock of GHGs in the atmosphere (i.e.,
concentrations).\327\
---------------------------------------------------------------------------

    \324\ IPCC WGI, 2007. The baseline increases by 2100 from our
MiniCAM-MAGICC runs are 2 [deg]C to 5 [deg]C for global mean surface
temperature and 35 to 74 centimeters for global mean sea level.
    \325\ ``Because understanding of some important effects driving
sea level rise is too limited, this report does not assess the
likelihood, nor provide a best estimate or an upper bound for sea
level rise.'' IPCC Synthesis Report, p. 45
    \326\ In 2100, the reduction in projected sea level rise for
climate sensitivities of 3 and 6 is approximately 40% and 80%
greater than the reduction for a climate sensitivity of 1.5. This
difference grows over time, to approximately 50% and 120% by 2200.
    \327\ For global average temperature after 2100, the growth in
the size of the decrease noticeable slows. This is because the
emissions changes associated with the policy were only estimated for
100 years. Note that even with emissions reductions stopping after
100 years, there continues to be a decrease in projected
temperatures due to reduced inertia in the climate system from the
earlier emissions reductions. However, unlike temperature, after
2100, the size of the decrease in sea level rise increases as the
projected reduction in warming has a continued effect on ice melt
and ocean thermal expansion.
---------------------------------------------------------------------------

    The bottom line is that the risk of climate change is being
lowered, as the probabilities of any level of temperature increase and
sea level rise are reduced and the probabilities of the largest
temperature increases and sea level rise are reduced even more. For the
Final Rulemaking, we hope to more explicitly estimate the shapes of the
distributions and the estimated shifts in the shapes in response to the
Rulemakings.
BILLING CODE 6560-50-P
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[[Page 25059]]
[GRAPHIC] [TIFF OMITTED] TP26MY09.010
BILLING CODE 6560-50-C

VII. How Would the Proposal Impact Criteria and Toxic Pollutant
Emissions and Their Associated Effects?

A. Overview of Impacts

    Today's proposal would influence the emissions of ``criteria''
pollutants (those pollutants for which a National Ambient Air Quality
Standard has been established), criteria pollutant precursors,\328\ and
air toxics, which may affect overall air quality and health. Emissions
would be affected by the processes required to produce and distribute
large volumes of biofuels proposed in today's action and the direct
effects of these fuels on vehicle and equipment emissions. As detailed
in Chapter 3 of the Draft Regulatory Impact Analysis (DRIA), we have
estimated emissions impacts of production and distribution-related
emissions using the life cycle analysis methodology described in
Section VI with emission factors for criteria and toxic emissions for
each stage of the life cycle, including agriculture, feedstock
transportation, and the production and distribution of biofuel;
included in this analysis are the impacts of reduced gasoline and
diesel refining as these fuels are displaced by biofuels. Emission
impacts of tailpipe and evaporative emissions for on and off road
sources have been estimated by incorporating ``per vehicle'' fuel
effects from recent research into mobile source emission inventory
estimation methods.
---------------------------------------------------------------------------

    \328\ NOX and VOC are precursors to the criteria
pollutant ozone; we group them with criteria pollutants in this
chapter for ease of discussion.
---------------------------------------------------------------------------

    For today's proposal we are presenting two sets of emission impacts
meant to present a range of the possible effects of ethanol blends on
light-duty vehicle emissions. This approach is carried forward from
analysis supporting the first RFS rule, which presented ``primary'' and
``sensitivity'' fuel effects cases differentiated by E10 effects on
cars and trucks. For this analysis we also analyze two fuel effects
scenarios, now termed ``less sensitive'' and ``more sensitive,''
referring to the sensitivity of car and truck exhaust emissions to both
E10 and E85 blends. As detailed in Section VII.C, the ``less
sensitive'' case does not apply any E10 effects to NOx or HC emissions
for later model year vehicles, or E85 effects for any pollutant, while
the ``more sensitive'' case assumes that later model year vehicles have
lower fuel sensitivity than earlier model vehicles. EPA and other
parties are in the midst of gathering additional data to help clarify
emissions impacts of ethanol on light-duty vehicles, and should be able
to reflect the new data for the final rule.
    Analysis of criteria and toxic emission impacts was performed for
calendar year 2022, since this year reflects the full implementation of
today's proposal. Our 2022 projections account for projected growth in
vehicle travel and the effects of applicable emission and fuel economy
standards, including Tier 2 and Mobile Source Air Toxics (MSAT) rules
for cars and light trucks and recently finalized controls on spark-
ignited off-road engines. The impacts were analyzed relative to three
different reference case ethanol volumes, ranging from 3.64 to 13.2
billion gallons per year, in order to understand the impacts of today's
proposal in different contexts. To assess the total impact of the RFS
program, emissions were analyzed relative to the RFS1 rule base case of
3.64 billion gallons in 2004. To assess the impact of today's proposal
relative to the current mandated volumes, we analyzed impacts relative
to RFS1 mandate of 7.5 billion gallons of renewable fuel use by 2012,
which was estimated to include 6.7 billion gallons of ethanol.\329\ In
order to assess the impact of today's proposal relative to the level of
ethanol projected to already be in place by 2022, the AEO2007
projection of 13.2 billion gallons of

[[Page 25060]]

ethanol in 2022 was analyzed. For this analysis our modeling was based
on the differences between the AEO2007 reference case and the control
case; to generate impacts for the RFS1 base and mandated volumes we
simply scaled the modeled AEO2007-based impacts up according to the
larger increases in renewable fuel volumes relative to the other
reference cases. For the final rule we plan to directly model the RFS1
mandate reference case as well as the AEO2007 case.
---------------------------------------------------------------------------

    \329\ For this analysis these RFS1 base and mandated ethanol
levels were assumed constant to 2022.
---------------------------------------------------------------------------

    For the proposal we have only estimated the change in national
emission totals that would result from today's proposal. These totals
may not be a good indication of local or regional air quality and
health impacts. These results are aggregated across highly localized
sources, such as emissions from ethanol plants and evaporative
emissions from cars, and reflect offsets such as decreased emissions
from gasoline refineries. The location and composition of emissions
from these disparate sources may strongly influence the air quality and
health impacts of today's proposed action, and full-scale photochemical
air quality modeling is necessary to accurately assess this. These
localized impacts will be assessed in the final rule as discussed in
Section VII.D.
    Our projected emission impacts for the ``less sensitive'' and
``more sensitive'' cases are shown in Table VII.A-1 and VII.A-2 for
2022. Shown relative to each reference case are the expected emission
changes for the U.S. in that year, and the percent contribution of this
impact relative to the total U.S. inventory. Overall we project the
proposed program will result in significant increases in ethanol and
acetaldehyde emissions--increasing the total U.S. inventories of these
pollutants by 30-40% in 2022 relative to the RFS1 mandate case. We
project more modest increases in NOx, HC, PM,
SO2, formaldehyde, and acrolein relative to the RFS1 mandate
case. We project a decrease in ammonia (NH3) emissions due
to reductions in livestock agricultural activity, CO (due to impacts of
ethanol on exhaust emissions from vehicles and nonroad equipment), and
benzene (due to displacement of gasoline with ethanol in the fuel
pool). As shown, the direction of changes for 1,3-butadiene and
naphthalene depends on whether it is the ``less sensitive'' or ``more
sensitive'' case.

                          Table VII.A-1--RFS2 ``Less Sensitive'' Case Emission Impacts in 2022 Relative to Each Reference Case
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     RFS1 base                     RFS1 mandate                       AEO2007
                                                         -----------------------------------------------------------------------------------------------
                        Pollutant                                           Percent of                      Percent of                      Percent of
                                                           Annual short     total U.S.     Annual short     total U.S.     Annual short     total U.S.
                                                               tons          inventory         tons          inventory         tons          inventory
--------------------------------------------------------------------------------------------------------------------------------------------------------
NOx.....................................................         312,400             2.8         274,982             2.5         195,735             1.7
HC......................................................         112,401             1.0          72,362             0.6          -8,193           -0.07
PM10....................................................          50,305             1.4          37,147             1.0           9,276             0.3
PM2.5...................................................          14,321             0.4          11,452             0.3           5,376            0.16
CO......................................................      -2,344,646            -4.4      -1,669,872            -3.1        -240,943            -0.4
Benzene.................................................          -2,791            -1.7          -2,507            -1.5          -1,894            -1.1
Ethanol.................................................         210,680            36.5         169,929            29.4          83,761            14.5
1,3-Butadiene...........................................             344             2.9             255             2.1              65             0.5
Acetaldehyde............................................          12,516            33.7          10,369            27.9           5,822            15.7
Formaldehyde............................................           1,647             2.3           1,348             1.9             714             1.0
Naphthalene.............................................               5            0.03               3            0.02              -1           -0.01
Acrolein................................................             290             5.0             252             4.4             174             3.0
SO2.....................................................          28,770             0.3           4,461            0.05         -47,030            -0.5
NH3.....................................................         -27,161            -0.6         -27,161            -0.6         -27,161            -0.6
--------------------------------------------------------------------------------------------------------------------------------------------------------


                          Table VII.A-2--RFS2 ``More Sensitive'' Case Emission Impacts in 2022 Relative to Each Reference Case
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     RFS1 base                     RFS1 Mandate                       AEO2007
                                                         -----------------------------------------------------------------------------------------------
                        Pollutant                                           Percent of                      Percent of                      Percent of
                                                           Annual short     total U.S.     Annual short     total U.S.     Annual short     total U.S.
                                                               tons          inventory         tons          inventory         tons          inventory
--------------------------------------------------------------------------------------------------------------------------------------------------------
NOx.....................................................         402,795             3.6         341,028             3.0         210,217             1.9
HC......................................................         100,313             0.9          63,530             0.6         -15,948           -0.14
PM10....................................................          46,193             1.3          33,035             0.9           5,164            0.15
PM2.5...................................................          10,535             0.3           7,666             0.2           1,589            0.05
CO......................................................      -3,779,572            -7.0      -3,104,798            -5.8      -1,675,869            -3.1
Benzene.................................................          -5,962            -3.5          -5,494            -3.3          -4,489            -2.7
Ethanol.................................................         228,563            39.6         187,926            32.5         105,264            18.2
1,3-Butadiene...........................................            -212            -1.8            -282            -2.4            -430            -3.6
Acetaldehyde............................................          16,375            44.0          14,278            38.4           9,839            26.5
Formaldehyde............................................           3,373             4.7           3,124             4.3           2,596             3.6
Naphthalene.............................................            -175            -1.2            -178            -1.3            -187            -1.3
Acrolein................................................             253             4.4             218             3.8             143             2.5
SO2.....................................................          28,770             0.3           4,461            0.05         -47,030            -0.5
NH3.....................................................         -27,161            -0.6         -27,161            -0.6         -27,161            -0.6
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 25061]]

    The breakdown of these results by the fuel production/distribution
(``well-to-pump'' emissions) and vehicle and equipment (``pump-to-
wheel'') emissions is discussed in the following sections.

B. Fuel Production & Distribution Impacts of the Proposed Program

    Fuel production and distribution emission impacts of the proposed
program were estimated in conjunction with the development of life
cycle GHG emission impacts and the GHG emission inventories discussed
in Section VI. These emissions are calculated according to the
breakdowns of agriculture, feedstock transport, fuel production, and
fuel distribution; the basic calculation is a function of fuel volumes
in the analysis year and the emission factors associated with each
process or subprocess. Additionally, the emission impact of displaced
petroleum is estimated, using the same domestic/import shares discussed
in Section VI above.
    In general the basis for this life cycle evaluation was the
analysis conducted as part of the Renewable Fuel Standard (RFS1)
rulemaking, but enhanced significantly. While our approach for the RFS1
was to rely heavily on the ``Greenhouse Gases, Regulated Emissions, and
Energy Use in Transportation'' (GREET) model, developed by the
Department of Energy's Argonne National Laboratory (ANL), we are now
able to take advantage of additional information and models to
significantly strengthen and expand our analysis for this proposed
rule. In particular, the modeling of the agriculture sector was greatly
expanded beyond the RFS1 analysis, employing economic and agriculture
models to consider factors such as land-use impact, agricultural
burning, fertilizer, pesticide use, livestock, crop allocation, and
crop exports.
    Other updates and enhancements to the GREET model assumptions
include updated feedstock energy requirements and estimates of excess
electricity available for sale from new cellulosic ethanol plants,
based on modeling by the National Renewable Energy Laboratory (NREL).
EPA also updated the fuel and feedstock transport emission factors to
account for recent EPA emission standards and modeling, such as the
diesel truck standards published in 2001 and the locomotive and
commercial marine standards finalized in 2008. Emission factors for new
corn ethanol plants continue to use the values developed for the RFS1
rule, which were based on data submitted by states for dry mill plants.
There are no new standards planned at this time that would offer any
additional control of emissions from corn or cellulosic ethanol plants.
In addition, GREET does not include air toxics or ethanol. Thus
emission factors for ethanol and the following air toxics were added:
benzene, 1,3-butadiene, formaldehyde, acetaldehyde, acrolein and naphthalene.
    Results of these calculations relative to each of the reference
cases for 2022 are shown in Table VII.B-1 for the criteria pollutants,
ammonia, ethanol and individual air toxic pollutants. It should be
noted that the impacts relative to the two RFS1 reference cases (3.64
and 6.7 billion gallons) rely on applying ethanol volume proportions to
the modeling results of the AEO2007 reference case (13.2 billion
gallons). Due to the complex interactions involved in projections in
the agricultural modeling, we did not attempt to adjust the
agricultural inputs of the AEO reference case for the other two
reference cases. So the fertilizer and pesticide quantities, livestock
counts, and total agricultural acres were the same for all three
reference cases. The agricultural modeling that had been done for the
RFS1 rule itself was much simpler and inconsistent with the new
modeling, so it would be inappropriate to use those estimates. Thus, we
plan to conduct additional agricultural modeling specifically for the
RFS1 mandate case prior to finalizing this rule.
    The fuel production and distribution impacts of the proposed
program on VOC are mainly due to increases in emissions connected with
biofuel production, countered by decreases in emissions associated with
gasoline production and distribution as ethanol displaces some of the
gasoline. Increases in NOX, PM2.5, and
SOX are driven by combustion emissions from the substantial
increase in corn and cellulosic ethanol production. Ethanol plants
(corn and cellulosic) tend to have greater combustion emissions
relative to petroleum refineries on a per-BTU of fuel produced basis.
Increases in SOX emissions are primarily due to corn ethanol
production. Ammonia emissions are expected to decrease substantially
due to lower livestock counts, which more than offsets increased
ammonia from fertilizer use.
    Ethanol vapor and most air toxic emissions associated with fuel
production and distribution are projected to increase. Relative to the
U.S. total reference case emissions with RFS1 mandate ethanol volumes,
increases of 10-20% for acetaldehyde and ethanol vapor are especially
significant because they are driven directly by the increased ethanol
production and distribution. Formaldehyde and acrolein increases are
smaller, on the order of 1-5%. Benzene emissions are estimated to
decrease by 1% due to decreased gasoline production. There are also
very small increases in 1,3-butadiene and decreases in naphthalene
relative to the U.S. total emissions.

         Table VII.B-1--Fuel Production and Distribution Impacts in 2022 Relative to Each Reference Case
----------------------------------------------------------------------------------------------------------------
                                         RFS1 base                 RFS1 mandate                 AEO2007
                                --------------------------------------------------------------------------------
           Pollutant                           Percent of                 Percent of                 Percent of
                                    Annual     total U.S.      Annual     total U.S.      Annual     total U.S.
                                  short tons    inventory    short tons    inventory    short tons    inventory
----------------------------------------------------------------------------------------------------------------
NOX............................      241,041          2.1       222,732          2.0       183,951          1.6
HC.............................       77,295          0.7        46,702          0.4       -17,501         -0.2
PM10...........................       50,482          1.4        37,324          1.1         9,453          0.3
PM2.5..........................       14,419          0.4        11,550          0.3         5,473          0.16
CO.............................      186,559          0.3       179,855          0.3       165,656         -0.5
Benzene........................       -1,670         -1.0        -1,686         -1.0        -1,719         -1.0
Ethanol........................      115,187         19.9       100,134         17.3        68,379         11.8
1,3-Butadiene..................           16          0.13           16          0.14           17          0.14
Acetaldehyde...................        7,460         20.1         6,680         18.0         5,029         13.5
Formaldehyde...................          877          1.2           800          1.1           638          0.9
Naphthalene....................           -6         -0.04           -5         -0.04           -4         -0.03
Acrolein.......................          278          4.8           244          4.2           174          3.0

[[Page 25062]]

SO2............................       28,770          0.3         4,461          0.05      -47,030         -0.5
NH3............................      -27,161         -0.6       -27,161         -0.6       -27,161         -0.6
----------------------------------------------------------------------------------------------------------------

C. Vehicle and Equipment Emission Impacts of Fuel Program

    The effects of the fuel program on vehicle and equipment emissions
are a direct function of the effects of these fuels on exhaust and
evaporative emissions from vehicles and off-road equipment, and
evaporation of fuel from portable containers. To assess these impacts
we conducted separate analyses to quantify the emission impacts of
additional E10 due to today's proposal on gasoline vehicles, nonroad
spark-ignited engines and portable fuel containers; E85 on cars and
light trucks; biodiesel on diesel vehicles; and increased refueling
events due to lower energy density of biofuels.\330\
---------------------------------------------------------------------------

    \330\ The impact of renewable diesel was not estimated for the
proposal; we expect little overall impact on criteria and toxic
emissions due to the relatively small volume change, and because
emission effects relative to conventional diesel are presumed to be
negligible.
---------------------------------------------------------------------------

    For the proposal we have analyzed inventory impacts for two fuel
effects scenarios to attempt to bound the potential impacts on ethanol
on gasoline-fueled vehicle exhaust emissions:
    (1) ``Less Sensitive'': No exhaust VOC or NOX emission
impact on Tier 1 and later vehicles due to E10, and no impact due to
E85. This was termed the ``primary'' case in the RFS1 rule.
    (2) ``More Sensitive'': VOC and NOX emission impacts due
to E10 based on limited test data from newer technology vehicles that
were analyzed as part of the RFS1 rule. This data showed a 7% reduction
in exhaust VOC emissions and an 8% increase in per-vehicle
NOX emissions for Tier 1 and later vehicles using E10
relative to E0. The E10 effects are consistent with the ``sensitivity''
case from the RFS1 rule. For RFS2 this case also includes E85 effects
reflecting significant increases in acetaldehyde, formaldehyde and
ethanol emissions, and reductions in PM and CO.
    EPA and other parties are in the midst of gathering additional data
on the emission impacts of ethanol fuels on later model vehicles, which
we plan to consider in updating our final rule analysis.
    We have also estimated the E10 effects on permeation emissions from
light-duty vehicles based on testing previously completed by the
Coordinating Research Council (CRC). Nonroad spark ignition (SI)
emission impacts of E10 were based on EPA's NONROAD model and show
trends similar to light duty vehicles. Biodiesel effects for this
analysis were based on a new analysis of recent biodiesel testing,
detailed in the DRIA, showing a 2% increase in NOX with a
20% biodiesel blend, a 16% decrease in PM, and a 14% decrease in HC.
These results essentially confirm the results of an earlier EPA analysis.
    Summarized vehicle and equipment emission impacts in 2022 are shown
in Table VII.C-1 and VII.C-2 for the ``less sensitive'' and ``more
sensitive'' cases. Table VII.C-3 shows the biodiesel contribution to
these impacts, which are comparatively small. While the two fuel effect
scenarios only differ with respect to exhaust emissions from cars and
trucks, the totals shown below reflect the net impacts from all mobile
sources, including car and truck evaporative emissions, off road
emissions, and portable fuel containers, using the same emissions
impacts for these sources in both cases. Additional breakdowns by
mobile source category can be found in Chapter 3 of the DRIA.
    As shown in Tables VII.C-1 and VII.C-2, the vehicle and equipment
ethanol impacts vary widely between the two fuel effects cases. Under
the ``less sensitive'' case, CO and benzene are projected to decrease
in 2022 under today's proposal, while NOX, HC and the other
air toxics (except acrolein) are projected to increase due to the
impacts of E10. For the ``more sensitive'' case, NOX impacts
are higher and HC impacts lower due to the E10 effects on cars and
trucks, and the inclusion of E85 effects leads to larger reductions in
CO, benzene and 1,3-butadiene but more significant increases in
ethanol, acetaldehyde and formaldehyde. The impacts on acrolein
emissions in both cases, and on naphthalene in the ``more sensitive''
case depend on which reference case is considered, with small increases
relative to the RFS1 base and mandate cases and a decrease relative to
the AEO reference case.

             Table VII.C-1--2022 Vehicle and Equipment ``Less Sensitive'' Case Emission Impacts by Fuel Type Relative to Each Reference Case
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     RFS1 base                     RFS1 mandate                       AEO2007
                                                         -----------------------------------------------------------------------------------------------
                        Pollutant                                           Percent of                      Percent of                      Percent of
                                                           Annual short     total U.S.     Annual short     total U.S.     Annual short     total U.S.
                                                               tons          inventory         tons          inventory         tons          inventory
--------------------------------------------------------------------------------------------------------------------------------------------------------
NOX.....................................................          71,359             0.6          52,250             0.5          11,784            0.11
HC......................................................          35,106             0.3          25,659             0.2           9,308            0.08
PM10....................................................            -177            0.00            -177            0.00            -177            0.00
PM2.5...................................................             -98            0.00             -98            0.00             -98            0.00
CO......................................................      -2,531,205            -4.7      -1,849,728            -3.4        -406,599            -0.8
Benzene.................................................          -1,122            -0.7            -821            -0.5            -174            -0.1
Ethanol.................................................          95,493            16.5          69,795            12.1          15,383             2.7
1,3-Butadiene...........................................             328             2.7             238             2.0              48             0.4
Acetaldehyde............................................           5,057            13.6           3,689             9.9             793             2.1

[[Page 25063]]

Formaldehyde............................................             771             1.1             548             0.8              76            0.11
Naphthalene.............................................              10            0.07               8            0.05               3            0.02
Acrolein................................................              12             0.2               8            0.14            -0.4           -0.01
SO2.....................................................               0             0.0               0             0.0               0             0.0
NH3.....................................................               0             0.0               0             0.0               0             0.0
--------------------------------------------------------------------------------------------------------------------------------------------------------


             Table VII.C-2--2022 Vehicle and Equipment ``More Sensitive'' Case Emission Impacts by Fuel Type Relative to Each Reference Case
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     RFS1 base                     RFS1 mandate                       AEO2007
                                                         -----------------------------------------------------------------------------------------------
                        Pollutant                                           Percent of                      Percent of                      Percent of
                                                           Annual short     total U.S.     Annual short     total U.S.     Annual short     total U.S.
                                                               tons          inventory         tons          inventory         tons          inventory
--------------------------------------------------------------------------------------------------------------------------------------------------------
NOX.....................................................         161,754             1.4         118,295             1.1          26,266             0.2
HC......................................................          23,018             0.2          16,828            0.15           1,553            0.01
PM10....................................................          -4,289           -0.12          -4,289           -0.12          -4,289           -0.12
PM2.5...................................................          -3,884           -0.12          -3,884           -0.12          -3,884           -0.12
CO......................................................      -3,966,131            -7.4      -3,284,654            -6.1      -1,841,524            -3.4
Benzene.................................................          -4,293            -2.6          -3,808            -2.3          -2,770            -1.6
Ethanol.................................................         113,376            19.6          87,792            15.2          36,886             6.4
1,3-Butadiene...........................................            -228            -1.9            -298            -2.5            -446            -3.7
Acetaldehyde............................................           8,915            24.0           7,598            20.4           4,809            12.9
Formaldehyde............................................           2,497             3.5           2,324             3.2           1,958             2.7
Naphthalene.............................................            -170            -1.2            -172            -1.2            -182            -1.3
Acrolein................................................             -25            -0.4             -27            -0.5             -31            -0.5
SO2.....................................................               0             0.0               0             0.0               0             0.0
NH3.....................................................               0             0.0               0             0.0               0             0.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

  Table VII.C-3--2022 Vehicle and Equipment Biodiesel Emission Impacts
                     Relative to All Reference Cases
       [these impacts are included in Tables VII.C-1 and VII.C-2]
------------------------------------------------------------------------
                                                              Biodiesel
                                                               impacts
                         Pollutant                          ------------
                                                                Annual
                                                              short tons
------------------------------------------------------------------------
NOX........................................................          418
HC.........................................................         -753
PM10.......................................................         -177
PM2.5......................................................          -98
CO.........................................................       -1,275
Benzene....................................................         -9.4
Ethanol....................................................          0.0
1,3-Butadiene..............................................         -5.1
Acetaldehyde...............................................          -21
Formaldehyde...............................................          -57
Naphthalene................................................        -0.12
Acrolein...................................................         -2.7
SO2........................................................          0.0
NH3........................................................          0.0
------------------------------------------------------------------------

D. Air Quality Impacts

    Although the purpose of this proposal is to implement the renewable
fuel requirements established by the Energy Independence and Security
Act (EISA) of 2007, this proposed rule would also impact emissions of
criteria and air toxic pollutants. We first present current levels of
PM2.5, ozone and air toxics and then discuss the national-
scale air quality modeling analysis that will be performed for the final rule.
1. Current Levels of PM2.5, Ozone and Air Toxics
    This proposal may have impacts on levels of PM2.5, ozone
and air toxics.\331\ Nationally, levels of PM2.5, ozone and
air toxics are declining.332 333 However, as of December 16,
2008, approximately 88 million people live in the 39 areas that are
designated as nonattainment for the 1997 PM2.5 National
Ambient Air Quality Standard (NAAQS) and approximately 132 million
people live in the 57 areas that are designated as nonattainment for
the 1997 8-hour ozone NAAQS. The 1997 PM2.5 NAAQS was
recently revised and the 2006 24-hour PM2.5 NAAQS became
effective on December 18, 2006. Area designations for the 2006 24-hour
PM2.5 NAAQS are expected to be promulgated in 2009 and
become effective 90 days after publication in the Federal Register. In
addition, the majority of Americans continue to be exposed to ambient
concentrations of air toxics at levels which have the potential to
cause adverse health effects.\334\ The levels of air toxics to which
people are exposed vary depending on where people live and work and the
kinds of activities in which they engage, as discussed in

[[Page 25064]]

detail in U.S. EPA's recent Mobile Source Air Toxics Rule.\335\
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    \331\ The proposed standards may also impact levels of ambient
CO, a criteria pollutant (see Table VII.A-1 above for co-pollutant
emission impacts). For this analysis, however, we focus on the
proposal's impacts on ambient PM2.5 and ozone formation,
since CO is a relatively minor problem in comparison to some of the
other criteria pollutants. For example, as of August 15, 2008 there
are approximately 675,000 people living in 3 areas (which include 4
counties) that are designated as nonattainment for CO.
    \332\ \\ U.S. EPA (2003) National Air Quality and Trends Report,
2003 Special Studies Edition. Office of Air Quality Planning and
Standards, Research Triangle Park, NC. Publication No. EPA 454/R-03-
005. http://www.epa.gov/air/airtrends/aqtrnd03/.
    \333\ \\ U.S. EPA (2007) Final Regulatory Impact Analysis:
Control of Hazardous Air Pollutants from Mobile Sources, Office of
Transportation and Air Quality, Ann Arbor, MI, Publication No.
EPA420-R-07-002. http://www.epa.gov/otaq/toxics.htm
    \334\ U.S. Environmental Protection Agency (2007). Control of
Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR
8434, February 26, 2007.
    \335\ U.S. Environmental Protection Agency (2007). Control of
Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR
8434, February 26, 2007.
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    EPA has already adopted many emission control programs that are
expected to reduce ambient PM2.5, ozone and air toxics
levels. These control programs include the Small SI and Marine SI
Engine Rule (73 FR 59034, October 8, 2008), Locomotive and Commercial
Marine Rule (73 FR 25098, May 6, 2008), Mobile Source Air Toxics Rule
(72 FR 8428, February 26, 2007), Clean Air Interstate Rule (70 FR
25162, May 12, 2005), Clean Air Nonroad Diesel Rule (69 FR 38957, June
29, 2004), Heavy Duty Engine and Vehicle Standards and Highway Diesel
Fuel Sulfur Control Requirements (66 FR 5002, Jan. 18, 2001) and the
Tier 2 Motor Vehicle Emissions Standards and Gasoline Sulfur Control
Requirements (65 FR 6698, Feb. 10, 2000). As a result of these
programs, the ambient concentration of air toxics, PM2.5 and
ozone in the future is expected to decrease.
2. Impacts of Proposed Standards on Future Ambient Concentrations of
PM2.5, Ozone and Air Toxics
    The atmospheric chemistry related to ambient concentrations of
PM2.5, ozone and air toxics is very complex, making
predictions based solely on emissions changes extremely difficult. For
the final rule, a national-scale air quality modeling analysis will be
performed to analyze the impacts of the proposed standards on ambient
concentrations of PM2.5, ozone, and selected air toxics
(i.e., benzene, formaldehyde, acetaldehyde, ethanol, acrolein and 1,3-
butadiene). The length of time needed to prepare necessary inventory
and model updates has precluded us from performing air quality modeling
for this proposal.
    The air quality modeling we plan to perform (described more
specifically below), will allow us to account for changes in the
spatial distribution of PM and PM precursors, and changes in VOC
speciation which could impact secondary PM formation. For example,
reductions in aromatics in gasoline may reduce ambient PM
concentrations by reducing secondary PM formation. Section 3.3 of the
Draft Regulatory Impact Analysis (DRIA) for this proposal contains more
information on aromatics and secondary aerosol formation.
    In addition, air quality modeling will account for changes in fuel
type and spatial distribution of fuels that would change emissions of
ozone precursor species and thus could affect ozone concentrations.
Section 3.3 of the DRIA for this proposed rule provides more detail on
the atmospheric chemistry and potential changes in ozone formation due
to increased usage of ethanol fuels.
    Section VII.A above presents projections of the changes in air
toxics emissions due to the proposed standards. The substantial
increase in emissions of ethanol and acetaldehyde suggests a likely
increase in ambient levels of acetaldehyde from both direct emissions
and secondary formation as ethanol breaks down in the atmosphere.
Formaldehyde and acrolein emissions would also increase somewhat, while
emissions of benzene and 1,3-butadiene would decrease as a result of
the proposed standards. Full-scale photochemical modeling is necessary
to provide the needed spatial and temporal detail to more completely
and accurately estimate the changes in ambient levels of these pollutants.
    For the final rule, EPA intends to use a 2005-based Community
Multi-scale Air Quality (CMAQ) modeling platform as the tool for the
air quality modeling. The CMAQ modeling system is a comprehensive
three-dimensional grid-based Eulerian air quality model designed to
estimate the formation and fate of oxidant precursors, primary and
secondary PM concentrations and deposition, and air toxics, over
regional and urban spatial scales (e.g., over the contiguous
U.S.).336 337 338 The CMAQ model is a well-known and well-
established tool and is commonly used by EPA for regulatory analyses,
for instance the recent ozone NAAQS proposal, and by States in
developing attainment demonstrations for their State Implementation
Plans.\339\ The CMAQ model (version 4.6) was peer-reviewed in February
of 2007 for EPA as reported in ``Third Peer Review of CMAQ Model,'' and
the peer review report for version 4.7 (described below) is currently
being finalized.\340\
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    \336\ U.S. Environmental Protection Agency, Byun, D.W., and
Ching, J.K.S., Eds, 1999. Science algorithms of EPA Models-3
Community Multiscale Air Quality (CMAQ modeling system, EPA/600/R-
99/030, Office of Research and Development).
    \337\ Byun, D.W., and Schere, K.L., 2006. Review of the
Governing Equations, Computational Algorithms, and Other Components
of the Models-3 Community Multiscale Air Quality (CMAQ) Modeling
System, J. Applied Mechanics Reviews, 59 (2), 51-77.
    \338\ Dennis, R.L., Byun, D.W., Novak, J.H., Galluppi, K.J.,
Coats, C.J., and Vouk, M.A., 1996. The next generation of integrated
air quality modeling: EPA's Models-3, Atmospheric Environment, 30, 1925-1938.
    \339\ U.S. EPA (2007). Regulatory Impact Analysis of the
Proposed Revisions to the National Ambient Air Quality Standards for
Ground-Level Ozone. EPA document number 442/R-07-008, July 2007.
    \340\ Aiyyer, A., Cohan, D., Russell, A., Stockwell, W.,
Tanrikulu, S., Vizuete, W., Wilczak, J., 2007. Final Report: Third
Peer Review of the CMAQ Model. p. 23.
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    CMAQ includes many science modules that simulate the emission,
production, decay, deposition and transport of organic and inorganic
gas-phase and particle-phase pollutants in the atmosphere. We intend to
use the most recent CMAQ version (version 4.7) which was officially
released by EPA's Office of Research and Development (ORD) in December
2008, and reflects updates to earlier versions in a number of areas to
improve the underlying science. These include (1) enhanced secondary
organic aerosol (SOA) mechanism to include chemistry of isoprene,
sesquiterpene, and aged in-cloud biogenic SOA in addition to terpene;
(2) improved vertical convective mixing; (3) improved heterogeneous
reaction involving nitrate formation; and (4) an updated gas-phase
chemistry mechanism, Carbon Bond 05 (CB05), with extensions to model
explicit concentrations of air toxic species as well as chlorine and
mercury. This mechanism, CB05-toxics, also computes concentrations of
species that are involved in aqueous chemistry and that are precursors
to aerosols. Section 3.3.3 of the DRIA for this proposal discusses SOA
formation and details about the improvements made to the SOA mechanism
within this recent release of CMAQ.

E. Health Effects of Criteria and Air Toxic Pollutants

1. Particulate Matter
a. Background
    Particulate matter (PM) represents a broad class of chemically and
physically diverse substances. It can be principally characterized as
discrete particles that exist in the condensed (liquid or solid) phase
spanning several orders of magnitude in size. PM is further described
by breaking it down into size fractions. PM10 refers to
particles generally less than or equal to 10 micrometers (μm) in
aerodynamic diameter. PM2.5 refers to fine particles,
generally less than or equal to 2.5 μm in aerodynamic diameter.
Inhalable (or ``thoracic'') coarse particles refer to those particles
generally greater than 2.5 μm but less than or equal to 10 μm in
aerodynamic diameter. Ultrafine PM refers to particles less than 100
nanometers (0.1 μm) in aerodynamic diameter. Larger particles tend
to be removed by the respiratory clearance mechanisms (e.g., coughing), whereas

[[Page 25065]]

smaller particles are deposited deeper in the lungs.
    Fine particles are produced primarily by combustion processes and
by transformations of gaseous emissions (e.g., SOX,
NOX and VOC) in the atmosphere. The chemical and physical
properties of PM2.5 may vary greatly with time, region,
meteorology and source category. Thus, PM2.5 may include a
complex mixture of different pollutants including sulfates, nitrates,
organic compounds, elemental carbon and metal compounds. These
particles can remain in the atmosphere for days to weeks and travel
hundreds to thousands of kilometers.
b. Health Effects of PM
    Scientific studies show ambient PM is associated with a series of
adverse health effects. These health effects are discussed in detail in
the 2004 EPA Particulate Matter Air Quality Criteria Document (PM
AQCD), and the 2005 PM Staff Paper.341 342 Further
discussion of health effects associated with PM can also be found in
the DRIA for this rule.
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    \341\ U.S. EPA (2004) Air Quality Criteria for Particulate
Matter (Oct. 2004), Volume I Document No. EPA600/P-99/002aF and
Volume II Document No. EPA600/P-99/002bF. This document is available
in Docket EPA-HQ-OAR-2005-0161.
    \342\ U.S. EPA (2005) Review of the National Ambient Air Quality
Standard for Particulate Matter: Policy Assessment of Scientific and
Technical Information, OAQPS Staff Paper. EPA-452/R-05-005. This
document is available in Docket EPA-HQ-OAR-2005-0161.
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    Health effects associated with short-term exposures (hours to days)
to ambient PM include premature mortality, increased hospital
admissions, heart and lung diseases, increased cough, adverse lower-
respiratory symptoms, decrements in lung function and changes in heart
rate rhythm and other cardiac effects. Studies examining populations
exposed to different levels of air pollution over a number of years,
including the Harvard Six Cities Study and the American Cancer Society
Study, show associations between long-term exposure to ambient
PM2.5 and both total and cardiovascular and respiratory
mortality.\343\ In addition, a reanalysis of the American Cancer
Society Study shows an association between fine particle and sulfate
concentrations and lung cancer mortality.\344\
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    \343\ Dockery, D.W.; Pope, C.A. III: Xu, X.; et al. 1993. An
association between air pollution and mortality in six U.S. cities.
N Engl J Med 329:1753-1759.
    \344\ Pope, C.A., III; Burnett, R.T.; Thun, M.J.; Calle, E.E.;
Krewski, D.; Ito, K.; Thurston, G.D. (2002) Lung cancer,
cardiopulmonary mortality, and long-term exposure to fine
particulate air pollution. J. Am. Med. Assoc. 287:1132-1141.
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2. Ozone
a. Background
    Ground-level ozone pollution is typically formed by the reaction of
volatile organic compounds (VOC) and nitrogen oxides (NOX)
in the lower atmosphere in the presence of heat and sunlight. These
pollutants, often referred to as ozone precursors, are emitted by many
types of pollution sources, such as highway and nonroad motor vehicles
and engines, power plants, chemical plants, refineries, makers of
consumer and commercial products, industrial facilities, and smaller
area sources.
    The science of ozone formation, transport, and accumulation is
complex.\345\ Ground-level ozone is produced and destroyed in a
cyclical set of chemical reactions, many of which are sensitive to
temperature and sunlight. When ambient temperatures and sunlight levels
remain high for several days and the air is relatively stagnant, ozone
and its precursors can build up and result in more ozone than typically
occurs on a single high-temperature day. Ozone can be transported
hundreds of miles downwind from precursor emissions, resulting in
elevated ozone levels even in areas with low local VOC or
NOX emissions.
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    \345\ U.S. EPA Air Quality Criteria for Ozone and Related
Photochemical Oxidants (Final). U.S. Environmental Protection
Agency, Washington, D.C., EPA 600/R-05/004aF-cF, 2006. This document
is available in Docket EPA-HQ-OAR-2005-0161. This document may be
accessed electronically at: http://www.epa.gov/ttn/naaqs/standards/
ozone/s_o3_cr_cd.html.
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b. Health Effects of Ozone
    The health and welfare effects of ozone are well documented and are
assessed in EPA's 2006 Ozone Air Quality Criteria Document (ozone AQCD)
and 2007 Staff Paper.346 347 Ozone can irritate the
respiratory system, causing coughing, throat irritation, and/or
uncomfortable sensation in the chest. Ozone can reduce lung function
and make it more difficult to breathe deeply; breathing may also become
more rapid and shallow than normal, thereby limiting a person's
activity. Ozone can also aggravate asthma, leading to more asthma
attacks that require medical attention and/or the use of additional
medication. In addition, there is suggestive evidence of a contribution
of ozone to cardiovascular-related morbidity and highly suggestive
evidence that short-term ozone exposure directly or indirectly
contributes to non-accidental and cardiopulmonary-related mortality,
but additional research is needed to clarify the underlying mechanisms
causing these effects. In a recent report on the estimation of ozone-
related premature mortality published by the National Research Council
(NRC), a panel of experts and reviewers concluded that short-term
exposure to ambient ozone is likely to contribute to premature deaths
and that ozone-related mortality should be included in estimates of the
health benefits of reducing ozone exposure.\348\ Animal toxicological
evidence indicates that with repeated exposure, ozone can inflame and
damage the lining of the lungs, which may lead to permanent changes in
lung tissue and irreversible reductions in lung function. People who
are more susceptible to effects associated with exposure to ozone can
include children, the elderly, and individuals with respiratory disease
such as asthma. Those with greater exposures to ozone, for instance due
to time spent outdoors (e.g., children and outdoor workers), are also
of particular concern.
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    \346\ U.S. EPA Air Quality Criteria for Ozone and Related
Photochemical Oxidants (Final). U.S. Environmental Protection
Agency, Washington, DC, EPA 600/R-05/004aF-cF, 2006. This document
is available in Docket EPA-HQ-OAR-2005-0161. This document may be
accessed electronically at: http://www.epa.gov/ttn/naaqs/standards/
ozone/s_o3_cr_cd.html.
    \347\ U.S. EPA (2007) Review of the National Ambient Air Quality
Standards for Ozone, Policy Assessment of Scientific and Technical
Information. OAQPS Staff Paper.EPA-452/R-07-003. This document is
available in Docket EPA-HQ-OAR-2005-0161. This document is available
electronically at: www.epa.gov/ttn/naaqs/standards/ozone/s_
o3_cr_sp.html.
    \348\ National Research Council (NRC), 2008. Estimating
Mortality Risk Reduction and Economic Benefits from Controlling
Ozone Air Pollution. The National Academies Press: Washington, DC.
---------------------------------------------------------------------------

    The 2006 ozone AQCD also examined relevant new scientific
information that has emerged in the past decade, including the impact
of ozone exposure on such health effects as changes in lung structure
and biochemistry, inflammation of the lungs, exacerbation and causation
of asthma, respiratory illness-related school absence, hospital
admissions and premature mortality. Animal toxicological studies have
suggested potential interactions between ozone and PM, with increased
responses observed to mixtures of the two pollutants compared to either
ozone or PM alone. The respiratory morbidity observed in animal studies
along with the evidence from epidemiologic studies supports a causal
relationship between acute ambient ozone exposures and increased
respiratory-related emergency room visits and hospitalizations in the
warm season. In addition, there is

[[Page 25066]]

suggestive evidence of a contribution of ozone to cardiovascular-
related morbidity and non-accidental and cardiopulmonary mortality.
3. Carbon Monoxide
    Carbon monoxide (CO) forms as a result of incomplete fuel
combustion. CO enters the bloodstream through the lungs, forming
carboxyhemoglobin and reducing the delivery of oxygen to the body's
organs and tissues. The health threat from CO is most serious for those
who suffer from cardiovascular disease, particularly those with angina
or peripheral vascular disease. Healthy individuals also are affected,
but only at higher CO levels. Exposure to elevated CO levels is
associated with impairment of visual perception, work capacity, manual
dexterity, learning ability and performance of complex tasks. Carbon
monoxide also contributes to ozone nonattainment since carbon monoxide
reacts photochemically in the atmosphere to form ozone.\349\ Additional
information on CO related health effects can be found in the Carbon
Monoxide Air Quality Criteria Document (CO AQCD).\350\
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    \349\ U.S. EPA (2000). Air Quality Criteria for Carbon Monoxide,
EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR-2005-0161.
    \350\ U.S. EPA (2000). Air Quality Criteria for Carbon Monoxide,
EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR-2005-0161.
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4. Air Toxics
    The population experiences an elevated risk of cancer and noncancer
health effects from exposure to the class of pollutants known
collectively as ``air toxics.''\351\ Fuel combustion contributes to
ambient levels of air toxics that can include, but are not limited to,
acetaldehyde, acrolein, benzene, 1,3-butadiene, formaldehyde, ethanol,
naphthalene and peroxyacetyl nitrate (PAN). Acrolein, benzene, 1,3-
butadiene, formaldehyde and naphthalene have significant contributions
from mobile sources and were identified as national or regional risk
drivers in the 1999 National-scale Air Toxics Assessment (NATA).\352\
PAN, which is formed from precursor compounds by atmospheric processes,
is not assessed in NATA. Emissions and ambient concentrations of
compounds are discussed in the DRIA chapter on emission inventories and
air quality (Chapter 3).
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    \351\ U. S. EPA. 1999 National-Scale Air Toxics Assessment.
http://www.epa.gov/ttn/atw/nata1999/risksum.html
    \352\ U.S. EPA. 2006. National-Scale Air Toxics Assessment for
1999. http://www.epa.gov/ttn/atw/nata1999
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a. Acetaldehyde
    Acetaldehyde is classified in EPA's IRIS database as a probable
human carcinogen, based on nasal tumors in rats, and is considered
toxic by the inhalation, oral, and intravenous routes.\353\
Acetaldehyde is reasonably anticipated to be a human carcinogen by the
U.S. DHHS in the 11th Report on Carcinogens and is classified as
possibly carcinogenic to humans (Group 2B) by the
IARC.354 355 EPA is currently conducting a reassessment of
cancer risk from inhalation exposure to acetaldehyde.
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    \353\ U.S. EPA. 1991. Integrated Risk Information System File of
Acetaldehyde. Research and Development, National Center for
Environmental Assessment, Washington, DC. This material is available
electronically at.
    \354\ U.S. Department of Health and Human Services National
Toxicology Program 11th Report on Carcinogens available at:
ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932.
    \355\ International Agency for Research on Cancer (IARC). 1999.
Re-evaluation of some organic chemicals, hydrazine, and hydrogen
peroxide. IARC Monographs on the Evaluation of Carcinogenic Risk of
Chemical to Humans, Vol 71. Lyon, France.
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    The primary noncancer effects of exposure to acetaldehyde vapors
include irritation of the eyes, skin, and respiratory tract.\356\ In
short-term (4 week) rat studies, degeneration of olfactory epithelium
was observed at various concentration levels of acetaldehyde
exposure.357 358 Data from these studies were used by EPA to
develop an inhalation reference concentration. Some asthmatics have
been shown to be a sensitive subpopulation to decrements in functional
expiratory volume (FEV1 test) and bronchoconstriction upon acetaldehyde
inhalation.\359\ The agency is currently conducting a reassessment of
the health hazards from inhalation exposure to acetaldehyde.
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    \356\ U.S. EPA. 1991. Integrated Risk Information System File of
Acetaldehyde. This material is available electronically at 
http://www.epa.gov/iris/subst/0290.htm.
    \357\ Appleman, L. M., R. A. Woutersen, V. J. Feron, R. N.
Hooftman, and W. R. F. Notten. 1986. Effects of the variable versus
fixed exposure levels on the toxicity of acetaldehyde in rats. J.
Appl. Toxicol. 6: 331-336.
    \358\ Appleman, L.M., R.A. Woutersen, and V.J. Feron. 1982.
Inhalation toxicity of acetaldehyde in rats. I. Acute and subacute
studies. Toxicology. 23: 293-297.
    \359\ Myou, S.; Fujimura, M.; Nishi, K.; Ohka, T.; and Matsuda,
T. 1993. Aerosolized acetaldehyde induces histamine-mediated
bronchoconstriction in asthmatics. Am. Rev. Respir. Dis. 148 (4 Pt 1): 940-3.
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b. Acrolein
    EPA determined in 2003 that the human carcinogenic potential of
acrolein could not be determined because the available data were
inadequate. No information was available on the carcinogenic effects of
acrolein in humans and the animal data provided inadequate evidence of
carcinogenicity.\360\ The IARC determined in 1995 that acrolein was not
classifiable as to its carcinogenicity in humans.\361\
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    \360\ U.S. EPA. 2003. Integrated Risk Information System File of
Acrolein. Research and Development, National Center for
Environmental Assessment, Washington, DC. This material is available
at http://www.epa.gov/iris/subst/0364.htm.
    \361\ International Agency for Research on Cancer (IARC). 1995.
Monographs on the evaluation of carcinogenic risk of chemicals to
humans, Volume 63, Dry cleaning, some chlorinated solvents and other
industrial chemicals, World Health Organization, Lyon, France.
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    Acrolein is extremely acrid and irritating to humans when inhaled,
with acute exposure resulting in upper respiratory tract irritation,
mucus hypersecretion and congestion. Levels considerably lower than 1
ppm (2.3 mg/m\3\) elicit subjective complaints of eye and nasal
irritation and a decrease in the respiratory rate.362 363
Lesions to the lungs and upper respiratory tract of rats, rabbits, and
hamsters have been observed after subchronic exposure to acrolein.
Based on animal data, individuals with compromised respiratory function
(e.g., emphysema, asthma) are expected to be at increased risk of
developing adverse responses to strong respiratory irritants such as
acrolein. This was demonstrated in mice with allergic airway disease by
comparison to non-diseased mice in a study of the acute respiratory
irritant effects of acrolein.\364\
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    \362\ Weber-Tschopp, A.; Fischer, T.; Gierer, R.; et al. (1977)
Experimentelle reizwirkungen von Acrolein auf den Menschen. Int Arch
Occup Environ Hlth 40(2):117-130. In German.
    \363\ Sim, V.M.; Pattle, R.E. (1957) Effect of possible smog
irritants on human subjects. J Am Med Assoc 165(15):1908-1913.
    \364\ Morris J.B., Symanowicz P.T., Olsen J.E., et al. 2003.
Immediate sensory nerve-mediated respiratory responses to irritants
in healthy and allergic airway-diseased mice. J Appl Physiol 94(4):1563-1571.
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    The intense irritancy of this carbonyl has been demonstrated during
controlled tests in human subjects, who suffer intolerable eye and
nasal mucosal sensory reactions within minutes of exposure.\365\
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    \365\ Sim V.M., Pattle R.E. Effect of possible smog irritants on
human subjects. JAMA 165:1980-2010, 1957.
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c. Benzene
    The EPA's IRIS database lists benzene as a known human carcinogen
(causing leukemia) by all routes of exposure, and concludes that
exposure is associated with additional health effects, including

[[Page 25067]]

genetic changes in both humans and animals and increased proliferation
of bone marrow cells in mice.366 367 368 EPA states in its
IRIS database that data indicate a causal relationship between benzene
exposure and acute lymphocytic leukemia and suggest a relationship
between benzene exposure and chronic non-lymphocytic leukemia and
chronic lymphocytic leukemia. The International Agency for Research on
Carcinogens (IARC) has determined that benzene is a human carcinogen
and the U.S. Department of Health and Human Services (DHHS) has
characterized benzene as a known human carcinogen.369 370
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    \366\ U.S. EPA. 2000. Integrated Risk Information System File
for Benzene. This material is available electronically at 
http://www.epa.gov/iris/subst/0276.htm.
    \367\ International Agency for Research on Cancer (IARC). 1982.
Monographs on the evaluation of carcinogenic risk of chemicals to
humans, Volume 29, Some industrial chemicals and dyestuffs, World
Health Organization, Lyon, France, p. 345-389.
    \368\ Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry,
V.A. 1992. Synergistic action of the benzene metabolite hydroquinone
on myelopoietic stimulating activity of granulocyte/macrophage
colony-stimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691-3695.
    \369\ International Agency for Research on Cancer (IARC). 1987.
Monographs on the evaluation of carcinogenic risk of chemicals to
humans, Volume 29, Supplement 7, Some industrial chemicals and
dyestuffs, World Health Organization, Lyon, France.
    \370\ U.S. Department of Health and Human Services National
Toxicology Program, 11th Report on Carcinogens, available at: 
http://ntp.niehs.nih.gov/go/16183.
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    A number of adverse noncancer health effects including blood
disorders, such as preleukemia and aplastic anemia, have also been
associated with long-term exposure to benzene.371 372 The
most sensitive noncancer effect observed in humans, based on current
data, is the depression of the absolute lymphocyte count in
blood.373 374 In addition, recent work, including studies
sponsored by the Health Effects Institute (HEI), provides evidence that
biochemical responses are occurring at lower levels of benzene exposure
than previously known.375 376 377 378 EPA's IRIS program has
not yet evaluated these new data.
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    \371\ Aksoy, M. (1989). Hematotoxicity and carcinogenicity of
benzene. Environ. Health Perspect. 82:193-197.
    \372\ Goldstein, B.D. (1988). Benzene toxicity. Occupational
medicine. State of the Art Reviews. 3:541-554.
    \373\ Rothman, N., G.L. Li, M. Dosemeci, W.E. Bechtold, G.E.
Marti, Y.Z. Wang, M. Linet, L.Q. Xi, W. Lu, M.T. Smith, N. Titenko-
Holland, L.P. Zhang, W. Blot, S.N. Yin, and R.B. Hayes (1996)
Hematotoxicity among Chinese workers heavily exposed to benzene. Am.
J. Ind. Med. 29:236-246.
    \374\ U.S. EPA (2002) Toxicological Review of Benzene (Noncancer
Effects). Environmental Protection Agency, Integrated Risk
Information System (IRIS), Research and Development, National Center
for Environmental Assessment, Washington DC. This material is
available electronically at http://www.epa.gov/iris/subst/0276.htm.
    \375\ Qu, O.; Shore, R.; Li, G.; Jin, X.; Chen, C.L.; Cohen, B.;
Melikian, A.; Eastmond, D.; Rappaport, S.; Li, H.; Rupa, D.;
Suramaya, R.; Songnian, W.; Huifant, Y.; Meng, M.; Winnik, M.; Kwok,
E.; Li, Y.; Mu, R.; Xu, B.; Zhang, X.; Li, K. (2003) HEI Report 115,
Validation & Evaluation of Biomarkers in Workers Exposed to Benzene in China.
    \376\ Qu, Q., R. Shore, G. Li, X. Jin, L.C. Chen, B. Cohen, et
al. (2002) Hematological changes among Chinese workers with a broad
range of benzene exposures. Am. J. Industr. Med. 42:275-285.
    \377\ Lan, Qing, Zhang, L., Li, G., Vermeulen, R., et al. (2004)
Hematotoxicity in Workers Exposed to Low Levels of Benzene. Science
306:1774-1776.
    \378\ Turtletaub, K.W. and Mani, C. (2003) Benzene metabolism in
rodents at doses relevant to human exposure from Urban Air. Research
Reports Health Effect Inst. Report No. 113.
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d. 1,3-Butadiene
    EPA has characterized 1,3-butadiene as carcinogenic to humans by
inhalation.379 380 The IARC has determined that 1,3-
butadiene is a human carcinogen and the U.S. DHHS has characterized
1,3-butadiene as a known human carcinogen.381 382 There are
numerous studies consistently demonstrating that 1,3-butadiene is
metabolized into genotoxic metabolites by experimental animals and
humans. The specific mechanisms of 1,3-butadiene-induced carcinogenesis
are unknown; however, the scientific evidence strongly suggests that
the carcinogenic effects are mediated by genotoxic metabolites. Animal
data suggest that females may be more sensitive than males for cancer
effects associated with 1,3-butadiene exposure; there are insufficient
data in humans from which to draw conclusions about sensitive
subpopulations. 1,3-butadiene also causes a variety of reproductive and
developmental effects in mice; no human data on these effects are
available. The most sensitive effect was ovarian atrophy observed in a
lifetime bioassay of female mice.\383\
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    \379\ U.S. EPA (2002) Health Assessment of 1,3-Butadiene. Office
of Research and Development, National Center for Environmental
Assessment, Washington Office, Washington, DC. Report No. EPA600-P-
98-001F. This document is available electronically at 
http://www.epa.gov/iris/supdocs/buta-sup.pdf.
    \380\ U.S. EPA (2002) Full IRIS Summary for 1,3-butadiene (CASRN
106-99-0). Environmental Protection Agency, Integrated Risk
Information System (IRIS), Research and Development, National Center
for Environmental Assessment, Washington, DC, http://www.epa.gov/
iris/subst/0139.htm.
    \381\ International Agency for Research on Cancer (IARC) (1999)
Monographs on the evaluation of carcinogenic risk of chemicals to
humans, Volume 71, Re-evaluation of some organic chemicals,
hydrazine and hydrogen peroxide and Volume 97 (in preparation),
World Health Organization, Lyon, France.
    \382\ U.S. Department of Health and Human Services (2005)
National Toxicology Program, 11th Report on Carcinogens, available
at: http://ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-
7FCE50709CB4C932.
    \383\ Bevan, C.; Stadler, J.C.; Elliot, G.S.; et al. (1996)
Subchronic toxicity of 4-vinylcyclohexene in rats and mice by
inhalation. Fundam. Appl. Toxicol. 32:1-10.
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e. Ethanol
    EPA is conducting an assessment of the cancer and noncancer effects
of exposure to ethanol, a compound which is not currently listed in
EPA's IRIS. A description of these effects to the extent that
information is available will be presented, as required by Section 1505
of EPAct, in a report to Congress on public health, air quality and
water resource impacts of fuel additives. We expect to release that
report in 2009.
    Extensive data are available regarding adverse health effects
associated with the ingestion of ethanol while data on inhalation
exposure effects are sparse. As part of the IRIS assessment,
pharmacokinetic models are being evaluated as a means of extrapolating
across species (animal to human) and across exposure routes (oral to
inhalation) to better characterize the health hazards and dose-response
relationships for low levels of ethanol exposure in the environment.
    The IARC has classified ``alcoholic beverages'' as carcinogenic to
humans based on sufficient evidence that malignant tumors of the mouth,
pharynx, larynx, esophagus, and liver are causally related to the
consumption of alcoholic beverages.\384\ The U.S. DHHS in the 11th
Report on Carcinogens also identified ``alcoholic beverages'' as a
known human carcinogen (they have not evaluated the cancer risks
specifically from exposure to ethanol), with evidence for cancer of the
mouth, pharynx, larynx, esophagus, liver and breast.\385\ There are no
studies reporting carcinogenic effects from inhalation of ethanol. EPA
is currently evaluating the available human and animal cancer data to
identify which cancer type(s) are the most relevant to an assessment of
risk to humans from a low-level oral and inhalation exposure to ethanol.
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    \384\ International Agency for Research on Cancer (IARC). 1988.
Monographs on the evaluation of carcinogenic risk of chemicals to
humans, Volume 44, Alcohol Drinking, World Health Organization, Lyon, France.
    \385\ U.S. Department of Health and Human Services. 2005.
National Toxicology Program 11th Report on Carcinogens available at:
ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932.
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    Noncancer health effects data are available from animal studies as
well as epidemiologic studies. The epidemiologic data are obtained from
studies of alcoholic beverage

[[Page 25068]]

consumption. Effects include neurological impairment, developmental
effects, cardiovascular effects, immune system depression, and effects
on the liver, pancreas and reproductive system.\386\ There is evidence
that children prenatally exposed via mothers' ingestion of alcoholic
beverages during pregnancy are at increased risk of hyperactivity and
attention deficits, impaired motor coordination, a lack of regulation
of social behavior or poor psychosocial functioning, and deficits in
cognition, mathematical ability, verbal fluency, and spatial
memory.387 388 389 390 391 392 393 394 In some people,
genetic factors influencing the metabolism of ethanol can lead to
differences in internal levels of ethanol and may render some
subpopulations more susceptible to risks from the effects of ethanol.
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    \386\ U.S. Department of Health and Human Services. 2000. 10th
Special Report to the U.S. Congress on Alcohol and Health. June 2000.
    \387\ Goodlett CR, KH Horn, F Zhou. 2005. Alcohol teratogenesis:
mechanisms of damage and strategies for intervention. Exp. Biol.
Med. 230:394-406.
    \388\ Riley EP, CL McGee. 2005. Fetal alcohol spectrum
disorders: an overview with emphasis on changes in brain and
behavior. Exp. Biol. Med. 230:357-365.
    \389\ Zhang X, JH Sliwowska, J Weinberg. 2005. Prenatal alcohol
exposure and fetal programming: effects on neuroendocrine and immune
function. Exp. Biol. Med. 230:376-388.
    \390\ Riley EP, CL McGee, ER Sowell. 2004. Teratogenic effects
of alcohol: a decade of brain imaging. Am. J. Med. Genet. Part C:
Semin. Med. Genet. 127:35-41.
    \391\ Gunzerath L, V Faden, S Zakhari, K Warren. 2004. National
Institute on Alcohol Abuse and Alcoholism report on moderate
drinking. Alcohol. Clin. Exp. Res. 28:829-847.
    \392\ World Health Organization (WHO). 2004. Global status
report on alcohol 2004. Geneva, Switzerland: Department of Mental
Health and Substance Abuse. Available: 
http://www.who.int/substance_abuse/publications/global_status_report_2004_
overview.pdf. Exit Disclaimer
    \393\ Chen W-JA, SE Maier, SE Parnell, FR West. 2003. Alcohol
and the developing brain: neuroanatomical studies. Alcohol Res.
Health 27:174-180.
    \394\ Driscoll CD, AP Streissguth, EP Riley. 1990. Prenatal
alcohol exposure comparability of effects in humans and animal
models. Neurotoxicol. Teratol. 12:231-238.
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f. Formaldehyde
    Since 1987, EPA has classified formaldehyde as a probable human
carcinogen based on evidence in humans and in rats, mice, hamsters, and
monkeys.\395\ EPA is currently reviewing recently published
epidemiological data. For instance, research conducted by the National
Cancer Institute (NCI) found an increased risk of nasopharyngeal cancer
and lymphohematopoietic malignancies such as leukemia among workers
exposed to formaldehyde.396 397 NCI is currently performing
an update of these studies. A recent National Institute of Occupational
Safety and Health (NIOSH) study of garment workers also found increased
risk of death due to leukemia among workers exposed to
formaldehyde.\398\ Extended follow-up of a cohort of British chemical
workers did not find evidence of an increase in nasopharyngeal or
lymphohematopoietic cancers, but a continuing statistically significant
excess in lung cancers was reported.\399\ Recently, the IARC re-
classified formaldehyde as a human carcinogen (Group 1).\400\
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    \395\ U.S. EPA (1987) Assessment of Health Risks to Garment
Workers and Certain Home Residents from Exposure to Formaldehyde,
Office of Pesticides and Toxic Substances, April 1987.
    \396\ Hauptmann, M.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.;
Blair, A. 2003. Mortality from lymphohematopoietic malignancies
among workers in formaldehyde industries. Journal of the National
Cancer Institute 95: 1615-1623.
    \397\ Hauptmann, M.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.;
Blair, A. 2004. Mortality from solid cancers among workers in
formaldehyde industries. American Journal of Epidemiology 159: 1117-1130.
    \398\ Pinkerton, L. E. 2004. Mortality among a cohort of garment
workers exposed to formaldehyde: an update. Occup. Environ. Med. 61: 193-200.
    \399\ Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Extended
follow-up of a cohort of British chemical workers exposed to
formaldehyde. J National Cancer Inst. 95:1608-1615.
    \400\ International Agency for Research on Cancer (IARC). 2006.
Formaldehyde, 2-Butoxyethanol and 1-tert-Butoxypropan-2-ol. Volume
88. (in preparation), World Health Organization, Lyon, France.
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    Formaldehyde exposure also causes a range of noncancer health
effects, including irritation of the eyes (burning and watering of the
eyes), nose and throat. Effects from repeated exposure in humans
include respiratory tract irritation, chronic bronchitis and nasal
epithelial lesions such as metaplasia and loss of cilia. Animal studies
suggest that formaldehyde may also cause airway inflammation--including
eosinophil infiltration into the airways. There are several studies
that suggest that formaldehyde may increase the risk of asthma--
particularly in the young.401 402
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    \401\ Agency for Toxic Substances and Disease Registry (ATSDR).
1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S.
Department of Health and Human Services, Public Health Service.
http://www.atsdr.cdc.gov/toxprofiles/tp111.html.
    \402\ WHO (2002) Concise International Chemical Assessment
Document 40: Formaldehyde. Published under the joint sponsorship of
the United Nations Environment Programme, the International Labour
Organization, and the World Health Organization, and produced within
the framework of the Inter-Organization Programme for the Sound
Management of Chemicals. Geneva.
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g. Naphthalene
    Naphthalene is found in small quantities in gasoline and diesel
fuels. Naphthalene emissions have been measured in larger quantities in
both gasoline and diesel exhaust compared with evaporative emissions
from mobile sources, indicating it is primarily a product of
combustion. EPA released an external review draft of a reassessment of
the inhalation carcinogenicity of naphthalene based on a number of
recent animal carcinogenicity studies.\403\ The draft reassessment
completed external peer review.\404\ Based on external peer review
comments received, additional analyses are being undertaken. This
external review draft does not represent official agency opinion and
was released solely for the purposes of external peer review and public
comment. Once EPA evaluates public and peer reviewer comments, the
document will be revised. The National Toxicology Program listed
naphthalene as ``reasonably anticipated to be a human carcinogen'' in
2004 on the basis of bioassays reporting clear evidence of
carcinogenicity in rats and some evidence of carcinogenicity in
mice.\405\ California EPA has released a new risk assessment for
naphthalene, and the IARC has reevaluated naphthalene and re-classified
it as Group 2B: possibly carcinogenic to humans.\406\ Naphthalene also
causes a number of chronic non-cancer effects in animals, including
abnormal cell changes and growth in respiratory and nasal tissues.\407\
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    \403\ U.S. EPA. 2004. Toxicological Review of Naphthalene
(Reassessment of the Inhalation Cancer Risk), Environmental
Protection Agency, Integrated Risk Information System, Research and
Development, National Center for Environmental Assessment,
Washington, DC. This material is available electronically at 
http://www.epa.gov/iris/subst/0436.htm.
    \404\ Oak Ridge Institute for Science and Education. (2004).
External Peer Review for the IRIS Reassessment of the Inhalation
Carcinogenicity of Naphthalene. August 2004. http://cfpub.epa.gov/
ncea/cfm/recordisplay.cfm?deid=84403.
    \405\ National Toxicology Program (NTP). (2004). 11th Report on
Carcinogens. Public Health Service, U.S. Department of Health and
Human Services, Research Triangle Park, NC. Available from: 
http://ntp-server.niehs.nih.gov.
    \406\ International Agency for Research on Cancer (IARC).
(2002). Monographs on the Evaluation of the Carcinogenic Risk of
Chemicals for Humans. Vol. 82, Lyon, France.
    \407\ U.S. EPA. 1998. Toxicological Review of Naphthalene,
Environmental Protection Agency, Integrated Risk Information System,
Research and Development, National Center for Environmental
Assessment, Washington, DC. This material is available
electronically at http://www.epa.gov/iris/subst/0436.htm.
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h. Peroxyacetyl Nitrate (PAN)
    Peroxyacetyl nitrate (PAN) has not been evaluated by EPA's IRIS
program. Information regarding the potential carcinogenicity of PAN is
limited. As noted in the EPA air quality criteria

[[Page 25069]]

document for ozone and related photochemical oxidants, cytogenetic
studies indicate that PAN is not a potent mutagen, clastogen (a
compound that can cause breaks in chromosomes), or DNA-damaging agent
in mammalian cells either in vivo or in vitro. Some studies suggest
that PAN may be a weak bacterial mutagen at high concentrations much
higher than exist in present urban atmospheres.\408\
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    \408\ U.S. EPA. 2006. Air Quality Criteria for Ozone and Related
Photochemical Oxidants (Ozone CD). Research Triangle Park, NC:
National Center for Environmental Assessment; report no. EPA/600/R-
05/004aF-cF.3v. page 5-78. Available at http://cfpub.epa.gov/ncea/.
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    Effects of ground-level smog causing intense eye irritation have
been attributed to photochemical oxidants, including PAN.\409\ Animal
toxicological information on the inhalation effects of the non-ozone
oxidants has been limited to a few studies on PAN. Acute exposure to
levels of PAN can cause changes in lung morphology, behavioral
modifications, weight loss, and susceptibility to pulmonary infections.
Human exposure studies indicate minor pulmonary function effects at
high PAN concentrations, but large inter-individual variability
precludes definitive conclusions.\410\
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    \409\ U.S. EPA. 2006. Air Quality Criteria for Ozone and Related
Photochemical Oxidants (Final). U.S. Environmental Protection
Agency, Washington, DC, EPA 600/R-05/004aF-cF. pages 5-63. This
document is available in Docket EPA-HQ-OAR-2005-0161. This document
may be accessed electronically at: http://www.epa.gov/ttn/naaqs/
standards/ozone/s_o3_cr_cd.html.
    \410\ U.S. EPA. 2006. Air Quality Criteria for Ozone and Related
Photochemical Oxidants (Final). U.S. Environmental Protection
Agency, Washington, DC, EPA 600/R-05/004aF-cF. pages 5-78. This
document is available in Docket EPA-HQ-OAR-2005-0161. This document
may be accessed electronically at: http://www.epa.gov/ttn/naaqs/
standards/ozone/s_o3_cr_cd.html.
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i. Other Air Toxics
    In addition to the compounds described above, other compounds in
gaseous hydrocarbon and PM emissions from vehicles will be affected by
today's proposed action. Mobile source air toxic compounds that will
potentially be impacted include ethylbenzene, polycyclic organic
matter, propionaldehyde, toluene, and xylene. Information regarding the
health effects of these compounds can be found in EPA's IRIS database.\411\
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    \411\ U.S. EPA. Integrated Risk Information System (IRIS)
database is available at: www.epa.gov/iris.
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F. Environmental Effects of Criteria and Air Toxic Pollutants

    In this section we discuss some of the environmental effects of PM
and its precursors, such as visibility impairment, atmospheric
deposition, and materials damage and soiling, as well as environmental
effects associated with the presence of ozone in the ambient air, such
as impacts on plants, including trees, agronomic crops and urban
ornamentals, and environmental effects associated with air toxics.
1. Visibility
    Visibility can be defined as the degree to which the atmosphere is
transparent to visible light.\412\ Airborne particles degrade
visibility by scattering and absorbing light. Visibility is important
because it has direct significance to people's enjoyment of daily
activities in all parts of the country. Individuals value good
visibility for the well-being it provides them directly, where they
live and work, and in places where they enjoy recreational
opportunities. Visibility is also highly valued in natural areas such
as national parks and wilderness areas and special emphasis is given to
protecting visibility in these areas. For more information on
visibility see the final 2004 PM AQCD as well as the 2005 PM Staff
Paper.413 414
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    \412\ National Research Council, 1993. Protecting Visibility in
National Parks and Wilderness Areas. National Academy of Sciences
Committee on Haze in National Parks and Wilderness Areas. National
Academy Press, Washington, DC. This document is available in Docket
EPA-HQ-OAR-2005-0161. This book can be viewed on the National Academy Press 
Web site at http://www.nap.edu/books/0309048443/html/. Exit Disclaimer
    \413\ U.S. EPA (2004) Air Quality Criteria for Particulate
Matter (Oct 2004), Volume I Document No. EPA600/P-99/002aF and
Volume II Document No. EPA600/P-99/002bF. This document is available
in Docket EPA-HQ-OAR-2005-0161.
    \414\ U.S. EPA (2005) Review of the National Ambient Air Quality
Standard for Particulate Matter: Policy Assessment of Scientific and
Technical Information, OAQPS Staff Paper. EPA-452/R-05-005. This
document is available in Docket EPA-HQ-OAR-2005-0161.
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    EPA is pursuing a two-part strategy to address visibility. First,
to address the welfare effects of PM on visibility, EPA has set
secondary PM2.5 standards which act in conjunction with the
establishment of a regional haze program. In setting this secondary
standard EPA has concluded that PM2.5 causes adverse effects
on visibility in various locations, depending on PM concentrations and
factors such as chemical composition and average relative humidity.
Second, section 169 of the Clean Air Act provides additional authority
to address existing visibility impairment and prevent future visibility
impairment in the 156 national parks, forests and wilderness areas
categorized as mandatory class I federal areas (62 FR 38680-81, July
18, 1997).\415\ In July 1999 the regional haze rule (64 FR 35714) was
put in place to protect visibility in mandatory class I federal areas.
Visibility can be said to be impaired in both PM2.5
nonattainment areas and mandatory class I federal areas.
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    \415\ These areas are defined in CAA section 162 as those
national parks exceeding 6,000 acres, wilderness areas and memorial
parks exceeding 5,000 acres, and all international parks which were
in existence on August 7, 1977.
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2. Atmospheric Deposition
    Wet and dry deposition of ambient particulate matter delivers a
complex mixture of metals (e.g., mercury, zinc, lead, nickel, aluminum,
cadmium), organic compounds (e.g., POM, dioxins, furans) and inorganic
compounds (e.g., nitrate, sulfate) to terrestrial and aquatic
ecosystems. The chemical form of the compounds deposited depends on a
variety of factors including ambient conditions (e.g., temperature,
humidity, oxidant levels) and the sources of the material. Chemical and
physical transformations of the particulate compounds occur in the
atmosphere as well as the media onto which they deposit. These
transformations in turn influence the fate, bioavailability and
potential toxicity of these compounds. Atmospheric deposition has been
identified as a key component of the environmental and human health
hazard posed by several pollutants including mercury, dioxin and PCBs.\416\
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    \416\ U.S. EPA (2000) Deposition of Air Pollutants to the Great
Waters: Third Report to Congress. Office of Air Quality Planning and
Standards. EPA-453/R-00-0005. This document is available in Docket
EPA-HQ-OAR-2005-0161.
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    Adverse impacts on water quality can occur when atmospheric
contaminants deposit to the water surface or when material deposited on
the land enters a waterbody through runoff. Potential impacts of
atmospheric deposition to waterbodies include those related to both
nutrient and toxic inputs. Adverse effects to human health and welfare
can occur from the addition of excess particulate nitrate nutrient
enrichment, which contributes to toxic algae blooms and zones of
depleted oxygen, which can lead to fish kills, frequently in coastal
waters. Particles contaminated with heavy metals or other toxins may
lead to the ingestion of contaminated fish, ingestion of contaminated
water, damage to the marine ecology, and limits to recreational uses.
Several studies have been conducted in U.S. coastal waters and in the
Great Lakes Region in which the role of ambient PM deposition and runoff is

[[Page 25070]]

investigated.417 418 419 420 421 In addition, the process of
acidification affects both freshwater aquatic and terrestrial
ecosystems. Acid deposition causes acidification of sensitive surface
waters. The effects of acid deposition on aquatic systems depend
largely upon the ability of the ecosystem to neutralize the additional
acid. As acidity increases, aluminum leached from soils and sediments,
flows into lakes and streams and can be toxic to both terrestrial and
aquatic biota. The lower pH concentrations and higher aluminum levels
resulting from acidification make it difficult for some fish and other
aquatic organisms to survive, grow, and reproduce.
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    \417\ U.S. EPA (2004) National Coastal Condition Report II.
Office of Research and Development/Office of Water. EPA-620/R-03/
002. This document is available in Docket EPA-HQ-OAR-2005-0161.
    \418\ Gao, Y., E.D. Nelson, M.P. Field, et al. 2002.
Characterization of atmospheric trace elements on PM2.5
particulate matter over the New York-New Jersey harbor estuary.
Atmos. Environ. 36: 1077-1086.
    \419\ Kim, G., N. Hussain, J.R. Scudlark, and T.M. Church. 2000.
Factors influencing the atmospheric depositional fluxes of stable
Pb, 210Pb, and 7Be into Chesapeake Bay. J. Atmos. Chem. 36: 65-79.
    \420\ Lu, R., R.P. Turco, K. Stolzenbach, et al. 2003. Dry
deposition of airborne trace metals on the Los Angeles Basin and
adjacent coastal waters. J. Geophys. Res. 108(D2, 4074): AAC 11-1 to 11-24.
    \421\ \\ Marvin, C.H., M.N. Charlton, E.J. Reiner, et al. 2002.
Surficial sediment contamination in Lakes Erie and Ontario: A
comparative analysis. J. Great Lakes Res. 28(3): 437-450.
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    Adverse impacts on soil chemistry and plant life have been observed
for areas heavily influenced by atmospheric deposition of nutrients,
metals and acid species, resulting in species shifts, loss of
biodiversity, forest decline and damage to forest productivity.
Potential impacts also include adverse effects to human health through
ingestion of contaminated vegetation or livestock (as in the case for
dioxin deposition), reduction in crop yield, and limited use of land
due to contamination. Research on effects of acid deposition on forest
ecosystems has come to focus increasingly on the biogeochemical
processes that affect uptake, retention, and cycling of nutrients
within these ecosystems. Decreases in available base cations from soils
are at least partly attributable to acid deposition. Base cation
depletion is a cause for concern because of the role these ions play in
acid neutralization and because calcium, magnesium and potassium are
essential nutrients for plant growth and physiology. Changes in the
relative proportions of these nutrients, especially in comparison with
aluminum concentrations, have been associated with declining forest health.
    The deposition of airborne particles can reduce the aesthetic
appeal of buildings and culturally important articles through soiling
and can contribute directly (or in conjunction with other pollutants)
to structural damage by means of corrosion or erosion.\422\ Particles
affect materials principally by promoting and accelerating the
corrosion of metals, by degrading paints, and by deteriorating building
materials such as concrete and limestone. Particles contribute to these
effects because of their electrolytic, hygroscopic, and acidic
properties and their ability to adsorb corrosive gases (principally
sulfur dioxide). The rate of metal corrosion depends on a number of
factors, including: The deposition rate and nature of the pollutant;
the influence of the metal protective corrosion film; the amount of
moisture present; variability in the electrochemical reactions; the
presence and concentration of other surface electrolytes; and the
orientation of the metal surface.
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    \422\ \\ U.S. EPA (2005). Review of the National Ambient Air
Quality Standards for Particulate Matter: Policy Assessment of
Scientific and Technical Information, OAQPS Staff Paper. This
document is available in Docket EPA-HQ-OAR-2005-0161.
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3. Plant and Ecosystem Effects of Ozone
    Ozone contributes to many environmental effects, with impacts to
plants and ecosystems being of most concern. Ozone can produce both
acute and chronic injury in sensitive species depending on the
concentration level and the duration of the exposure. Ozone effects
also tend to accumulate over the growing season of the plant, so that
even lower concentrations experienced for a longer duration have the
potential to create chronic stress on vegetation. Ozone damage to
plants includes visible injury to leaves and a reduction in food
production through impaired photosynthesis, both of which can lead to
reduced crop yields, forestry production, and use of sensitive
ornamentals in landscaping. In addition, the reduced food production in
plants and subsequent reduced root growth and storage below ground can
result in other, more subtle plant and ecosystems impacts. These
include increased susceptibility of plants to insect attack, disease,
harsh weather, interspecies competition and overall decreased plant
vigor. The adverse effects of ozone on forest and other natural
vegetation can potentially lead to species shifts and loss from the
affected ecosystems, resulting in a loss or reduction in associated
ecosystem goods and services. Last, visible ozone injury to leaves can
result in a loss of aesthetic value in areas of special scenic
significance like national parks and wilderness areas. The final 2006
Ozone Air Quality Criteria Document presents more detailed information
on ozone effects on vegetation and ecosystems.
4. Welfare Effects of Air Toxics
    Fuel combustion emissions contribute to ambient levels of
pollutants that contribute to adverse effects on vegetation. PAN is a
well-established phytotoxicant causing visible injury to leaves that
can appear as metallic glazing on the lower surface of leaves with some
leafy vegetables exhibiting particular sensitivity (e.g., spinach,
lettuce, chard).423 424 425 PAN has been demonstrated to
inhibit photosynthetic and non-photosynthetic processes in plants and
retard the growth of young navel orange trees.426 427 In
addition to its oxidizing capability, PAN contributes nitrogen to
forests and other vegetation via uptake as well as dry and wet
deposition to surfaces. As noted in Section X, nitrogen deposition can
lead to saturation of terrestrial ecosystems and research is needed to
understand the impacts of excess nitrogen deposition experienced in
some areas of the country on water quality and ecosystems.\428\
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    \423\ Nouchi I, S Toyama. 1998. Effects of ozone and
peroxyacetyl nitrate on polar lipids and fatty acids in leaves of
morning glory and kidney bean. Plant Physiol. 87:638-646.
    \424\ Oka E, Y Tagami, T Oohashi, N Kondo. 2004. A physiological
and morphological study on the injury caused by exposure to the air
pollutant, peroxyacetyl nitrate (PAN), based on the quantitative
assessment of the injury. J Plant Res. 117:27-36.
    \425\ Sun E-J, M-H Huang. 1995. Detection of peroxyacetyl
nitrate at phytotoxic level and its effects on vegetation in Taiwan.
Atmos. Env. 29:2899-2904.
    \426\ Koukol J, WM Dugger, Jr., RL Palmer. 1967. Inhibitory
effect of peroxyacetyl nitrate on cyclic photophosphorylation by
chloroplasts from black valentine bean leaves. Plant Physiol.
42:1419-1422.
    \427\ Thompson CR, G Kats. 1975. Effects of ambient
concentrations of peroxyacetyl nitrate on navel orange trees. Env.
Sci. Technol. 9:35-38.
    \428\ \\ Bytnerowicz A, ME Fenn. 1995. Nitrogen deposition in
California forests: A Review. Environ. Pollut. 92:127-146.
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    Volatile organic compounds (VOCs), some of which are considered air
toxics, have long been suspected to play a role in vegetation
damage.\429\ In laboratory experiments, a wide range of tolerance to
VOCs has been observed.\430\ Decreases in harvested seed pod weight

[[Page 25071]]

have been reported for the more sensitive plants, and some studies have
reported effects on seed germination, flowering and fruit ripening.
Effects of individual VOCs or their role in conjunction with other
stressors (e.g., acidification, drought, temperature extremes) have not
been well studied. In a recent study of a mixture of VOCs including
ethanol and toluene on herbaceous plants, significant effects on seed
production, leaf water content and photosynthetic efficiency were
reported for some plant species.\431\
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    \429\ U.S. EPA. 1991. Effects of organic chemicals in the
atmosphere on terrestrial plants. EPA/600/3-91/001.
    \430\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M
Skewes, DN Price, AR Brown, AD Sharpe. 2003. Effects of VOCs on
herbaceous plants in an open-top chamber experiment. Environ.
Pollut. 124:341-343.
    \431\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M
Skewes, DN Price, AR Brown, AD Sharpe. 2003. Effects of VOCs on
herbaceous plants in an open-top chamber experiment. Environ.
Pollut. 124:341-343.
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    Research suggests an adverse impact of vehicle exhaust on plants,
which has in some cases been attributed to aromatic compounds and in
other cases to nitrogen oxides.432 433 434 The impacts of
VOCs on plant reproduction may have long-term implications for
biodiversity and survival of native species near major roadways. Most
of the studies of the impacts of VOCs on vegetation have focused on
short-term exposure and few studies have focused on long-term effects
of VOCs on vegetation and the potential for metabolites of these
compounds to affect herbivores or insects.
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    \432\ Viskari E-L. 2000. Epicuticular wax of Norway spruce
needles as indicator of traffic pollutant deposition. Water, Air,
and Soil Pollut. 121:327-337.
    \433\ Ugrekhelidze D, F Korte, G Kvesitadze. 1997. Uptake and
transformation of benzene and toluene by plant leaves. Ecotox.
Environ. Safety 37:24-29.
    \434\ Kammerbauer H, H Selinger, R Rommelt, A Ziegler-Jons, D
Knoppik, B Hock. 1987. Toxic components of motor vehicle emissions
for the spruce Pciea abies. Environ. Pollut. 48:235-243.
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VIII. Impacts on Cost of Renewable Fuels, Gasoline, and Diesel

    We have assessed the impacts of the renewable fuel volumes required
by EISA on their costs and on the costs of the gasoline and diesel
fuels into which the renewable fuels will be blended. More details of
feedstock costs are addressed in Section X.A.

A. Renewable Fuel Production Costs

1. Ethanol Production Costs
a. Corn Ethanol
    A significant amount of work has been done in the last decade
surveying and modeling the costs involved in producing ethanol from
corn in order to serve business and investment purposes as well as to
try to educate energy policy decisions. Corn ethanol costs for our work
were estimated using models developed and maintained by USDA. Their
work has been described in a peer-reviewed journal paper on cost
modeling of the dry-grind corn ethanol process, and compares well with
cost information found in surveys of existing plants.435 436
---------------------------------------------------------------------------

    \435\ Kwaitkowski, J.R., Macon, A., Taylor, F., Johnston, D.B.;
Industrial Crops and Products 23 (2006) 288-296.
    \436\ Shapouri, H., Gallagher, P.; USDA's 2002 Ethanol Cost-of-
Production Survey (published July 2005).
---------------------------------------------------------------------------

    For our policy case scenario, we used corn prices of $3.34/bu in
2022 with corresponding DDGS prices of $139.78/ton (all 2006$). These
estimates are taken from agricultural economics modeling work done for
this proposal using the Forestry and Agricultural Sector Optimization
Model (see Section IX.A).
    For natural gas-fired ethanol production producing dried co-product
(currently describes the largest fraction of the industry), in the
policy case corn feedstock minus DDGS sale credit represents about 57%
of the final per-gallon cost, while utilities, facility, and labor
comprise about 22%, 11%, and 4%, respectively. Thus, the cost of
ethanol production is most sensitive to the prices of corn and the
primary co-product, DDGS, and relatively insensitive to economy of
scale over the range of plant sizes typically seen (40-100 MMgal/yr).
    We expect that several process fuels will be used to produce corn
ethanol (see DRIA Section 1.4), which are presented by their projected
2022 volume production share in Table VIII.A.1-1a and cost impacts for
each in Table VIII.A.1-1b.\437\ We request comment on the projected mix
of plant fuel sources in the future as well as the cost impacts of
various technologies.
---------------------------------------------------------------------------

    \437\ Projected fuel mix was taken from Mueller, S., Energy
Research Center at the University of Chicago; An Analysis of the
Projected Energy Use of Future Dry Mill Corn Ethanol Plants (2010-
2030); cost estimates were derived from modifications to the USDA
process models. We are aware that the cost impacts of CHP are likely
overestimated here and will be revised in the final rulemaking.

   Table VIII.A.1-1a--Projected 2022 Breakdown of Fuel Types Used To Estimate Production Cost of Corn Ethanol,
                                    Percent Share of Total Production Volume
----------------------------------------------------------------------------------------------------------------
                                                             Fuel type                            Total by plant
                                 ----------------------------------------------------------------      type
           Plant type                                                                            ---------------
                                      Biomass     Coal (percent)    Natural gas       Biogas         All fuels
                                     (percent)                       (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Coal/Biomass Boiler.............              11               0  ..............  ..............              11
Coal/Biomass Boiler + CHP.......              10               4  ..............  ..............              14
Natural Gas Boiler..............  ..............  ..............              49              14              63
Natural Gas Boiler + CHP........  ..............  ..............              12  ..............              12
                                 -------------------------------------------------------------------------------
    Total by Fuel Type..........              21               4              61              14             100
----------------------------------------------------------------------------------------------------------------


 Table VIII.A.1-1b--Projected 2022 Breakdown of Cost Impacts by Fuel Type Used in Estimating Production Cost of
                        Corn Ethanol, Dollars per Gallon Relative to Natural Gas Baseline
----------------------------------------------------------------------------------------------------------------
                                                             Fuel type                            Total by plant
                                 ----------------------------------------------------------------      type
           Plant type                                                                            ---------------
                                    Biomass \a\        Coal         Natural gas     Biogas \b\       All fuels
----------------------------------------------------------------------------------------------------------------
Coal/Biomass Boiler.............          -$0.02          -$0.02  ..............  ..............  ..............
Coal/Biomass Boiler + CHP.......          +$0.14          +$0.14  ..............  ..............  ..............
Natural Gas Boiler..............  ..............  ..............        baseline          +$0.00  ..............

[[Page 25072]]

Natural Gas Boiler + CHP........  ..............  ..............          +$0.16  ..............  ..............
                                 -------------------------------------------------------------------------------
    Total by Fuel Type..........  ..............  ..............  ..............  ..............           $0.04
----------------------------------------------------------------------------------------------------------------
\a\ Assumes biomass has same plant-delivered cost as coal.
\b\ Assumes biogas has same plant-delivered cost as natural gas.

    Based on energy prices from EIA's Annual Energy Outlook (AEO) 2008
baseline case ($53/bbl crude oil), we arrive at a production cost of
$1.49/gal. In the case of EIA's high price scenario ($92/bbl crude),
this figure increases by 6 cents per gallon. More details on the
ethanol production cost estimates can be found in Chapter 4 of the
DRIA. This estimate represents the full cost to the plant operator,
including purchase of feedstocks, energy required for operations,
capital depreciation, labor, overhead, and denaturant, minus revenue
from sale of co-products. The capital cost for a 65 MMgal/yr natural
gas fired dry mill plant is estimated at $89MM (this the projected
average size of such plants in 2022). Similarly, coal and biomass fired
plants were assumed to be 110 MGY in capacity, with an estimated
capital cost of $200MM.\438\ On average, ethanol produced in a facility
using coal or biomass as a primary energy source results in a per-
gallon cost $0.02/gal lower compared to production using natural gas.
---------------------------------------------------------------------------

    \438\ Capital costs for a natural gas fired plant were taken
from USDA cost model; incremental costs to use coal as the primary
energy source were derived from conversations with ethanol plant
construction contractors.
---------------------------------------------------------------------------

    In this cost estimation work, we did not assume any pelletizing of
DDGS. Pelletizing is expected to improve ease of shipment to more
distant markets, which may become more important at the larger volumes
projected for the future. However, while many in industry are aware of
this technology, those we spoke with are not employing it in their
plants, and do not expect widespread use in the foreseeable future.
According to USDA's model, pelletizing adds $0.035/gal to the ethanol
production cost. We request comment on whether pelletizing should be
included in our program cost estimates.
    In support of our biodiesel and renewable diesel volume feasibility
estimates, we included recovery of corn oil from distillers' grains
streams in our ethanol production cost estimates at a rate of 37% of
ethanol production by 2022.\439\ According to economic analyses done by
USDA based on the GS Cleantech corn oil extraction process, the capital
cost to install the system for a 50 MMgal/yr ethanol plant is
approximately $6 million. The system is capable of extracting about one
third of the corn oil entering the plant, and produces a low-quality
corn oil co-product stream. In our analysis, we assumed the value of
this additional co-product to be 70% that of soy oil (the same as
yellow grease, $0.27/lb), resulting in a credit per gallon of ethanol
of $0.04 for a 50 MMgal/yr plant operating such a system.
---------------------------------------------------------------------------

    \439\ Although some oil extraction may be done as front-end
fractionation of the kernel, we believe the majority will be
produced via separation from distillers' grains streams. For more
discussion of corn oil extraction and fractionation, see Chapter 4
of the DRIA.
---------------------------------------------------------------------------

    Note that the ethanol production cost given here does not account
for any subsidies on production or sale of ethanol, and is independent
of the market price of ethanol.
b. Cellulosic Ethanol
i. Feedstock Costs
Cellulosic Feedstock Costs
    To estimate the cost of producing cellulosic biofuels, it was first
necessary to estimate the cost of harvesting, storing, processing and
transporting the feedstocks to the biofuel production facilities.
Ethanol or other cellulosic biofuels can be produced from crop residues
such as corn stover, wheat, rice, oat, and barley straw, sugar cane
bagasse, and sorghum, from other cellulosic plant matter such as forest
thinnings and forest-fuel removal, pulping residues, and from the
cellulosic portions of municipal solid waste (MSW). Currently, there
are no energy crops such as switchgrass nor short rotation woody crops
(SRWC poplars, etc.) grown specifically for energy production.
    Our feedstock supply analysis projected that crop residue,
primarily corn stover, will be the most abundant of the cellulosic
feedstocks, comprising about 61% of the total biomass feedstock
inventory. Forest residues make up about 25% of the total, and MSW
makes up the remaining 14%. At present, there are no commercial sized
cellulosic ethanol plants in the U.S. Likewise, there are no
commercially proven, fully-integrated feedstock supply systems
dedicated to providing any of the feedstocks we mentioned to ethanol
facilities of any size, although certain biomass is harvested for other
purposes. For this reason, our feedstock cost estimates are projections
and not based on any existing market data.
    Our feedstock costs include an additional preprocessing cost that
many other feedstock cost estimates do not include--thus our costs may
seem higher. We used biofuel plant cost estimates provided by NREL
which no longer includes the cost for finely grinding the feedstock
prior to feeding it to the biofuel plant. Thus, our feedstock costs
include an $11 per dry ton cost to account for the costs of this
grinding operation, regardless of whether this operation occurs in the
field or at the plant gate.
Crop Residue and Energy Crops
    Crop residue harvest is currently a secondary harvest; that is they
are harvested or gathered only after the prime crop has been harvested.
In most northern areas, the harvest periods will be short due to the
onset of winter weather. In some cases, it may be necessary to gather a
full year's worth of residue within just a few weeks. Consequently, to
accomplish this hundreds of pieces of farm equipment will be required
for a few weeks each year to complete a harvest. Winter conditions in
the South make it somewhat easier to extend the harvest periods; in
some cases, it may be possible to harvest a residue on an as needed basis.
    During the corn grain harvest, generally only the cob and the
leaves above the cob are taken into the harvester. Thus, the stover
harvest would likely require some portion of the

[[Page 25073]]

standing-stalks be mowed or shredded, following which the entire
residue, including that discharged from the combine residue-spreader,
would need to be raked. Balers, likely a mix of large round and large
square balers, would follow the rakes. The bales would then be removed
from the field, usually to the field-side in the first operation of the
actual harvest, following which they would then be hauled to a
satellite facility for intermediate storage. For our analysis we
assumed that bales would then be hauled by truck and trailer to the
processing plant on an as needed basis.
    The small grain straws (wheat, rice, oats, barley, sorghum) are cut
near the ground at the time of grain harvest and thus likely won't
require further mowing or shredding. They will likely need to be raked
into a windrow prior to baling. Because small grain straws have been
baled and stored for many years, we don't expect unusual requirements
for handling these residues. Their harvest and storage costs will
likely be less than those for corn stover, but their overall quantity
is much less than corn stover (corn stover makes up about 71% of all
the crop residues), so we don't expect their lower costs to have,
individually or collectively, a huge effect on the overall feedstock
costs. Thus, we project that for several years, the feedstock costs
will be largely a function of the cost to harvest, store, and haul corn stover.
    For the crop residues, we relied on the FASOM agricultural cost
model for farm harvesting and collection costs. FASOM estimates it
would cost $33 per dry ton to mow, rake, bale, and field haul the bales
and replace nutrients. We added $10 per dry ton as a farmer payment,
which we believe is a necessary reimbursement to farmers to cover their
costs associated with this additional harvest. Thus, $43 per dry ton
covers the cost of making the crop residue available at the farm gate.
This farm gate cost could be lower if new equipment is developed that
would allow the farmer to harvest the corn stover at the same time as
the corn. We also conducted our own independent analysis of the farm
gate feedstock costs for corn stover, and our farm gate cost estimate
for stover feedstock is very similar to FASOM's. For the steps involved
in moving the corn stover from the farm gate to the cellulosic ethanol
plant, we relied upon our own cost analysis. Our cost analysis
estimates that an additional $32 per dry ton would be required to haul
the bales to satellite storage, pay for the storage facilities, and
grind the residue. Because of the low density of corn stover and other
crop residues, we estimate that 60 or more secondary storage sites
would be necessary to minimize the combined transportation and storage
costs for a 100 million gallon per year plant. We estimated it would
cost about $14 per dry ton to haul the feedstock from the satellite
storage to the processing plant. Adding up all the costs, corn stover
is estimated to cost $88 per dry ton delivered to the cellulosic
biofuel plant. A more detailed discussion of our corn stover feedstock
cost analysis is contained in Chapter 4.1 of the DRIA.
    Energy crops such as switchgrass and miscanthus would be harvested,
baled, stored and transported very similar to crop residues. Because of
their higher production density per acre, though, we would expect that
the ``farm gate'' costs to be slightly lower than crop residues (we
estimate the costs to be about $1 per dry ton lower). Also, the higher
production density would allow for fewer secondary storage facilities
compared to crop residue and a shorter transportation distance. For
example, we estimate that switchgrass would require less than 30
secondary storage facilities which would help to lower the feedstock
costs for a 100 million gallon per year plant compared to crop
residues. As a result the secondary storage and transportation costs
are estimated to be $9 per ton lower than crop residue such as corn
stover. Thus, we estimate that cellulosic feedstock costs sourced from
switchgrass would be about $78 per dry ton. Chapter 4.1 of the DRIA
contains a more in-depth discussion of the feedstock costs for energy
crops such as switchgrass.
Forestry Residue
    Harvest and transport costs for woody biomass in its different
forms vary due to tract size, tree species, volumes removed, distance
to the wood-using/storage facility, terrain, road condition, and other
many other considerations. There is a significant variation in these
factors within the United States, so timber harvest and delivery
systems must be designed to meet constraints at the local level.
Harvesting costs also depend on the type of equipment used, season in
which the operation occurs, along with a host of other factors. Much of
the forest residue is already being harvested by logging operations, or
is available from milling operations. However, the smaller branches and
smaller trees proposed to be used for biofuel production are not
collected for their lumber so they are normally left behind. Thus, this
forest residue would have to be collected and transported out of the
forest, and then most likely chipped before transport to the biofuel plant.
    In general, most operators in the near future would be expected to
chip at roadside in the forest, blowing the chips directly into a chip
van. When the van is full it will be hauled to an end user's facility
and a new van will be moved into position at the chipper. The process
might change in the future as baling systems become economically
feasible or as roll-off containers are proven as a way to handle
logging slash. At present, most of the chipping for biomass production
is done in connection with forest thinning treatments as part of a
forest fire prevention strategy. The major problem associated with
collecting logging residues and biomass from small trees is handling
the material in the forest before it gets to the chipper. Specially-
built balers and roll-off containers offer some promise to reduce this
cost. Whether the material is collected from a forest thinning
operation or a commercial logging operation, chips from residues will
be dirty and will require screening or some type of filtration at the
end-user's facility.\440\
---------------------------------------------------------------------------

    \440\ Personal Communication, Eini C. Lowell, Research
Scientist, USDA Forest Service.
---------------------------------------------------------------------------

    Results from a study in South Georgia show that under the right
conditions, a small chipper could be added to a larger operation to
obtain additional chip production without adversely impacting roundwood
production, and that the chips could be produced from limbs and tops of
harvested trees at costs ranging from $11 per ton and up. Harvesting
understory (the layer formed by grasses, shrubs, and small trees under
the canopy of larger trees and plants) for use in making fuel chips was
estimated to be about $1 per ton more expensive.
    Per-ton costs decrease as the volume chipped increases per acre.
Some estimates suggest that if no more than 10 loads of roundwood are
produced before a load of chips is made, that chipper-modified system
could break even. Cost projections suggest that removing only limbs and
tops may be marginal in terms of cost since one load of chips is
produced for about every 15 loads of roundwood.
    Instead of conducting our own detailed cost estimate for making
forest residue chips available at the edge of the harvested forests, we
instead relied upon the expertise of the U.S. Forest Service. The U.S.
Forest Service provided us a cost curve for different categories of
forest residue, including logging residue, other removals (i.e.,
clearing trees for new building construction), timberland trimmings

[[Page 25074]]

(forest fire prevention strategy) and mill residues. They recommended
that we choose $45 per dry ton as the price point for our cost
analysis. This seemed reasonable since this price point was roughly the
same as the farm gate crop residue discussed above, and so we used this
price point for our analysis. Assuming that the wood chips would be
ground further in the field adds an additional $11 per dry ton to the
feedstock cost.
    Delivery of woody biomass from the harvesting site to a conversion
facility, like delivery of more conventional forest products, accounts
for a significant portion of the delivered cost. In fact,
transportation of wood fiber (including hauling within the forest)
accounts for about 25 to 50% of the total delivered costs and highly
depends on fuel prices, haul distance, material moisture content, and
vehicle capacity and utilization. Also, beyond a certain distance,
transportation becomes the limiting factor and the costs become
directly proportional to haul distance.\441\ Based on our own cost
analysis, we anticipate that hauling woody biomass to plant will cost
about $14 per ton, for a total delivered price of about $70 per dry
ton. Chapter 4.1 of the DRIA contains a more detailed discussion on the
feedstock costs for forest residue.
---------------------------------------------------------------------------

    \441\ Ashton, S.; B. Jackson; R. Schroeder. Cost Factors in
Harvesting and Transporting Woody Biomass, 2007. Module 4:
Introduction to Harvesting, Transportation, and Processing:: Fact Sheet 4.7.
---------------------------------------------------------------------------

Municipal Solid Waste
    Millions of tons of municipal solid waste (MSW) continue to be
disposed of in landfills across the country, despite recent large gains
in waste reduction and diversion. The biomass fraction of this total
stream represents a potentially significant resource for renewable
energy (including electricity and biofuels). Because this waste
material is already being generated, collected and transported (it
would only need to be transported to a different location), its use is
likely to be less expensive than other cellulosic feedstocks. One
important difficulty facing those who plan to use MSW fractions for
fuel production is that in many places, even today, MSW is a mixture of
all types of wastes, including biomaterials such as animal fats and
grease, tin, iron, aluminum, and other metals, painted woods, plastics,
and glass. Many of these materials can't be used in biochemical and
thermochemical ethanol production, and, in fact, would inflate the
transportation costs, impede the operations at the cellulosic ethanol
plant and cause an expensive waste stream for biofuel producers.
    Thus, accessing sorted MSW would likely be a requirement for firms
planning on using MSW for producing cellulosic biofuels. In a
confidential conversation, a potential producer who plans to use MSW to
produce ethanol indicated that their plant plans are based on obtaining
cellulosic biowaste which has already been sorted at the waste source
(e.g., at the curbside, where the refuse hauler picks up waste already
sorted by the generating home-owner or business). For example, in a
tract of homes, one refuse truck would pick up glass, plastic, and
perhaps other types of waste destined for a specific disposal depot,
whereas a different truck would follow to pick up wood, paper, and
other cellulosic materials to be hauled to a depot that supplies an
ethanol plant. However, only a small fraction of the MSW generated
today is sorted at the curbside.
    Another alternative would be to sort the waste either at a sorting
facility, or at the landfill, prior to dumping. There are two prominent
options here. The first is that there is no sorting at the waste
creation site, the home or business, and thus a single waste stream
must be sorted at the facility. This operation would likely be done by
hand or by automated equipment at the facility. To do so by hand is
very labor intensive and somewhat slower than using an automated
system. In most cases the `by-hand' system produces a slightly cleaner
stream, but the high cost of labor usually makes the automated system
more cost-effective. Perhaps the best approach for low cost and a clean
stream is the combination of hand sorting with automated sorting.
    The third option is a combination of the two which requires that
there is at least some sorting at the home or business which helps to
prevent contamination of the waste material, but then the final sorting
occurs downstream at a sorting site, or at the landfill.
    We have little data and few estimates for the cost to sort MSW. One
estimate generated by our Office of Solid Waste for a combination of
mechanically and manually sorting a single waste stream downstream of
where the waste is generated puts the cost in the $20 to $30 per ton
range. There is a risk, though, that the waste stream could still be
contaminated and this would increase the cost of both transporting the
material and using this material at the biofuel plant due to the toxic
ash produced which would require disposal at a toxic waste facility. If
a less contaminated stream is desired it would probably require sorting
at the generation site--the home or business--which would likely be
more costly since many more people in society would then have to be
involved and special trucks would need to be used. Also, widespread
participation is difficult when a change in human behavior is required
as some may not be so willing to participate. Offering incentives could
help to speed the transition to curbside recycling (i.e., charging a
fee for nonsorted waste, or paying a small amount for sorted tree
trimmings and construction and demolition waste). Assuming that
curbside sorting is involved, at least in a minor way, total sorting
costs might be in the $30 to $40 per ton range. We request comment on
the costs incurred for sorting cellulosic material from the rest of MSW waste.
    These sorting costs would be offset by the cost savings for not
disposing of the waste material. Most landfills charge tipping fees,
the cost to dump a load of waste into a landfill. In the United States,
the national average nominal tipping fee increased fourfold from 1985
to 2000. The real tipping fee almost doubled, up from a national
average (in 1997 dollars) of about $12 per ton in 1985 to just over $30
in 2000. Equally important, it is apparent that the tipping fees are
much higher in densely populated regions and for areas along the U.S.
coast. For example, in 2004, the tipping fees were $9 per ton in Denver
and $97 per ton in Spokane. Statewide averages also varied widely, from
$8 a ton in New Mexico to $75 in New Jersey. Tipping fees ranged from
$21 to 98 per ton in 2006 for MSW and $18/ton to $120/ton for
construction and demolition waste. It is likely that the tipping fees
are highest for contaminated waste that requires the disposal of the
waste in more expensive waste sites that can accept the contaminated
waste as opposed to a composting site. However, this same contaminated
material would probably not be desirable to biofuel producers.
Presuming that only the noncontaminated cellulosic waste (yard
trimmings, building construction and demolition waste and some paper)
is collected as feedstocks for biofuel plants, the handling and tipping
fees are likely much lower, in the $30 per ton range.\442\
---------------------------------------------------------------------------

    \442\ We plan on conducting a more thorough analysis of tipping
fees by waste type for the final rulemaking.
---------------------------------------------------------------------------

    The avoidance of tipping fees, however, is a complex issue since
landfills are generally not owned by municipalities anymore. Both large
and small municipalities recognized their

[[Page 25075]]

inability to handle the new and complex solid waste regulations at a
reasonable cost. Only 38 out of the 100 largest cities own their own
landfills. To deal with the solid waste, large private companies built
massive amounts of landfill capacity. The economic incentive is for
private landfill operators to fill their landfills with garbage as
early as possible to pay off their capital investment (landfill site)
quickly. Also, the longer the landfill is operating the greater is its
exposure to liability due to leakages and leaching. Furthermore,
landfills can more cost-effectively manage the waste as the scale of
the landfill is enlarged. As a result, there are fewer landfills and
landfill owners, and an expansion of market share by large private
waste management firms, thus decreasing the leverage a biofuel producer
may have.\443\ Many waste management firms have been proactive by using
the waste material to produce biogas, another fuel type that would
qualify under RFS2. Yet other parties interested in procuring MSW are
waste-to-energy (WTE) facilities, which burn as much waste material as
possible to produce electricity. These three different interests may
compete for MSW for producing biofuels. This competition is desirable,
resulting in lower overall cost and the production of the most cost-
effective types of biofuels. We request comment on the costs avoided
for diverting cellulosic material from landfills.
---------------------------------------------------------------------------

    \443\ Osamu Sakamoto, The Financial Feasibility Analysis of
Municipal Solid Waste to Ethanol Conversion, Michigan State
University, Plan B Master Research Paper in partial fulfillment of
the requirement for the degree of Master of Science, Department of
Agricultural Economics, 2004
---------------------------------------------------------------------------

    Once the cellulosic biomass has been sorted from the rest of MSW,
it would have to be transported to the biofuels plant. Transporting is
different for MSW biomass compared to forest and crop residues. Forest
and crop residues are collected from forests and farms, which are both
rural sites, and transported to the biofuel plant which likely is
located at a rural site. The trucks which transport the forest and crop
residues can be large over-the-road trucks which can average moderate
speeds because of the lower amount of traffic that they experience.
Conversely, MSW is being collected throughout urban areas and would
have to transported through those urban areas to the plant site. If the
cellulosic biomass is being collected at curbside, it would likely be
collected in more conventional refuse trucks. If the plant is nearby,
then the refuse trucks could transport the cellulosic biomass directly
to the plant. However, if the plant is located far away from a portion
of the urban area, then the refuse trucks would probably have to be
offloaded to more conventional over-the-road trucks with sizable
trailers to make transport more cost-effective. We estimate that the
cost to transport the cellulosic biomass sourced from MSW to the
biofuel plant be $15 per ton.
    A significant advantage of MSW over other cellulosic biomass is
that it can be generated year-round in many parts of the U.S. If a
steady enough stream of this material is available, then secondary
storage would not be necessary, thus avoiding the need to install
secondary storage. We assumed that no secondary storage costs would be
incurred for MSW-sourced cellulosic biomass.
    The total costs for MSW-sourced cellulosic biomass is estimated to
be $30 -$40 per ton for sorting costs, a savings of $30 per ton for
tipping costs avoided, $15 per ton for transportation costs and $11 per
ton for grinding the cellulose to prepare it as a feedstock--resulting
in a total feedstock cost of $26 to $36 per ton. In our cost analysis,
we assumed an average cost of $31 per ton. Chapter 4.1 of the DRIA
contains a more detailed discussion of the feedstock costs for MSW.
    Table VIII.A.1-2 below summarizes major cost components for each
cellulosic feedstock.

                             Table VIII.A.1-2--Summary of Cellulosic Feedstock Costs
                                            [$53/ton crude oil costs]
----------------------------------------------------------------------------------------------------------------
              Ag residue                     Switchgrass             Forest residue                MSW
----------------------------------------------------------------------------------------------------------------
        60% of total feedstock          1% of total feedstock    25% of total feedstock   14% of total feedstock
----------------------------------------------------------------------------------------------------------------
Mowing, Raking, Baling, Hauling,       Mowing, Raking, Baling,  Harvesting, Hauling to   Sorting, Contaminant
 Nutrients and Farmer Payment $43/ton.  Hauling, Nutrients and   Forest Edge, Chipping    Removal, Tipping Fees
                                        Farmer Payment $42/ton.  $45/ton.                 Avoided $0-$10/ton.
Hauling to Secondary Storage,          Hauling to Secondary     Grinding, Hauling to     Grinding, Hauling to
 Secondary Storage, Hauling to Plant    Storage, Secondary       Plant $25/ton.           Plant $26/ton.
 $45/ton.                               Storage, Hauling to
                                        Plant $37/ton.
----------------------------------------------------------------------------------------------------------------
    Total $88/ton....................  Total $77/ton..........  Total $70/ton..........  Total Avg $31/ton.
----------------------------------------------------------------------------------------------------------------

    Weighting the cellulosic feedstock costs by their supply quantities
results in an average cellulosic feedstock cost of $71 per ton which we
used at the reference crude oil price of $53/bbl. We estimate that this
average cost increases to $76 per ton at the high crude oil price of
$92/bbl due to more expensive harvesting and transportation costs.
ii. Production Costs
    In this section, we discuss the cost to biochemically and
thermochemically convert cellulosic feedstocks into fuel ethanol. At a
DOE sponsored workshop in 2005, a DOE biochemical expert commented that
the challenges of converting cellulosic biomass to ethanol are very
closely linked to solving the problems associated with both the
hydrolysis and the fermentation of the carbohydrates in the feedstocks.
He then stated that the resistance of cellulosic feedstock to
bioprocessing will remain the central problem and will likely be the
limiting factor in creating an economy based on cellulosic ethanol
production.\444\
---------------------------------------------------------------------------

    \444\ Breaking the Biological Barriers to Cellulosic Ethanol: A
Joint Research Agenda, A Research Roadmap Resulting from the Biomass
to Biofuels Workshop Sponsored by the U.S. Department of Energy,
December 7-9, 2005, Rockville, Maryland; DOE/SC-0095, Publication
Date: June 2006
---------------------------------------------------------------------------

    Notwithstanding the fact that all cellulosic biomass is made up of
some combination of cellulose, hemicellulose, lignin, and trace amounts
of other organic and inorganic chemicals and minerals, there are
significant differences among the molecular structures of different
plants. For example, a corn stalk is relatively lighter, more porous,
and much more flexible than a tree branch of similar diameter. The tree
branch (in most cases) is harder or denser and less porous throughout
the stem and the

[[Page 25076]]

outside or bark is less permeable and flexible.
    These differences among the cellulosic feedstock plant structures,
e.g., density, rigidity, hardness, etc., suggest that different
conversion processes, namely biochemical and thermochemical may be
necessary to convert into ethanol as much of the available plant
material as possible. For example, if wood chips, e.g., poplar trees,
are to be treated biochemically, the chips must be reduced in size to
1-mm or less in order to increase the surface area for contact with
acid, enzymes, etc. Breaking up a 5-in stem to such small pieces would
consume a large amount of energy. On the other hand, processing corn
stover into cellulosic ethanol has a maximum size of up to 1.5 inches
(28 millimeters) in length because corn stover is so thin.\445\ By
comparison, the particle size requirement for a thermochemical process
is around 10-mm to 100-mm in diameter.\446\ Because of this, we believe
feedstocks such as corn stover, wheat and rice straw, and switchgrass
will likely be feedstocks for biochemical processes. Biochemical plants
will likely be constructed in those areas of the country where these
feedstocks are most abundant, e.g., the corn belt and upper Midwest. On
the other hand, thermochemical plants will likely be constructed in
those areas of the country where forest thinnings, forest fuel-removal
operations, lumber production, and paper mills are most predominant,
e.g., the South. Thermochemical or gasification units could be
constructed near starch or biochemical cellulosic plants in order to
take advantage of byproduct streams. We expect switchgrass (SG) will
preferentially be fed to biochemical units since it is similar to
straw, whereas short-rotation woody crops (SRWC) such as willows or
poplars will preferentially be fed to thermochemical units.
---------------------------------------------------------------------------

    \445\ A. Aden, M. Ruth, K. Ibsen, J. Jechura, K. Neeves, J.
Sheehan, and B. Wallace, National Renewable Energy Laboratory
(NREL); L. Montague, A. Slayton, and J. Lukas Harris Group, Seattle,
Washington, Ethanol Process Design and Economics Utilizing Co-
Current Dilute Acid Prehydrolysis and Enzymatic Hydrolysis for Corn
Stover; June 2002; NREL is a U.S. Department of Energy Laboratory
operated by Midwest Research Institute • Battelle •
Bechtel; Contract No. DE-AC36-99-GO10337.
    \446\ Lin Wei, Graduate Research Assistant, Lester O. Pordesimo,
Assistant Professor, Willam D. Batchelor, Professor, Department of
Agricultural and Biological Engineering, Mississippi State
University, MS 39762, USA, Ethanol Production from Wood: Comparison
of Hydrolysis Fermentation and Gasification Biosynthesis, Paper
Number: 076036, Written for presentation at the 2007 ASABE Annual
International Meeting. Minneapolis Convention Center, Minneapolis,
MN, 17-20 June 2007.
---------------------------------------------------------------------------

    Biochemically, it is much more difficult to convert cellulosic
plant matter into ethanol than it is to convert the starch from corn
grain into ethanol. Corn starch consists of long polysaccharide chains
that are weakly attracted to each other, quite flexible, and tend to
curl up to form tiny particle-like bundles. This loose, flexible
structure permits water and water-borne hydrolyzing enzymes to easily
penetrate the polymer during the process stage known as hydrolysis.
Once hydrolyzed, the corn starch sugar residues are easily fermentable.
    The hydrolysis of cellulosic biomass is much more challenging.
Unlike starch, cellulosic plant matter is made up of three main
constituents: Cellulose, hemicellulose, lignin, and minor amounts of
various other organic and inorganic chemicals.
    Cellulose, the major constituent, is a polymer made up of only
[beta]-linked glucose monosaccharides. This molecular arrangement
allows intra-molecular hydrogen bonds to develop within each monomer
and inter-molecular hydrogen bonds to develop between adjacent polymers
to form tight, rigid, strong, mostly straight polymer bundles that are
insoluble in water and resistant to chemical attack. The net result of
the structural characteristics makes cellulose much more difficult to
hydrolyze than is hemicellulose.
    Hemicellulose contributes significantly to the total fermentable
sugars of the lignocellulosic biomass. Unlike cellulose, hemicellulose
is chemically heterogeneous and highly substituted. Compared to
cellulose, this branching renders it amorphous and relatively easy to
hydrolyze to its constituent sugars.\447\
---------------------------------------------------------------------------

    \447\ Hans P. Blaschek, Professor and Thaddeus C. Ezeji,
Research Assistant, Department of Food Science and Human Nutrition,
University of Illinois, Urbana-Champaign. Science of Alternative Feedstocks.
---------------------------------------------------------------------------

    Lignin, the third principle component, is a complex, cross-linked
polymeric, high molecular weight substance derived principally from
coniferyl alcohol by extensive condensation polymerization. While
cellulose and hemicellulose contribute to the amount of fermentable
sugars for ethanol production, lignin is not so readily digestable, but
can be combusted to provide process energy in a biochemical plant or
used as feedstock to a thermochemical process.\448\
---------------------------------------------------------------------------

    \448\ Glossary of Biomass Terms, National Renewable Energy
Laboratory, Golden, CO. http://www.nrel.gov/biomass/glossary.html.
---------------------------------------------------------------------------

    Because of the complexities in digesting cellulosic biomass, the
residence time is longer to digest the cellulose and perform the
fermentation. Thus, the cellulosic plant capital costs are higher than
those of corn (starch) ethanol plants. However, because corn is a food
source with an intrinsic food value, corn ethanol's feedstock costs are
almost two times higher per ton (more than two times higher in the case
for cellulose from MSW) than the feedstocks of a cellulosic ethanol
plant. It is conceivable that depending on the cellulosic plant
technology which drives its capital and operating costs that cellulosic
ethanol plants' lower feedstock costs could offset its higher capital
costs resulting in lower production costs than corn-based ethanol.
    The National Renewable Energy Laboratory has been evaluating the
state of biochemical cellulosic plant technology over the past decade
or so, and it has identified principal areas for improvement. In 1999,
it released its first report on the likely design concept for an nth
generation biochemical cellulosic ethanol plant which projected the
state of technology in some future year after the improvements were
adopted. In 2002, NREL released a follow-up report which delved deeper
into biochemical plant design in areas that it had identified in the
1999 report as deserving for additional research. Again, the 2002
report estimated the ethanol production cost for an nth generation
biochemical cellulosic ethanol plant. These reports not only helped to
inform policy makers on the likely capability and cost for
biochemically converting cellulose to ethanol, but it helped to inform
biochemical technology researchers on the most likely technology
improvements that could be incorporated into these plant designs.
    To comply with the RFS 2 requirements, NREL assessed the likely
state of biochemical cellulosic plant technology over the years that
the RFS standard is being phased in. The specific years assessed by
NREL were 2010, 2015 and 2022. The year 2010 technology essentially
represents the status of today's biochemical cellulosic plants. The
year 2015 technology captures the expected near-term improvements
including the rapid improvements being made in enzyme technology. The
year 2022 technology captures the cost of mature biochemical cellulosic
plant technology. Table VIII.A.1-3 summarizes NREL's estimated and
projected production costs for biochemical cellulosic ethanol plant
technology in these three years

[[Page 25077]]

reflecting our average feedstock costs and adjusting the capital costs
to a 7 percent before tax rate of return.

               Table VIII.A.1-3--Biochemical Cellulosic Ethanol Production Costs Provided by NREL
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Year technology...................            2010
                                              2015
                                              2022
Plant Size MMgal/yr...............              56
                                                69
                                                71
Capital Cost $MM..................             232
                                               220
                                               199
----------------------------------------------------------------------------------------------------------------
                                       $MM/yr       c/gal        $MM/yr       c/gal        $MM/yr       c/gal
----------------------------------------------------------------------------------------------------------------
Capital Cost 7% ROI before taxes..           25           46           24           35           22           31
Fixed Costs.......................            9           16            9           12            8           12
Feedstock Cost....................           55           99           55           79           55           77
Other raw matl. costs.............           17           30            4            5           16           16
Enzyme Cost.......................           18           32            7           10            5            8
Enzyme nutrients..................            8           14            2            3            2            2
Electricity.......................           -6          -10           -7           -9          -12          -16
Waste disposal....................            1            2            3            4            1            1
                                   -----------------------------------------------------------------------------
    Total Costs...................          127          229           96          139           84          131
----------------------------------------------------------------------------------------------------------------

    NREL's projected improvements in production costs over time are
based on improved reaction biochemistry. Before discussing the expected
improvements in the reaction biochemistry, we will discuss the reaction
pathway for cellulosic biochemical.
    There are two primary reaction steps in a biochemical cellulosic
ethanol plant. The first is hydrolysis. Hydrolysis breaks the
polysaccharides into their sugar residues. The pretreated slurry is fed
to a hydrolysis reactor; there may be multiple reactors, depending on
the desired production rate. Dilute sulfuric acid is used to hydrolyze,
primarily, the hemicellulose polysaccharides, xylan, mannan, arabinan,
and galactan, to produce the mixed sugars. Very little of the cellulose
polysaccharide, glucan, is hydrolyzed.
    The second is saccharification and co-fermentation. Using a
cellulase enzyme cocktail, saccharification of the cellulose to glucose
occurs first at an elevated temperature to take advantage of increased
enzyme activity, which reduces the quantity of required enzyme as well
as the reaction time. Following cellulose saccharification, both the
glucose and xylose sugars are co-fermented. Although xylan, the
hemicellulose polysaccharide, is more easily hydrolyzed than glucan
(cellulose polysaccharides), the xylose sugar is more difficult to
ferment than the glucose sugar. Different microbes as well as different
residence times and process conditions are required for each.
Therefore, it may be necessary to separate the glucose and xylose
monomers before fermentation.
    Because xylan can make up as much as 25% of plant matter it is
imperative that most of be available for ethanol production; the
economic viability of biochemically produced ethanol depends heavily
it. Good progress has been toward that end during the past few years.\449\
---------------------------------------------------------------------------

    \449\ Purdue yeast makes ethanol from agricultural waste more
effectively, Purdue News, June 28, 2004 http://www.purdue.edu/UNS/
html4ever/2004/040628.Ho.ethanol.html. Exit Disclaimer
---------------------------------------------------------------------------

    Also during the past few years, researchers have been developing
ways to combine saccharification and fermentation into a single step
through the use of enzyme/microbe cocktails. DOE and the National
Renewable Energy Laboratory (NREL) have also supported research into
more efficient, less costly enzymes for SSF. With their support, a less
expensive, more efficient enzyme cocktail for cellulosic biomass
fermentation has been developed.\450\ Others have also reported some
success in co-fermenting glucose and xylose.\451\
---------------------------------------------------------------------------

    \450\ GENENCOR LAUNCHES FIRST EVER COMMERCIAL ENZYME PRODUCT FOR
CELLULOSIC ETHANOL, ROCHESTER, NY, World-Wire, October 22, 2007
Copyright[sscopy] 2007. All rights reserved. World-Wire is a
resource provided by Environment News Service. http://world-
wire.com/news/0710220001.html. Exit Disclaimer
    \451\ Ali Mohagheghi, Kent Evans, Yat-Chen Chou, and Min Zhang,
Biotechnology Division for Fuels and Chemicals, National Renewable
Energy Laboratory, Golden, CO 80401, Co-fermentation of Glucose,
Xylose, and Arabinose by Genomic DNA-Integrated Xylose/Arabinose
Fermenting Strain of Zymomonas mobilis AX101, Applied Biochemistry
and Biotechnology Vols. 98-100, 2002, Copyright[sscopy] 2002 by
Humana Press Inc., All rights of any nature whatsoever reserved.
---------------------------------------------------------------------------

    As the biochemical enzymatic pathway is streamlined using more
cost-effective enzymes, and as these enzymes can more comprehensively
saccarify and ferment the cellulose, the conversion fraction of the
cellulose to ethanol will increase and the conversion time will
decrease. An important benefit for these efficiency improvements is
that the number and size of reaction vessels decrease, leading to lower
capital costs and lower fixed operating costs. It is also estimated
that less nutrients would be needed to maintain the enzymes reactivity.
Because the production volume of ethanol will increase relative to the
quantity of feedstock, it lowers the operating costs per gallon of
ethanol. Between these various effects, the per-gallon costs for
producing cellulosic ethanol through the biochemical pathway are
expected to decrease dramatically. It is through these expected
improvements that NREL has estimated reduced production costs for
biochemical cellulosic ethanol plants.
    Thermochemical conversion is another reaction pathway which exists
for converting cellulose to ethanol. Thermochemical technology is based
on the heat and pressure-based gasification or pyrolysis of nearly any
biomass feedstock, including those we've highlighted as likely
biochemical feedstocks. The syngas is converted into mixed alcohols,
hydrocarbon fuels, chemicals, and power. A thermochemical unit can also
complement a biochemical processing plant to enhance the economics of
an integrated biorefinery by converting lignin-rich, non-fermentable
material left over from high-starch or cellulosic. NREL has not yet
estimated the cost of thermochemically converting cellulose to ethanol,
so we did not include a cost estimate using this potential conversion
pathway in our analysis and based our cost analysis entirely on the
biochemical route.\452\ However, one

[[Page 25078]]

report estimated that the costs are similar for converting cellulose to
ethanol either through either the biochemical or thermochemical routes.
Thus, we believe that our cellulosic ethanol costs are representative
of both technologies. In Section VIII.A.3 below, we discuss the costs
for a thermochemical route for producing diesel fuel, often referred to
as biomass-to-liquids (BTL) process.
---------------------------------------------------------------------------

    \452\ NREL has authored a thermochemical report: Phillips, S
Thermochemical Ethanol via Indirect Gasification and Mixed Alcohol
Synthesis of Lignocellulosic Biomass; April, 2007, which does
provide a cost estimate. However, this report only hypothesized how
a thermochemical ethanol plant could achieve production costs at $1
per gallon, and thus it could not be relied upon for any part of our
real-world program cost analysis.
---------------------------------------------------------------------------

c. Imported Sugarcane Ethanol
    We based our imported ethanol fuel costs on cost estimates of
sugarcane ethanol in Brazil. Generally, ethanol from sugarcane produced
in developing countries with warm climates is much cheaper to produce
than ethanol from grain or sugar beets. This is due to favorable
growing conditions, relatively low cost feedstock and energy inputs,
and other cost reductions gained from years of experience.
    As discussed in Chapter 4 of the DRIA, our literature search of
production costs for sugar cane ethanol in Brazil indicates that
production costs tend to range from as low as $0.57 per gallon of
ethanol to as high as $1.48 per gallon of ethanol. This large range for
estimating production costs is partly due to the significant variations
over time in exchange rates, costs of sugarcane and oil products, etc.
For example, earlier estimates may underestimate current crude and
natural gas costs which influence the cost of feedstock as well as
energy costs at the plant. Another possible difference in production
cost estimates is whether or not the estimates are referring to hydrous
or anhydrous ethanol. Costs for anhydrous ethanol (for blending with
gasoline) are typically several cents per gallon higher than hydrous
ethanol (for use in dedicated ethanol vehicles in Brazil).\453\ It is
not entirely clear from the majority of studies whether reported costs
are for hydrous or anhydrous ethanol. Yet another difference could be
the slate of products the plant is producing, for example, future
plants may be dedicated ethanol facilities while others involve the
production of both sugar and ethanol in the same facility. Due to
economies of scale, production costs are also typically smaller per
gallon for larger facilities.
---------------------------------------------------------------------------

    \453\ International Energy Agency (IEA), ``Biofuels for
Transport: An International Perspective,'' 2004.
---------------------------------------------------------------------------

    The study by OECD (2008) entitled ``Biofuels: Linking Support to
Performance'', appears to provide the most recent and detailed set of
assumptions and production costs. As such, our estimate of sugarcane
production costs primarily relies on the assumptions made for the
study, which are shown in Table VIII.A.1-4. The estimate assumes an
ethanol-dedicated mill and is based off an internal rate of return of
12%, a debt/equity ratio of 50% with an 8% interest rate and a selling
of surplus power at $57 per MWh.

                  Table VIII.A.1-4--Cost of Production in a Standard Ethanol Project in Brazil
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Sugarcane Productivity......................  71.5 t/ha.
Sugarcane Consumption.......................  2 million tons/year.
Harvesting days.............................  167.
Ethanol productivity........................  85 liters/ton (22.5 gal/ton).
Ethanol production..........................  170 million liters/year (45 MGY).
Surplus power produced......................  40 kWh/ton sugarcane.
Investment cost in mill.....................  USD 97 million.
Investment cost for sugarcane production....  USD 36 million.
O & M (Operating & Maintenance) costs.......  $0.26/gal.
Sugarcane costs.............................  $0.64/gal.
Capital costs...............................  $0.49/gal.
                                             -------------------------------------------------------------------
    Total production costs..................  $1.40/gal.
----------------------------------------------------------------------------------------------------------------

    The estimate above is based on the costs of producing ethanol in
Brazil on average, today. However, we are interested in how the costs
of producing ethanol will change by the year 2022. Although various
cost estimates exist, analysis of the cost trends over time shows that
the cost of producing ethanol in Brazil has been steadily declining due
to efficiency improvements in cane production and ethanol conversion
processes. Between 1980 and 1998 (total span of 19 years) ethanol cost
declined by approximately 30.8%.\454\ This change in the cost of
production over time in Brazil is known as the ethanol cost ``Learning Curve''.
---------------------------------------------------------------------------

    \454\ Goldemberg, J. as sited in Rothkopf, Garten, ``A Blueprint
for Green Energy in the Americas,'' 2006.
---------------------------------------------------------------------------

    The change in ethanol costs will depend on the likely productivity
gains and technological innovations that can be made in the future. As
the majority of learning may have already occurred, it is likely that
the decline in sugarcane ethanol costs will be less drastic as the
production process and cane practices have matured. This is in contrast
to younger technologies such as those used to produce cellulosic
biofuels which could likely have larger cost reductions over the same
period of time. In fact, there are few perspectives for substantial
efficiency gains with the sugarcane processing technology. Industrial
efficiency gains are already at about 85% and are expected to increase
to 90% in 2015.\455\ Most of the productivity growth is expected to
come from sugarcane production, where yields are expected to grow from
the current 70 tons/ha, to 96 tons/ha in 2025.\456\ Sugarcane quality
is also expected to improve, with sucrose content growing from 14.5% to
17.3% in 2025.\457\ All productivity gains together could allow the
increase in the production of ethanol from 6,000 liters/ha (at 85
liters/ton sugarcane in 2005) to 10,400 liters/ha (at 109 liters/ton
sugarcane) by 2025.\458\ Although not reflected here, there could also
be cost and efficiency improvements related to feedstock collection,
storage, and distribution.
---------------------------------------------------------------------------

    \455\ Unicamp ``A Expans[amacr]o do Proalcool como Programa de
Desenvolvimento Nacional''. Powerpoint presentation at Ethanol
Seminar in BNDES, 2006. As sited in OECD, ``Biofuels: Linking
Support to Performance,'' ITF Round Tables No. 138, March 2008.
    \456\ Ibid.
    \457\ Ibid.
    \458\ Ibid.
---------------------------------------------------------------------------

    Assuming that ethanol productivity increases to 100 liters/ton by
2015 and 109 liters/ton by 2025, sugarcane costs are be expected to
decrease to approximately $0.51/gal from $0.64/gal since less feedstock
is needed to produce the same volume of ethanol

[[Page 25079]]

using the estimates from Table VIII.A.1-4, above. We assumed a linear
decrease between data points for 2005, 2015, and 2025. Adding operating
($0.26/gal) and capital costs ($0.49/gal) from Table VIII.A.1-4, to a
sugarcane cost of $0.51/gal, total production costs are $1.26/gal in 2022.
    Brazil sugarcane producers are also expected to move from burned
cane manual harvesting to mechanical harvesting. As a result, large
amounts of straw are expected to be available. Costs of mechanical
harvesting are lower compared to manually harvesting, therefore, we
would expect costs for sugarcane to decline as greater sugarcane
producers move to mechanical harvesting. However, it is important to
note that diesel use increases with mechanical harvesting, and with
diesel fuel prices expected to increase in the future, costs may be
higher than expected. Therefore, we have not assumed any changes to
harvesting costs due to the switchover from manual harvesting to
mechanical harvesting.
    As more straw is expected to be collected at future sugarcane
ethanol facilities, there is greater potential for production of excess
electricity. The production costs estimates in the OECD study assumes
an excess of 40kWh per ton sugarcane, however, future sugarcane plants
are expected to produce 135 kWh per ton sugarcane.\459\ Assuming excess
electricity is sold for $57 per MWh, the production of 95 kWh per ton
would be equivalent to a credit of $0.22 per gallon ethanol produced.
We did not include this potential additional credit from greater use of
bagasse and straw in our estimates at this time. Our cost estimates do
include, however, the excess electricity produced from bagasse that is
currently used today (40 kWh/ton). We are asking for comment on whether
such a credit should be included in our production cost estimates.
---------------------------------------------------------------------------

    \459\ Macedo. I.C., ``Green house gases emissions in the
production and use of ethanol from sugarcane in Brazil: The 2005/
2006 Averages and a Prediction for 2020,'' Biomass and Bioenergy, 2008.
---------------------------------------------------------------------------

    It is also important to note that ethanol production costs can
increase if the costs of compliance with various sustainability
criteria are taken into account. For instance, using organic or green
cane production, adopting higher wages, etc. could increase production
costs for sugarcane ethanol.\460\ Such sustainability criteria could
also be applicable to other feedstocks, for example, those used in
corn- or soy-based biofuel production. If these measures are adopted in
the future, production costs will be higher than we have projected.
---------------------------------------------------------------------------

    \460\ Smeets E, Junginger M, Faaij A, Walter A, Dolzan P,
Turkenburg W, ``The sustainability of Brazilian ethanol--An
Assessment of the possibilities of certified production,'' Biomass
and Bioenergy, 2008.
---------------------------------------------------------------------------

    In addition to production costs, there are also logistical and port
costs. We used the report from AgraFNP to estimate such costs since it
was the only resource that included both logistical and port costs. The
total average logistical and port cost for sugarcane ethanol is $0.19/
gal and $0.09/gal, respectively, as shown in Table VIII.A.1-5.

   Table VIII.A.1-5--Imported Ethanol Cost at Port in Brazil (2006 $)
------------------------------------------------------------------------
                                            Logistical
                 Region                   costs U.S.  ($/ Port cost U.S.
                                               gal)           ($/gal)
------------------------------------------------------------------------
NE Sao Paulo............................           0.146           0.094
W Sao Paulo.............................           0.204           0.094
SE Sao Paulo............................           0.100           0.094
S Sao Paulo.............................           0.170           0.094
N Parana................................           0.232           0.094
S Goias.................................           0.328           0.094
E Mato Grosso do sul....................           0.322           0.094
Triangulo mineiro.......................           0.201           0.094
NE Cost.................................           0.026           0.058
Sao Francisco Valley....................           0.188           0.058
                                         -------------------------------
    Average.............................           0.192           0.087
------------------------------------------------------------------------

    Total fuel costs must also include the cost to ship ethanol from
Brazil to the U.S. In 2006, this cost was estimated to be approximately
$0.15 per gallon of ethanol.\461\ Costs were estimated as the
difference between the unit value cost of insurance and freight (CIF)
and the unit value customs price. The average cost to ship ethanol from
Caribbean countries (e.g., El Salvador, Jamaica, etc.) to the U.S. in
2006 was approximately $0.12 per gallon of ethanol. Although this may
seem to be an advantage for Caribbean countries, it should be noted
that there would be some additional cost for shipping ethanol from
Brazil to the Caribbean country. Therefore, we assume all costs for
shipping ethanol to be $0.15 per gallon regardless of the country
importing ethanol to the U.S.
---------------------------------------------------------------------------

    \461\ Official Statistics of the U.S. Department of Commerce, USITC.
---------------------------------------------------------------------------

    Total imported ethanol fuel costs (at U.S. ports) prior to tariff
and tax for 2022 is shown in Table VIII.A.1-6, at $1.69/gallon. Direct
Brazilian imports are also subject to an additional $0.54 per gallon
tariff, whereas those imports arriving in the U.S. from Caribbean Basin
Initiative (CBI) countries are exempt from the tariff. In addition, all
imports are given an ad valorem tax of 2.5% for undenatured ethanol and
a 1.9% tax for denatured ethanol. We assumed an ad valorem tax of 2.5%
for all ethanol. Thus, including tariffs and ad valorem taxes, the
average cost of imported ethanol is shown in Table VIII.A.1-7 in the
``Brazil Direct w/Tax & Tariff'' and ``CBI w/Tax'' columns for 2022.

[[Page 25080]]

                                   Table VIII.A.1-6--Average Imported Ethanol Costs Prior to Tariff and Taxes in 2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Transport cost
           Sugarcane production cost  ($/gal)             Operating cost   Capital cost     Logistical    Port cost  ($/   from port to   Total cost  ($/
                                                              ($/gal)         ($/gal)      cost ($/gal)        gal)        U.S.  ($/gal)       gal)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.51....................................................            0.26            0.49            0.19            0.09            0.15            1.69
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                Table VIII.A.1-7--Average Imported Ethanol Costs in 2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Brazil direct w/tax & tariff
                     Brazil direct ($/gal)                                 ($/gal)                     CBI ($/gal)                CBI w/tax ($/gal)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.69..........................................................                          2.27                          1.69                          1.73
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Biodiesel and Renewable Diesel Production Costs
    Biodiesel and renewable diesel production costs are primarily a
function of the feedstock cost, and to a much lesser extent, the
capital and other operating costs of the facility.
a. Biodiesel
    Biodiesel production costs for this rule were estimated using two
versions of a biodiesel production facility model obtained from USDA,
one using degummed soy oil as a feedstock and the other using yellow
grease. The biodiesel from yellow grease model includes the acid pre-
treatment steps required to utilize feedstocks with high free fatty
acid content.
    This production model simulates a 10 million gallon per year plant
operating a continuous flow transesterification process. USDA used the
SuperPro Designer chemical process simulation software to estimate heat
and material flowrates and equipment sizing. Outputs from this software
were then combined in a spreadsheet with equipment, energy, labor, and
chemical costs to generate a final estimate of production cost. The
model is described in a 2006 publication in Bioresource Technology,
peer-reviewed scientific journal.\462\ Table VIII.A.2-1 shows the
production cost allocation for the soy oil-to-biodiesel facility as
modeled in the 2022 policy case.
---------------------------------------------------------------------------

    \462\ Haas, M.J., A process model to estimate biodiesel
production costs, Bioresource Technology 97 (2006) 671-678.

 Table VIII.A.2-1--Production Cost Allocation for Soy Biodiesel Derived
                           From This Analysis
------------------------------------------------------------------------
                                                Contribution to cost
               Cost category                          (percent)
------------------------------------------------------------------------
Soy Oil...................................  87
Other Materials \a\.......................  5
Capital & Facility........................  4
Labor.....................................  3
Utilities.................................  1
------------------------------------------------------------------------
\a\ Includes acids, bases, methanol, catalyst.

    Soy oil costs were generated by the FASOM agricultural model
(described in more detail in Section IX.A). Historically, the majority
of biodiesel production in the U.S. has used soy oil, a relatively
high-value feedstock, but a growing fraction of biodiesel is being made
from yellow grease, the name given to reclaimed or highly-processed oil
(including corn oil extracted from distillers' grains) that is not
suitable for use in food products. This material typically sells for
about 70% of the value of virgin soy oil. Conversion of yellow grease
into biodiesel requires an additional acid pretreatment step, and
therefore the processing costs are higher than for virgin soy oil
(about $0.40/gal at equal feedstock costs). Table VIII.A.2-2 shows the
feedstock and biodiesel costs used in our cost analysis.

 Table VIII.A.2-2--Biodiesel Feedstock and Production Costs Used in This
                            Analysis (2006$)
------------------------------------------------------------------------
                                                           Yellow grease
                                              Soy oil           \a\
------------------------------------------------------------------------
Reference Case..........................  ..............  ..............
    Feedstock $/lb......................           $0.23           $0.16
    Bio- diesel $/gal...................           $2.11           $1.99
Policy Case.............................  ..............  ..............
    Feedstock $/lb......................           $0.32           $0.22
    Bio- diesel $/gal...................           $2.75           $2.47
------------------------------------------------------------------------
\a\ Includes corn oil extracted from thin stillage/DGS, rendered fats,
  recycled greases, etc.

    A co-product of transesterification is crude glycerin. With the
upswing in worldwide biodiesel production in recent years, its market
price is relatively low: In our modeling we assume its value to be
$0.03/lb. As a result, the sale of this material as a co-product only
reduces biodiesel production cost by about $0.02/gal.
b. Renewable Diesel
    Renewable diesel is produced in one of three general
configurations: (1) A new standalone unit located within a refinery,
(2) co-processing in an existing refinery diesel hydrotreater, or (3) a
standalone unit at a rendering plant or another location outside of a
refinery. We expect that the largest fraction of the capacity for
refinery installation will be produced using the co-processing method,
as the production costs are lower than those for a new standalone unit
in a refinery. Thus, we speculate that about 50% of renewable diesel
being produced by the refinery co-processing route, 17% from a new
stand alone unit at a refinery and 33% at rendering plants or as a new
site installation. Recent business partnership and construction
announcements related to renewable diesel production (such as involving
ConocoPhillips facilities in Texas, and

[[Page 25081]]

Tyson-Syntroleum facilities in Louisiana) generally support such a split.
    We derived our production cost estimates from documents made
available publicly by UOP, Inc., to make renewable diesel in a grass
roots standalone production process inside a refinery.\463\ The process
has a pre-treating unit that removes alkali and acidic producing
compounds from feed streams, which removes the catalyst poisons. We
also used the UOP engineering estimate to derive costs for co-
processing renewable diesel in an existing refinery's diesel
hydrotreater. For this, we assumed that refiners will: (1) revamp their
existing diesel hydrotreater to add capacity and (2) add a pre-treater
to remove feedstock contaminants. Lastly, we derived costs for a
standalone unit at a location outside a refinery at a rendering plant
other facility, using a capital cost estimate from Syntroleum Corp.\464\
---------------------------------------------------------------------------

    \463\ A New Development in Renewable Fuels: Green Diesel, AM-07-
10 Annual Meeting NPRA, March 18-20, 2007.
    \464\ From Securities and Exchange Commission Form 8-K for
Syntroleum Corp, June 25th 07.
---------------------------------------------------------------------------

    The extent of the depolymerization and hydrotreating reactions
depend on the process conditions, as some of the carbon backbone of the
oils can be cracked to naphtha and lighter products with higher
severity. For our analysis, we assume no such cracking and predict
yields resulting in ninety-nine percent diesel fuel with the balance as
propane (which could also be considered renewable fuel) and water. We
assume that all of the renewable diesel production will take place in
PADD 2, as feedstock shipping costs are reduced since most of the
sources for feedstock supply are located primarily in the Midwest.
Average processing cost per gallon (in addition to the feedstock) is 41
cents for making renewable diesel from yellow grease/animal fats, based
on our cost methodology.
    As with biodiesel, renewable diesel cost estimates were based on
soy oil feedstock prices taken from the FASOM modeling work, given in
Section IX.A. Our cost estimates for renewable diesel were focused on
use of yellow grease as a feedstock, given the project announcements
mentioned above, as well as the relative insensitivity of the
hydrotreating process to fatty acids and other contaminates relative to
the transesterification process. Oil from corn fractionation, yellow
grease, and animal fat prices were assumed to be 70% the price of soy
oil (consistent with historical market trends). For our 2022 policy
case, with a yellow grease price of $0.23/lb, the production cost is
$2.47/gal for biodiesel and $2.10/gal for renewable diesel (2006$).
Table VIII.A.2-3 shows the projected volume contribution to the
biodiesel and renewable diesel total volume, their production costs,
and the weighted average production cost used for biodiesel and
renewable diesel in this proposal. These results assume feedstock
prices are plant-gate and do not include any product transportation
costs. Note also that the volumes here include co-processed renewable
diesel which does not qualify as biomass-based diesel but which may be
counted as advanced biofuel.

 Table VIII.A.2-3--Projected Costs and Volume Contribution for Biodiesel
                          and Renewable Diesel
                [Policy case, 2006$ and million gallons]
------------------------------------------------------------------------
                  Fuel                         Cost           Volume
------------------------------------------------------------------------
Biodiesel from virgin plant oil.........            2.75             660
Biodiesel from oil extraction at ethanol            2.47             150
 plants, yellow grease..................
Renewable diesel from fat, oil, yellow              2.10             375
 grease.................................
Weighted average cost & total volume....            2.51           1,185
------------------------------------------------------------------------

    Although the per-gallon cost for making renewable diesel from
yellow grease is significantly less than using the biodiesel process,
there are a number of reasons why we believe the latter will still be
used to process some yellow grease (and most of the virgin oil
feedstocks). The primary reason is that there is already sufficient
biodiesel capacity existing or under construction to cover the
projected volumes. Secondly, the per-gallon capital cost to build new
hydroprocessing capacity for renewable diesel is expected to be
significantly higher than for the biodiesel process. The low per-gallon
renewable diesel cost given here is based on the majority of the
production being done by co-processing at existing petroleum refineries.
3. BTL Diesel Production Costs
    Biofuels-to-Liquids (BTL) processes, which are also thermochemical
processes, convert biomass to liquid fuels via a syngas route. The
primary product produced by this process is diesel fuel.
    There are many steps involved in a BTL process which makes this a
capital-intensive process. The first step, like all the cellulosic
processes, requires that the feedstocks be processed to be dried and
ground to a fine size. The second step is the syngas step, which
thermochemically reacts the biomass to carbon monoxide and hydrogen.
Since carbon monoxide production exceeds the stoichiometric ideal
fraction of the mixture, a water shift reaction must be carried out to
increase the relative balance of hydrogen. The syngas products must
then be cleaned to facilitate the following Fischer-Tropsch reaction.
The Fischer-Tropsch reaction reacts the syngas to a range of
hydrocarbon compounds--a type of synthetic crude oil. This hydrocarbon
mixture is then hydrocracked to maximize the production of high cetane
diesel fuel, although some low octane naphtha is also produced. The
many steps of the BTL process contribute to its high capital cost.
    One estimate made by Iowa State University estimates the total cost
for a cellulosic Fischer-Tropsch plant that produces 35 million gallons
per year diesel fuel at $2.37 per gallon. This cost estimated the
capital costs to be $341 million. These costs were estimated in the
year 2002. We adjusted the operating and capital costs to a 2006
investment environment and to 2006 dollars based the costs on our
average $71/dry ton feedstock costs which increases the total cost to
$2.85 per gallon of diesel fuel.
    Initially, the estimated cost of $2.85 per gallon seems high
relative to the projected cost for a year 2015 biochemical cellulosic
plant, which is $1.39 per gallon of ethanol in 2006 dollars. However,
ethanol provides about half the energy content as Fischer-Tropsch
diesel fuel. So if we double the biochemical cellulosic ethanol costs
to $2.78 per diesel fuel-equivalent gallon,

[[Page 25082]]

the estimated costs are very consistent between the two. The cellulosic
biofuel tax subsidy favors the biochemical ethanol plant, though,
because it is a per-gallon subsidy regardless of the energy content,
and it therefore offsets twice as much cost as the BTL plant producing
diesel fuel. There is one more issue worth considering and that is the
relative price of diesel fuel to that of E85. Recently diesel fuel has
been priced much higher than gasoline, and if this trend continues to
hold, it would provide a better market for selling the BTL diesel fuel
than for selling biochemical ethanol into the E85 market, which we
believe will be a challenging pricing market for refiners.
4. Catalytic Depolymerization Costs
    A new technology was developed by Cello Energy which catalytically
depolymerizes cellulose, and then repolymerizes it to produce synthetic
hydrocarbon fuels such as gasoline, jet fuel and diesel fuel The
company claims that they can produce diesel fuel for about $0.40 per
gallon by processing hay, wood chips and used tires. Based on our
projections of future cellulosic feedstock costs, their production
costs for using only cellulosic feedstocks and assuming the cellulosic
feedstock costs developed above would likely be about $1.00 per gallon.
In late 2008 the company started up a 20 million gallon per year
commercial demonstration plant as a first step towards commercializing
their process. We discuss this technology and its costs in more detail
in the DRIA.

B. Distribution Costs

    Our analysis of the costs associated with distributing the volumes
of renewable fuels that we project will be used under RFS2 focuses on:
(1) The capital cost of making the necessary upgrades to the fuel
distribution infrastructure system directly related to handling these
fuels, and (2) the ongoing additional freight costs associated with
shipping renewable fuels to the point where they are blended with
petroleum-based fuels.\465\ The following sections outline our
estimates of the distribution costs for the additional volumes of
ethanol, FAME biodiesel, and renewable diesel fuel that would be used
in response to the RFS2 standards.\466\
---------------------------------------------------------------------------

    \465\ The anticipated ways that the renewable fuels projected to
be used in response to the EISA will be distributed is discussed in
Section V.C. of today's preamble.
    \466\ Please refer to Section 4.2 of the DRIA for additional
discussion of how these estimates were derived.
---------------------------------------------------------------------------

    A discussion of the capability of the transportation system to
accommodate the volumes of renewable fuels projected to be used under
RFS2 is contained in Section V.C. of today's preamble. There will be
ancillary costs associated with upgrading the basic rail, marine, and
road transportation nets to handle the increase in freight volume due
to the RFS2. We have not sought to quantify these ancillary costs
because (1) the growth in freight traffic that is attributable to RFS2
represents a minimal fraction of the total anticipated increase in
freight tonnage (approximately 2% by 2022, see Section V.C.4.), and (2)
we do not believe there is an adequate way to estimate such non-direct
costs. We will continue to evaluate issues associated with the
expansion of the basic transportation net to accommodate the volumes of
renewable fuels projected under RFS2 and will update our analysis for
the final rule based on our findings.
1. Ethanol Distribution Costs
a. Capital Costs To Upgrade the Distribution System for Increased
Ethanol Volume
    Table VIII.B.1-1 contains our estimates of the infrastructure
changes and associated capital costs to support the use of the
additional 21 BGY of ethanol that we project will be used under RFS2 by
2022 relative to the AEO 2007 forecast of 13 BGY.\467\ The total
estimated capital costs are estimated at $12.1 billion which when
amortized equates to approximately 6.9 cents per gallon of this
additional ethanol volume.\468\
---------------------------------------------------------------------------

    \467\ See Section V.C. of today's preamble for discussion of the
upgrades we project will be needed to the distribution system to
handle the increase in ethanol volumes under EISA.
    \468\ These capital costs will be incurred incrementally through
2022 as ethanol volumes increase. Capital costs for tank trucks were
amortized over 10 years with a 7% cost of capital. Other capital
costs were amortized over 15 years with a 7% return on capital.

 Table VIII.B.1-1--Estimated Ethanol Distribution Infrastructure Capital
                                Costs \a\
------------------------------------------------------------------------
                                                              Million $
------------------------------------------------------------------------
Fixed Facilities:                                            ...........
Marine Import Facilities...................................           49
Ethanol Receipt Rail Hub Terminals:
  Rail Car Handling & Misc. Equipment......................        1,264
  Ethanol Storage Tanks....................................          354
Petroleum Terminals:                                         ...........
  Rail Receipt Facilities..................................        2,482
  Ethanol Storage Tanks....................................        1,611
  Ethanol Blending & Misc. Equipment.......................          545
Retail.....................................................        2,957
Mobile Facilities:
Rail Cars..................................................        2,938
Barges.....................................................          183
Tank Trucks................................................          223
                                                            ------------
  Total Capital Costs......................................       12,066
------------------------------------------------------------------------
\a\ Relative to a 13.18 BGY 2022 reference case.

    We request comment on our basis for these estimates as detailed in
chapter 4.2 of the DRIA. Comment is specifically requested on the
extent to which ethanol rail receipt would be accommodated within
petroleum terminals rather than being cited at rail hub terminals (to
be further shipped by tank truck to petroleum terminals). Our current
analysis estimated that half of the new ethanol rail receipt capability
needed to support the use of the projected ethanol volumes under the
EISA would be installed at petroleum terminals, and half would be
installed at rail terminals. A recently completed study by ORNL
estimated that all new ethanol rail receipt capability would be
installed at existing rail terminals given the limited ability to
install such capability at petroleum terminals.\469\
---------------------------------------------------------------------------

    \469\ ``Analysis of Fuel Ethanol Transportation Activity and
Potential Distribution Constraints'', prepared for EPA by Oak Ridge
National Laboratory, March 2009.
---------------------------------------------------------------------------

b. Ethanol Freight Costs
    We estimate that ethanol freight costs would be 11.3 cents per
gallon on a national average basis. Ethanol freight costs are based on
those we derived for the Renewable Fuel Standard final rule updated to
reflect the projected ethanol use patterns and effect on distribution
patterns of increased imports and more dispersed domestic ethanol
production locations.\470\ Specifically, we estimated freight costs by
assessing the location of production and import volumes, where ethanol
would be used, and the modes and distances for transportation between
production and use.\471\ We intend to update our estimate of ethanol
freight costs for the final rule based on a recently completed analysis
conducted for EPA by Oak Ridge National Laboratory (ORNL). The ORNL

[[Page 25083]]

analysis contains more detailed projections of which transportation
modes and combination of modes (e.g., unit train to barge) are best
suited for delivery of ethanol to specific markets considering ethanol
source and end use locations, the current configuration and projected
evolution of the distribution system, and cost considerations for the
different transportation modes.
---------------------------------------------------------------------------

    \470\ Please refer to Section 4.2 of the DRIA for additional
discussion of ethanol freight costs.
    \471\ Our projections regarding the location of ethanol
production/import volumes and where ethanol would be used is
discussed in Sections V.B. and V.D. of today's preamble respectively.
---------------------------------------------------------------------------

2. Biodiesel and Renewable Diesel Distribution Costs
a. Capital Costs To Upgrade the Distribution System for Increased FAME
Biodiesel Volume
    Table VIII.B.2-1 contains our estimates of the infrastructure
changes and associated capital costs to support the use of the
additional 430 MGY of FAME biodiesel that we project will be used under
RFS2 by 2022.\472\ The total capital costs are estimated at $381
million which equates to approximately 9.8 cents per gallon of
additional biodiesel volume.\473\
---------------------------------------------------------------------------

    \472\ We project that by 2022 380 MGY of FAME biodiesel would be
used absent the requirements under EISA and that a total of 810 MGY
of FAME biodiesel would be used under the EISA.
    \473\ These capital costs will be incurred incrementally through
2022 as FAME biodiesel volumes increase. Capital costs for tank
trucks were amortized over 10 years with a 7% cost of capital. Other
capital costs were amortized over 15 years with a 7% return on capital.

 Table VIII.B.2-1--Estimated FAME Biodiesel Distribution Infrastructure
                            Capital Costs \a\
------------------------------------------------------------------------
                                                              Million $
------------------------------------------------------------------------
Fixed Facilities:
Petroleum Terminals:
  Storage Tanks............................................          129
  Biodiesel Blending & Misc. Equipment.....................          192
Mobile Facilities:
Rail Cars..................................................           35
Barges.....................................................           17
Tank Trucks................................................            8
                                                            ------------
  Total Capital Costs......................................          381
------------------------------------------------------------------------
\a\ Relative to a 380 MGY 2022 reference case.

b. Biodiesel Freight Costs
    We estimate that biodiesel freight costs would be 9.3 cents per
gallons on a national average basis. Priority regional demand for
biodiesel was estimated by reviewing State biodiesel mandates/
incentives and assuming a demand for 2% biodiesel in most heating oil
used in the Northeast by 2022. This priority regional demand was
assumed to be filled first from local plants that could ship
economically by tank truck. The remaining fraction of priority regional
demand was assumed to be satisfied from more distant plants via
shipment by manifest rail car. Overall shipping distances were
minimized in selecting which plants would satisfy the demand for a
given area. The amount of biodiesel that we project would be consumed
which would not be directed to priority demand was assumed to be used
within trucking distance of the production plant to the extent possible
while maintaining biodiesel blend concentrations below 5%. The
remaining volume needed to match our estimated production volume was
assumed to be shipped via manifest rail car to the nearest areas where
diesel fuel use was not already saturated with biodiesel to the 5% level.
c. Renewable Diesel Distribution System Capital and Freight Costs
    We project that there would be no additional costs associated with
distributing the 250 MGY of renewable diesel fuel that we estimate will
be produced at refineries by 2022.\474\ This renewable diesel fuel will
be blended into finished diesel fuel at the refinery and be distributed
to petroleum terminals in the same way 100% petroleum-based distillate
fuel is distributed. This is based on our belief that renewable diesel
will be confirmed to be sufficiently similar to petroleum-based diesel
with respect to distribution system compatibility.
---------------------------------------------------------------------------

    \474\ This includes co-processed renewable diesel fuel as well
as renewable diesel fuel produced in separate processing units
located at refineries.
---------------------------------------------------------------------------

    We project that 125 MGY of renewable diesel will be produced at
stand-alone facilities that are not connected to a refinery or
petroleum terminal. We estimate that such renewable diesel will be
trucked to nearby petroleum terminals at a cost of 5 cents per gallon.
We estimate that 8 additional tank trucks would be needed to carry this
renewable diesel to terminals at a total cost of approximately $1.3
million dollars. Amortized over 10 years with a 7% cost of capital, the
total capital costs equate to approximately 0.2 cents per gallon of
renewable diesel fuel produced at stand-alone facilities. We estimate
that no further capital costs would need to be incurred to handle
renewable diesel fuel. This is based on the assumption that renewable
diesel delivered to terminals from stand-alone production facilities
can be mixed directly into storage tanks that contain petroleum-based
diesel fuel or can be stored separately in existing storage tanks for
later blending with petroleum-based diesel fuel. We further estimate
the terminals that receive renewable diesel will not need to install
additional facilities to allow the receipt by tank truck.

C. Reduced Refining Industry Costs

    As renewable and alternative fuel use increases, the volume of
petroleum-based products, such as gasoline and diesel fuel, would
decrease. This reduction in finished refinery petroleum products is
associated with reduced refinery industry costs. The reduced costs
would essentially be the volume of fuel displaced multiplied by the
cost for producing the fuel. There is also a reduction in capital costs
which is important because by not investing in new refinery capital,
more resources are freed up to build plants that produce renewable and
alternative fuels.
    Although we conducted refinery modeling for estimating the cost of
blending ethanol, we did not rely on the refinery model results for
estimating the volume of displaced petroleum. Instead we conducted an
energy balance around the increased use of renewable fuels, estimating
the energy-equivalent volume of gasoline or diesel fuel displaced. This
allowed us to more easily apply our best estimates for how much of the
petroleum would displace imports of finished products versus crude oil
for our energy security analysis which is discussed in Section IX.B of
this preamble.
    As part of this analysis we accounted for the change in petroleum
demanded by upstream processes related to additional production of the
renewable fuels as well as reduced production of petroleum fuels. For
example, growing corn used for ethanol production requires the use of
diesel fuel in tractors, which reduces the volume of petroleum
displaced by the ethanol. Similarly, the refining of crude oil uses by-
product hydrocarbons for heating within the refinery, therefore the
overall effect of reduced gasoline and diesel fuel consumption is
actually greater because of the additional upstream effect. We used the
lifecycle petroleum demand estimates provided for in GREET model to
account for the upstream consumption of petroleum for each of the
renewable and alternative fuels, as well as for gasoline and diesel
fuel. Although there may be some renewable fuel used for upstream
energy, we assumed that this entire volume is petroleum because the
volume of renewable and alternative fuels is fixed as described in
Section V above.
    For this proposed rule, we assumed that a portion of the gasoline
displaced

[[Page 25084]]

by ethanol is imported, while the other portion is produced from
domestic refineries. The assumption we made is that one half of the
ethanol market in the Northeast, which comprises about half of the
nation's gasoline demand, would displace imported gasoline or gasoline
blend stocks. Therefore, to derive the portion of the new renewable
fuels which would offset imports (and not impact domestic refinery
production), we multiplied the total volume of petroleum fuel displaced
by 50% to represent that portion of the ethanol which would be used in
the Northeast, and 50% again to only account for that which would
offset imports. The rest of the ethanol, including half of the ethanol
presumed to be used in the Northeast, is presumed to offset domestic
gasoline production. In the case of biodiesel and renewable diesel, all
of it is presumed to offset domestic diesel fuel production. For
ethanol, biodiesel and renewable diesel, the amount of petroleum fuel
displaced is estimated based on the relative energy contents of the
renewable fuels to the fuels which they are displacing. The savings due
to lower imported gasoline and diesel fuel is accounted for in the
energy security analysis contained in Section IX.B.
    For estimating the U.S. refinery industry cost reductions, we
multiplied the estimated volume of domestic gasoline and diesel fuel
displaced by the wholesale price for each of these fuels, which are
$157 per gallon for gasoline, and $161 per gallon for diesel fuel at
$53/bbl crude oil, and $267 per gallon for gasoline, and $335 per
gallon for diesel fuel at $92/bbl crude oil. For the volume of
petroleum displaced upstream, we valued it using the wholesale diesel
fuel price. Table VIII.C.1-1 shows the net volumetric impact on the
petroleum portion of gasoline and diesel fuel demand, as well as the
reduced refining industry costs for 2022.

               Table VIII.C.1-1--Reduced U.S. Refinery Industry Costs for the RFS2 Program in 2022
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
                                                            Total volume     Cost savings at    Cost savings at
                                                             displaced      $53/bbl crude oil  $92/bbl crude oil
                                                         (billion gallons)        price              price
                                                                            (billion dollars)  (billion dollars)
----------------------------------------------------------------------------------------------------------------
Upstream.........................  Petroleum...........                0.8              -$1.3              -$2.7
End Use..........................  Gasoline............               10.4               16.3               27.7
                                   Diesel Fuel.........                0.6                0.9                1.9
                                                        --------------------------------------------------------
                                      Total............  .................               15.9               26.9
----------------------------------------------------------------------------------------------------------------

D. Total Estimated Cost Impacts

    The previous sections of this chapter presented estimates of the
cost of producing and distributing corn-based and cellulosic-based
ethanol, imported ethanol, biodiesel, and renewable diesel. In this
section, we briefly summarize the methodology used and the results of
our analysis to estimate the cost and other implications for increased
use of renewable fuels to displace gasoline and diesel fuel. An
important aspect of this analysis is refinery modeling which primarily
was used to estimate the costs of blending ethanol into gasoline, as
well as the overall refinery industry impacts of the proposed fuel
program. The refinery modeling was conducted by Jacobs Consultancy
under subcontract to Southwest Research Institute. A detailed
discussion of how the renewable fuel volumes affect refinery gasoline
production volumes and cost is contained in Chapter 4 of the DRIA.
1. Refinery Modeling Methodology
    The refinery modeling was conducted in three distinct steps. The
first step involved the establishment of a 2004 base case which
calibrated the refinery model against 2004 volumes, gasoline quality,
and refinery capital in place. The EPA and ASTM fuel quality
constraints in effect by 2004 are imposed on the products.
    For the second step, we established a 2022 future year reference
case which represents a business-as-usual case as estimated by the
2007Annual Energy Outlook (AEO). The refinery model assumed that the
price of crude oil would average about $51 per barrel, though the
results were later adjusted to reflect $53 and $92 per barrel crude oil
prices. We also modeled the implementation of several new environmental
programs that will have required changes in fuel quality by 2022,
including the 30 part per million (ppm) average gasoline sulfur
standard, the 15 ppm cap standards on highway and nonroad diesel fuel,
the Mobile Source Air Toxics (MSAT) 0.62 volume percent benzene
standard. We modeled the implementation of EPAct of 2005, which by
rescinding the reformulated gasoline oxygenate standard, resulted in
the discontinued use of MTBE, and a large increase in the amount of
ethanol blended into reformulated gasoline. We also modeled the EISA
Energy Bill corporate average fuel economy (café) standards in
the reference case because it will be phasing-in, and affect the phase-
in of the RFS2. We modeled 13.2 billion gallons of ethanol in the
gasoline pool and 0.4 billion gallons of biodiesel in the diesel pool
for 2022, which is the ``business-as-usual'' volume as projected by AEO 2007.
    The third step, or the control case, involved the modeling of the
34 billion gallons of ethanol and 1 billion gallons of biodiesel and
renewable diesel in 2022 to comply with EISA when the proposed
renewable fuels program is fully phased-in. All the other environmental
and ASTM fuel quality constraints are assumed to apply to the control
case as well to solely model the impact of the RFS2 standards.
    The price of ethanol and E85 used in the refinery modeling is a
critical determinant of the overall economics of using ethanol. Ethanol
was priced initially based on the historical average price spread
between regular grade conventional gasoline and ethanol, but then
adjusted post-modeling to reflect the projected production cost for
both corn and cellulosic-based ethanol. The refinery modeling assumed
that all ethanol added to gasoline for E10 is match-blended for octane
by refiners in the reference and control cases, although splash
blending of ethanol was assumed to be appropriate for the conventional
gasoline for the base case based on EPA gasoline data. For the control
case, E85 was assumed to be priced much lower than gasoline to reflect
its lower energy content, longer refueling time and lower availability
(see Chapter 4 of the DRIA for a detailed discussion for how we
projected E85 prices). E85 is assumed to be blended

[[Page 25085]]

with gasoline blendstock designed for blending with E10, and a small
amount of butane to bring the RVP of E85 up to that of gasoline. Thus,
unlike current practices today where E85 is blended at 85% in the
summer and E70 in the winter, we assumed that E85 is blended at 85%
year-round. E85 use in any one market is limited to levels which we
estimated would reflect the ability of FFV vehicles in the area to
consume the E85 volume.
    The refinery model was provided some flexibility and also was
constrained with respect to the applicable gasoline volatility
standards for blending up E10. The refinery model allowed conventional
gasoline and most low RVP control programs to increase by 1.0 pounds
per square inch (psi) in Reid Vapor Pressure (RVP) waiver during the
summer. However, wintertime conventional gasoline was assumed to comply
with the wintertime ASTM RVP and Volume/Liquid (V/L) standards.
    The costs for producing, distributing and using biodiesel and
renewable diesel are accounted for outside the refinery modeling. Their
production and distribution costs are estimated first, compared to the
costs of producing diesel fuel, and then are added to the costs
estimated by the refinery cost model for blending the ethanol.
    The costs were adjusted to reflect the crude oil prices estimated
by EIA in its Annual Energy Outlook (AEO). The AEO 2008 reference case
projects that crude oil will be $53 per barrel in 2022, so we adjusted
our costs slightly to reflect that slightly higher crude oil price. We
also evaluated a higher crude oil price case. The high crude oil case
price modeled for the AEO projects that crude oil will be $92 per
barrel in 2022, so we adjusted our cost model to also estimate the
program costs based on this higher crude oil cost. We estimated the
program costs based on these different crude oil prices by adjusting
the gasoline and diesel fuel prices to reflect the cost of crude oil.
The crude oil costs also have a secondary impact on the production
costs of various renewable and alternative fuels (e.g., petroleum used
to grow corn which also has been reflected in our cost analysis).
2. Overall Impact on Fuel Cost
    Based on the refinery modeling conducted for today's proposed rule,
we calculated the costs for consuming the additional 22 billion gallons
of renewable fuels in 2022 relative to the reference case. The costs
are reported separately for blending ethanol into gasoline as E10 and
E85, and for blending biodiesel and renewable diesel with diesel fuel.
The costs are expressed two different ways. First, we express the full
``engineering'' cost of the program without the ethanol consumption tax
subsidies in which the costs are based on the total accumulated costs
of each of the fuels changes, at both reference case and high crude oil
prices. Second, we express the costs subtracting the ethanol and
biodiesel and renewable diesel consumption tax subsidies since some or
perhaps most of the cost of the tax subsidy may not be reflected in the
price consumers pay at retail. In all cases, the capital costs are
amortized at seven percent return on investment (ROI) before taxes, and
based on 2006 dollars.
a. Costs Without Federal Tax Subsidies
    Table VIII.D.2-1 summarizes the costs without ethanol tax subsidies
for each of the two control cases, including the cost for each aspect
of the fuels changes, and the aggregated total and the per-gallon costs
for all the fuel changes.\475\ This estimate of costs reflects the
changes in gasoline that are occurring with the expanded use of
renewable and alternative fuels. These costs include the labor, utility
and other operating costs, fixed costs and the capital costs for all
the fuel changes expected. The per-gallon costs are derived by dividing
the total costs over all U.S. gasoline and diesel fuel projected to be
consumed in 2022. Note that these costs are incremental only to the
reference case volumes of renewable fuels (costing out about 20 billion
gallons of new renewable fuels) and does not reflect the costs of the
renewable fuel volumes in the reference case.
---------------------------------------------------------------------------

    \475\ EPA typically assesses social benefits and costs of a
rulemaking. However, this analysis is more limited in its scope by
examining the average cost of production of ethanol and gasoline
without accounting for the effects of farm subsidies that tend to
distort the market price of agricultural commodities.

                          Table VIII.D.2-1--Estimated Costs of the RFS2 Program in 2022
                                       [2006 dollars, 7% ROI before taxes]
----------------------------------------------------------------------------------------------------------------
                                                                      $53 per barrel of      $92 per barrel of
                                                                    crude oil incremental  crude oil incremental
                                                                      to reference case      to reference case
----------------------------------------------------------------------------------------------------------------
Gasoline Impacts.......................  $billion/yr..............                  17.0                    4.1
                                         c/gal....................                  10.91                   2.65
Diesel Fuel Impacts....................  $billion/yr..............                   0.78                  -0.05
                                         c/gal....................                   1.20                  -0.07
                                                                   ---------------------------------------------
    Total Impact.......................  $billion/yr..............                  17.8                    4.1
----------------------------------------------------------------------------------------------------------------

    Our analysis shows, as expected, that the RFS2 program is more cost
effective at the higher assumed price of crude oil. At our assumed
crude oil price of $53 per barrel, the gasoline and diesel fuel costs
are projected to increase by $17.0 billion and $0.78 billion,
respectively, or $17.8 billion in total. Expressed as per-gallon costs,
these fuel changes would increase the cost of producing gasoline and
diesel fuel by 10.91 and 1.20 cents per gallon, respectively. At the
assumed crude oil price of $92 per barrel, the gasoline costs are
projected to increase by $4.1 billion and the diesel fuel costs are
projected to decrease by $0.05 billion, or increase by $4.1 billion in
total. Expressed as per-gallon costs, these fuel changes would increase
gasoline costs by 2.65 and decrease diesel fuel costs by 0.07 cents per
gallon at the higher crude oil price. Our analysis shows that at the
higher crude oil price, ethanol, biodiesel and renewable diesel fuel
use would be much less costly to use.
    The increased use of renewable and alternative fuels would require
capital investments in corn and cellulosic ethanol plants, and
renewable diesel fuel plants. In addition to producing the fuels,
storage and distribution facilities along the whole distribution chain,
including at retail, will have to be constructed for these new fuels.
Conversely, as these renewable and

[[Page 25086]]

alternative fuels are being produced, they supplant gasoline and diesel
fuel demand which results in less new investments in refineries
compared to business as usual. In Table VIII.D.2-2, we list the total
incremental capital investments that we project would be made for this
proposed RFS2 rulemaking incremental to the AEO 2007 reference case.

 Table VIII.D.2-2--Total Projected U.S. Capital Investments for the RFS2
                                 Program
                            [billion dollars]
------------------------------------------------------------------------
                                                               Capital
                        Plant Type                              Costs
------------------------------------------------------------------------
Corn Ethanol..............................................          4.0
Cellulosic Ethanol........................................         50.1
Ethanol Distribution......................................         12.4
Bio/Renew Diesel Fuel Production and Distribution.........          0.25
Refining..................................................         -7.9
                                                           -------------
  Total...................................................         58.9
------------------------------------------------------------------------

    Table VIII.D.2-2 shows that the total U.S. incremental capital
investments attributed to this program for 2022 are $58.9 billion. One
contributing reason why the capital investments made for renewable
fuels technologies is so much more than the decrease in refining
industry capital investments is that a large part of the decrease in
petroleum gasoline supply was from reduced imports. In addition,
renewable fuels technologies are more capital intensive per gallon of
fuel produced than incremental increases in gasoline and diesel fuel
production at refineries.
b. Gasoline and Diesel Costs Reflecting the Tax Subsidies
    Table VIII.D.2-3 below expresses the total and per-gallon gasoline
costs for the two control scenarios showing the effect of the Federal
tax subsidies. The Federal tax subsidy is 45 cents per gallon for each
gallon of new corn ethanol blended into gasoline and $1.01 per gallon
for each gallon of cellulosic ethanol. Imported ethanol also receives
the 45 cents per gallon Federal tax subsidy, although the portion of
imported ethanol which exceeds the volume of imported ethanol exempted
through the Caribbean Basin Initiative (CBI) would have to pay a 51
cents per gallon tariff. We estimate that in 2022 imported ethanol
would receive a net 23 cents per gallon subsidy after we account for
both the subsidy and projected volume of imported ethanol subjected to
the tariff. While there are also state ethanol tax subsidies we did not
consider those subsidies. A $1 per gallon subsidy currently applies to
biodiesel produced from virgin plant oils (i.e., soy) and a 50 cent per
gallon subsidy applies to biodiesel and renewable diesel fuel produced
from waste fats and oils; we assume that these subsidies continue.\476\
The subsidies, if passed along to the consumer, reduce the apparent
cost of the program to the consumer at retail since part of the program
cost is being paid through taxes. The cost reduction attributed to the
subsidies is estimated by multiplying the value of the subsidies times
the volume of new corn and cellulosic ethanol used in transportation fuels.
---------------------------------------------------------------------------

    \476\ The recent economic bailout law increased the subsidy
provided to renewable diesel fuel to $1 per gallon, but we were not
able incorporate this change in time for this proposed rulemaking.

                          Table VIII.D.2-3--Estimated Costs of the RFS2 Program in 2022
                          [Reflecting Tax Subsidies, 2006 dollars, 7% ROI before taxes]
----------------------------------------------------------------------------------------------------------------
                                                                      $53 per barrel of      $93 per barrel of
                                                                    crude oil incremental  crude oil incremental
                                                                      to reference case      to reference case
----------------------------------------------------------------------------------------------------------------
Gasoline Impacts.......................  $billion/yr..............                  -0.74                 -13.6
                                         c/gal....................                  -0.48                  -8.74
Diesel Fuel Impacts....................  $billion/yr..............                   0.25                  -0.57
                                         c/gal....................                   0.39                  -0.88
                                                                   ---------------------------------------------
    Total Impact.......................  $billion/yr..............                  -0.49                 -14.2
----------------------------------------------------------------------------------------------------------------

    Our analysis shows, as expected, that the overall costs of the RFS2
program appears to be lower when considering the ethanol consumption
subsidies. At the assumed crude oil price of $53 per barrel, the
gasoline and diesel fuel costs are projected to decrease by $0.74
billion and increase $0.25 billion, respectively, or $-0.49 billion in
total. Expressed as per-gallon costs, these fuel changes would decrease
gasoline costs by -0.48 cents per gallon and increase diesel fuel costs
by 0.39 cents per gallon. At the assumed crude oil price of $92 per
barrel, the gasoline and diesel fuel costs are projected to decrease by
$13.6 billion and $0.57 billion, respectively, or $14.2 billion in
total. Expressed as per-gallon costs, these fuel changes would decrease
gasoline and diesel fuel by 8.74 and 0.88 cents per gallon,
respectively. Reducing the cost by the tax subsidies, which more
closely represents the prices paid by consumers at the pump, our
analysis shows that at lower crude oil prices that the cost of the
program would be very small. However, at the higher oil prices and
including the subsidies, the program's costs are very negative.

IX. Economic Impacts and Benefits of the Proposal

A. Agricultural Impacts

    EPA used two principal tools to model the potential domestic and
international impacts of the RFS2 on the U.S. and global agricultural
sectors. The Forest and Agricultural Sector Optimization Model (FASOM),
developed by Professor Bruce McCarl of Texas A&M University and others,
provides detailed information on domestic agricultural and greenhouse
gas impacts of renewable fuels. The Food and Agricultural Policy
Research Institute (FAPRI) at Iowa State University and the University
of Missouri-Columbia maintains a number of econometric models that are
capable of providing detailed information on impacts on international
agricultural markets from the wider use of renewable fuels in the U.S.
    FASOM is a long-term economic model of the U.S. agriculture sector
that attempts to maximize total revenues for producers while meeting
the demands of consumers. FASOM can be utilized to estimate which
crops, livestock, and processed agricultural products would be produced
in the U.S. given RFS2 biofuel requirements. In each model simulation,
crops compete for price sensitive inputs such as land and labor at the
regional level and the cost of

[[Page 25087]]

these and other inputs are used to determine the price and level of
production of primary commodities (e.g., field crops, livestock, and
biofuel products). FASOM also estimates prices using costs associated
with the processing of primary commodities into secondary products
(e.g., converting livestock to meat and dairy, crushing soybeans to
soybean meal and oil, etc.). FASOM does not capture short-term
fluctuations (i.e., month-to-month, annual) in prices and production,
however, as it is designed to identify long-term trends (i.e., five to
ten years). The domestic results provided throughout this analysis
incorporate the agricultural sector component of the FASOM model.
    The FASOM model also contains a forestry component. Running both
the forestry and agriculture components of the model would show the
interaction between these two sectors. However, the analysis for this
proposal only shows the results from the agriculture component with no
interaction from the forestry sector, as the forestry component of the
model is in the process of being updated. We plan to utilize a complete
version of the model for our analysis in the final rule, where
agricultural land use impacts also affect forestry land use, and
cellulosic ethanol produced from the forestry sector will affect
cellulosic ethanol production in the agriculture sector.
    The FAPRI models are econometric models covering many agricultural
commodities. These models capture the biological, technical, and
economic relationships among key variables within a particular
commodity and across commodities. They are based on historical data
analysis, current academic research, and a reliance on accepted
economic, agronomic, and biological relationships in agricultural
production and markets. The international modeling system includes
international grains, oilseeds, ethanol, sugar, and livestock models.
In general, for each commodity sector, the economic relationship that
supply equals demand is maintained by determining a market-clearing
price for the commodity. In countries where domestic prices are not
solved endogenously, these prices are modeled as a function of the
world price using a price transmission equation. Since econometric
models for each sector can be linked, changes in one commodity sector
will impact other sectors. Elasticity values for supply and demand
responses are based on econometric analysis and on consensus estimates.
Additional information on the FASOM and FAPRI models is included in the
Draft Regulatory Impact Analysis (DRIA Chapter 5).
    For the agricultural sector analysis using the FASOM and FAPRI
models of the RFS2 biofuel volumes, we assumed 15 billion gallons
(Bgal) of corn ethanol would be produced for use as transportation fuel
by 2022, an increase of 2.7 Bgal from the Reference Case. Also, we
modeled 1.0 Bgal of biodiesel used as fuel in 2022, an increase of 0.6
Bgal from the Reference Case. In addition, we modeled an increase of 10
Bgal of cellulosic ethanol in 2022. In FASOM, this volume consists of
7.5 billion gallons of cellulosic ethanol coming from corn residue in
2022, 1.3 billion gallons from switchgrass and 1.4 billion gallons from
sugarcane bagasse. Though these volumes differ slightly from those
analyzed in Section V.B.2.c.iv, we will work to align the volumes for
the final rulemaking.
    Given the short timeframe for conducting this analysis, some of the
projected sources of biofuels analyzed in the RFS2 proposal are not
currently modeled in FASOM and FAPRI. For example, biodiesel from corn
oil fractionation is not currently accounted for in FASOM. In addition,
since FASOM is a domestic agricultural sector model, it can't be
utilized to examine the impacts of the wider use of biofuel imports
into the U.S. Also, neither of the two models used for this analysis--
FASOM or FAPRI--include biofuels derived from domestic municipal solid
waste or from the U.S. forestry sector. Thus, for the RFS2 agricultural
sector analysis, these biofuel sources are analyzed outside of the
agricultural sector models.
    All the results presented in this section are relative to the AEO
2007 Reference Case renewable fuel volumes, which include 12.3 Bgal of
grain-based ethanol, 0.4 Bgal of biodiesel, and 0.3 Bgal of cellulosic
ethanol in 2022. The domestic figures are provided by FASOM, and all of
the international numbers are provided by FAPRI. The detailed FASOM
results, detailed FAPRI results, and additional sensitivity analyses
are described in more detail in the DRIA. We seek comment on this
analysis of the agricultural sector impacts resulting from the wider
use of renewable fuels.

                                 Table IX.A.1-1--Biofuel Volumes Modeled in 2022
                                              [Billions of Gallons]
----------------------------------------------------------------------------------------------------------------
                         Biofuel                             Reference Case     Control Case         Change
----------------------------------------------------------------------------------------------------------------
Corn Ethanol.............................................               12.3              15.0               2.7
Corn Residue Cellulosic Ethanol..........................                0                 7.5               7.5
Sugarcane Bagasse Cellulosic Ethanol.....................                0.3               1.4               1.1
Switchgrass Cellulosic Ethanol...........................                0                 1.3               1.3
Other Ethanol............................................                0                 0.2               0.2
Biodiesel................................................                0.4               1.0               0.6
----------------------------------------------------------------------------------------------------------------

1. Commodity Price Changes
    For the scenario modeled, FASOM predicts that in 2022 U.S. corn
prices would increase by $0.15 per bushel (4.6%) above the Reference
Case price of $3.19 per bushel. By 2022, U.S. soybean prices would
increase by $0.29 per bushel (2.9%) above the Reference Case price of
$9.97 per bushel. The price of sugarcane would increase $13.34/ton
(41%) above the Reference Case price of $32.49 per ton by 2022. In
2022, beef prices would increase $0.93 per hundred pounds (1.4%),
relative to the Reference Case price of $67.72 per hundred pounds.
Additional price impacts are included in Section 5.1.1 of the DRIA.

 Table IX.A.1-2--Change in U.S. Commodity Prices From the Reference Case
                                 [2006$]
------------------------------------------------------------------------
          Commodity                        Change               % Change
------------------------------------------------------------------------
Corn.........................  $0.15/bushel..................        4.6
Soybeans.....................  $0.29/bushel..................        2.9
Sugarcane....................  $13.34/ton....................         41

[[Page 25088]]

Fed Beef.....................  $0.93/hundred pounds..........        1.4
------------------------------------------------------------------------

    By 2022, the price of switchgrass is $30.18 per wet ton and the
farm gate feedstock price of corn stover is $32.74/wet ton. These
prices do not include the storage, handling, or delivery costs, which
would result in a delivered price to the ethanol facility of at least
twice the farm gate cost, depending on the region. We intend to update
the costs assumptions (described in more detail in Section 4.1.1 of the
DRIA) for the final rule and invite comment on these assumptions.
2. Impacts on U.S. Farm Income
    The increase in renewable fuel production provides a significant
increase in net farm income to the U.S. agricultural sector. FASOM
predicts that net U.S. farm income would increase by $7.1 billion
dollars in 2022 (10.6%), relative to the AEO 2007 Reference Case.
3. Commodity Use Changes
    Changes in the consumption patterns of U.S. corn can be seen by the
increasing percentage of corn used for ethanol. FASOM estimates the
amount of domestically produced corn used for ethanol in 2022 would
increase to 33%, relative to the 28% usage rate under the Reference
Case. The rising price of corn and soybeans in the U.S. would also have
a direct impact on how corn is used. Higher domestic corn prices would
lead to lower U.S. exports as the world markets shift to other sources
of these products or expand the use of substitute grains. FASOM
estimates that U.S. corn exports would drop 263 million bushels (-9.9%)
to 2.4 billion bushels by 2022. In value terms, U.S. exports of corn
would fall by $487 million (-5.7%) to $8 billion in 2022.
    U.S. exports of soybeans would also decrease under this proposal.
FASOM estimates that U.S. exports of soybeans would decrease 96.6
million bushels (-9.3%) to 943 million bushels by 2022. In value terms,
U.S. exports of soybeans would decrease by $691 million (-6.7%) to $9.7
billion in 2022.

  Table IX.A.3-1--Reductions in U.S. Exports From the Reference Case in
                                  2022
------------------------------------------------------------------------
              Exports                      Change            % Change
------------------------------------------------------------------------
Corn in Bushels...................  263 million.........            -9.9
Soybeans in Bushels...............  96.6 million........            -9.3
------------------------------------------------------------------------
      Total Value of Exports               Change            % Change
------------------------------------------------------------------------
Corn (2006$)......................  $487 million........            -5.7
Soybeans (2006$)..................  $691 million........            -6.7
------------------------------------------------------------------------

    Higher U.S. demand for corn for ethanol production would cause a
decrease in the use of corn for U.S. livestock feed. Substitutes are
available for corn as a feedstock, and this market is price sensitive.
Several ethanol processing byproducts could also be used to replace a
portion of the corn used as feed, depending on the type of animal.
Distillers dried grains with solubles (DDGS) are a byproduct of dry
milling ethanol production, and gluten meal and gluten feed are
byproducts of wet milling ethanol production. By 2022, FASOM predicts
ethanol byproducts used in feed would increase 19% to 30 million tons,
compared to 25 million tons under the Reference Case.

    Table IX.A.3-2--Percent Change in Ethanol Byproducts Use in Feed
                     Relative to the Reference Case
------------------------------------------------------------------------
                          Category                               2022
------------------------------------------------------------------------
Ethanol Byproducts.........................................          19%
------------------------------------------------------------------------

    The EISA cellulosic ethanol requirements result in the production
of residual agriculture products as well as dedicated energy crops. By
2022, FASOM predicts production of 90 million tons of corn residue and
18 million tons of switchgrass. Sugarcane bagasse for cellulosic
ethanol production increases by 15.7 million tons to 19.7 million tons
in 2022 relative to the Reference Case.
4. U.S. Land Use Changes
    Higher U.S. corn prices would have a direct impact on the value of
U.S. agricultural land. As demand for corn and other farm products
increases, the price of U.S. farm land would also increase. Our
analysis shows that land prices would increase by about 21% by 2022,
relative to the Reference Case. FASOM estimates an increase of 3.2
million acre increase (3.9%) in harvested corn acres, relative to 83.4
million acres harvested under the Reference Case by 2022.\477\ Most of
the new corn acres come from a reduction in existing crop acres, such
as rice, wheat, and hay.
---------------------------------------------------------------------------

    \477\ Total U.S. planted acres increases to 92.2 million acres
from the Reference Case level of 89 million acres in 2022.
---------------------------------------------------------------------------

    Though demand for biodiesel increases, FASOM predicts a fall in
U.S. soybean acres harvested, assuming soybean-based biodiesel meets
the EISA GHG emission reduction thresholds. According to the model,
harvested soybean acres would decrease by approximately 0.4 million
acres (-0.5%), relative to the Reference Case acreage of 71.5 million
acres in 2022. Despite the decrease in soybean acres in 2022, soybean
oil production would increase by 0.4 million tons (4.0%) by 2022 over
the Reference Case. Additionally, FASOM predicts that soybean oil
exports would decrease 1.3 million tons by 2022 (-52%) relative to the
Reference Case.
    As the demand for cellulosic ethanol increases, most of the
production is derived from corn residue harvesting. As demand for
cellulosic ethanol from bagasse increases, sugarcane acres increase by
0.7 millions acres (55%) to 1.9 million acres by 2022. In addition,
some of the cellulosic ethanol comes from switchgrass, which is not
produced under the Reference Case. In the scenario analyzed, 2.8
million acres of switchgrass will be planted by 2022. As described in
Section V, for both the Reference Case and the Control Case, we assume
32 million acres would remain in the Conservation Reserve Program
(CRP). Therefore, some of the new corn, soybean, and switchgrass acres
may be indirectly coming from former CRP land that is not re-enrolled
in the program.

[[Page 25089]]

Table IX.A.4-1--Change in U.S. Crop Acres Relative to the Reference Case
                                 in 2022
                           [Millions of acres]
------------------------------------------------------------------------
                     Crop                          Change      % Change
------------------------------------------------------------------------
Corn..........................................          3.2          3.9
Soybeans......................................         -0.4         -0.5
Sugarcane.....................................          0.7           55
Switchgrass...................................          2.8          N/A
------------------------------------------------------------------------

    The additional demand for corn and other crops for biofuel
production also results in increased use of fertilizer in the U.S. In
2022, FASOM estimates that U.S. nitrogen fertilizer use would increase
897 million pounds (3.4%) over the Reference Case nitrogen fertilizer
use of 26.2 billion pounds. In 2022, U.S. phosphorous fertilizer use
would increase by 496 million pounds (8.6%) relative to the Reference
Case level of 5.8 billion pounds.

 Table IX.A.4-2--Change in U.S. Fertilizer Use Relative to the Reference
                                  Case
                          [Millions of pounds]
------------------------------------------------------------------------
                  Fertilizer                       Change      % Change
------------------------------------------------------------------------
Nitrogen......................................          897          3.4
Phosphorous...................................          496          8.6
------------------------------------------------------------------------

5. Impact on U.S. Food Prices
    Due to higher commodity prices, FASOM estimates that U.S. food
costs \478\ would increase by roughly $10 per person per year by 2022,
relative to the Reference Case.\479\ Total effective farm gate food
costs would increase by $3.3 billion (0.2%) in 2022.\480\ To put these
changes in perspective, average U.S. per capita food expenditures in
2007 were $3,778 or approximately 10% of personal disposable income.
The total amount spent on food in the U.S. in 2007 was $1.14 trillion
dollars.\481\
---------------------------------------------------------------------------

    \478\ FASOM does not calculate changes in price to the consumer
directly. The proxy for aggregate food price change is an indexed
value of all food prices at the farm gate. It should be noted,
however, that according to USDA, approximately 80% of consumer food
expenditures are a result of handling after it leaves the farm
(e.g., processing, packaging, storage, marketing, and distribution).
These costs consist of a complex set of variables, and do not
necessarily change in proportion to an increase in farm gate costs.
In fact, these intermediate steps can absorb price increases to some
extent, suggesting that only a portion of farm gate price changes
are typically reflected at the retail level. See 
http://www.ers.usda.gov/publications/foodreview/septdec00/FRsept00e.pdf.
    \479\ These estimates are based on U.S. Census population
projections of 318 million people in 2017 and 330 million people in
2022. See http://www.census.gov/population/www/projections/
natsum.html.
    \480\ Farm Gate food prices refer to the prices that farmers are
paid for their commodities.
    \481\ See www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/
table15.htm.
---------------------------------------------------------------------------

6. International Impacts
    Changes in the U.S. agriculture economy are likely to have effects
in other countries around the world in terms of trade, land use, and
the global price and consumption of fuel and food. We utilized the
FAPRI model to assess the impacts of the increased use of renewable
fuels in the U.S. on world agricultural markets.
    The FAPRI modeling shows that world corn prices would increase by
7.5% to $3.69 per bushel in 2022, relative to the Reference Case. The
impact on world soybean prices is somewhat smaller, increasing 5.6% to
$9.94 per bushel in 2022.
    Changes to the global commodity trade markets and world commodity
prices result in changes in international land use. The FAPRI model
provides international change in crop acres as a result of the RFS2
proposal. Brazil has the largest positive change in crop acres in 2022,
followed by the U.S., Nigeria, India, Paraguay, and China. The FAPRI
model estimates that Brazil crop acres increase by 3.1 million acres
(2.0%) to 153.6 million acres relative to the Reference Case. Total
U.S. acres increase by 2.3 million acres (1.0%) in 2022 to 232.6
million acres. Nigeria has an increase in crop acres of 1.5 million
acres (5.9%) to 27.3 million acres in 2022. India's total crop acres
increase by 1.0 million acres (0.3%) to 326 million acres in 2022.
Total crop acres in Paraguay increase by 0.8 million acres (6.9%) to 12
million acres. China's total crop acres increase by 0.4 million acres
(0.2%) to 257.8 million acres in 2022.
BILLING CODE 6560-50-P

[[Page 25090]]
[GRAPHIC] [TIFF OMITTED] TP26MY09.011

    The RFS2 proposal results in higher international commodity prices,
which would impact world food consumption.\482\ The FAPRI model
indicates that world consumption of corn for food would decrease by 1.1
million metric tons in 2022 relative to the Reference Case. Similarly,
the FAPRI model estimates that world consumption of wheat for food
would decrease by 0.6 million metric tons in 2022. World consumption of
oil for food (e.g., vegetable oils) decreases 1.8 million metric tons
by 2022. The model also estimates a small change in world meat
consumption, decreasing by 0.3 million metric tons in 2022. When
considering all the food uses included in the model, world food
consumption decreases by 0.9 million metric tons by 2022 (-0.04%).
While FAPRI provides estimates of changes in world food consumption,
estimating effects on global nutrition is beyond the scope of this analysis.
---------------------------------------------------------------------------

    \482\ The food commodities included in the FAPRI model include
corn, wheat, sorghum, barley, soybeans, sugar, peanuts, oils, beef,
pork, poultry, and dairy products.

    Table IX.A.6-1--Change in World Food Consumption Relative to the
                             Reference Case
                        [Millions of metric tons]
------------------------------------------------------------------------
                          Category                               2022
------------------------------------------------------------------------
Corn.......................................................         -1.1
Wheat......................................................         -0.6
Vegetable Oils.............................................         -1.8
Meat.......................................................         -0.3
                                                            ------------
  Total Food...............................................         -0.9
------------------------------------------------------------------------

    Additional information on the U.S. agricultural sector and
international trade impacts of this proposal is described in more
detail in the DRIA (Chapter 5).

B. Energy Security Impacts

    Increasing usage of renewable fuels helps to reduce U.S. petroleum
imports. A reduction of U.S. petroleum imports reduces both financial
and strategic risks associated with a potential disruption in supply or
a spike in cost of a particular energy source. This reduction in risks
is a measure of improved U.S. energy security. In this section, we
estimate the monetary value of the energy security benefits of the RFS2
mandated volumes in comparison to the Reference Case by estimating the
impact of the expanded use of renewable fuels on U.S. oil imports and
avoided U.S. oil import expenditures. In the second section, a
methodology is described for estimating the energy security benefits of
reduced U.S. oil imports. The final section summarizes the energy
security benefits to the U.S. associated with this proposal.
1. Implications of Reduced Petroleum Use on U.S. Imports
    In 2007, U.S. petroleum imports represented 19.5% of total U.S.
imports of all goods and services.\483\ In 2005, the United States
imported almost 60% of the petroleum it consumed. This compares roughly
to 35% of petroleum from imports in 1975.\484\ Transportation accounts
for 70% of the U.S. petroleum consumption. It is clear that petroleum
imports have a significant impact on the U.S. economy. Diversifying
transportation fuels in the U.S. is expected to lower U.S. petroleum
imports. To estimate the impacts of this proposal on the U.S.'s dependence on

[[Page 25091]]

imported oil, we calculate avoided U.S. expenditures on petroleum imports.
---------------------------------------------------------------------------

    \483\ Bureau of Economic Affairs: ``U.S. International
Transactions, Fourth Quarter of 2007'' by Elena L. Nguyen and
Jessica Melton Hanson, April 2008.
    \484\ Davis, Stacy C.; Diegel, Susan W., Transportation Energy
Data Book: 25th Edition, Oak Ridge National Laboratory, U.S.
Department of Energy, ORNL-6974, 2006.
---------------------------------------------------------------------------

    For the proposal, EPA analyzed two approaches to estimate the
reductions in U.S. petroleum imports. The first approach utilizes a
model of the U.S. energy sector, the National Energy Modeling System
(NEMS), to quantify the type and volume of reduced petroleum imports
based on supply and demand for specific fuels in a given year. The
National Energy Modeling System (NEMS) is a computer-based, energy-
economy modeling system of U.S. energy markets through the 2030 time
period. NEMS projects U.S. production, imports, conversion,
consumption, and prices of energy; subject to assumptions on world
energy markets, resource availability and costs, behavioral and
technological choice criteria, cost and performance characteristics of
energy technologies, and demographics. NEMS is designed and implemented
by the Energy Information Administration (EIA) of the U.S. Department
of Energy (DOE). For this analysis, the NEMS model was run with the
2007 AEO levels of biofuels in the Reference Case compared with the
biofuel volume RFS2 requirements.
    Considering the regional nature of U.S. imports of petroleum
imports, a second approach was utilized as well to estimate the impacts
of the RFS2 proposal on U.S. oil imports. This approach is labeled
``Regional Gasoline Market'' approach. This approach makes the
assumption that one half of the ethanol market is in the Northeast
region of the U.S., which also comprises about half of the nation's
gasoline demand. For this analysis, it is estimated that ethanol would
displace imported gasoline or gasoline blend stocks in the Northeast,
but not elsewhere in the country. Therefore, to derive the portion of
the new renewable fuels which would offset U.S. petroleum imports (and
not impact domestic refinery production), we multiplied the total
volume of petroleum fuel displaced by 50 percent to represent that
portion of the ethanol which would be used in the Northeast, and 50
percent again to only account for that which would offset imports. The
rest of the ethanol, including half of the ethanol presumed to be used
in the Northeast, is presumed to offset domestic gasoline production,
which ultimately offsets crude oil inputs at refineries. Biodiesel and
renewable diesel are presumed to offset domestic diesel fuel production.
    The results shown in Table IX.B.1-1 below reflect the net lifecycle
reductions in U.S. oil imports projected by NEMS. The net lifecycle
reductions include the upstream petroleum used to produce renewable
fuels, gasoline and diesel, as well as the petroleum directly used by
end-users.

    Table IX.B.1-1--Net Reductions in Oil Imports in 2022 (NEMS Model
                                Results)
                      [Millions of barrels per day]
------------------------------------------------------------------------
                   Category of reduction                         2022
------------------------------------------------------------------------
Imports of Finished Petroleum Products.....................        0.823
Imports of Crude Oil.......................................      (0.007)
Total Reduction............................................        0.815
Percent Reduction..........................................        6.15%
------------------------------------------------------------------------

    The NEMS model projects that for the year 2022 all of the reduction
in petroleum imports comes out of finished petroleum products. NEMS
projects that 91% of the reductions in 2022 come from reduced net
imports of crude oil and finished petroleum products (as compared to a
9% reduction in domestic U.S. production).
    The results shown in Table IX.B.1-2 below reflect the net lifecycle
reductions in U.S. oil imports projected by the use of the Regional
Gasoline Market approach detailed above.

Table IX.B.1-2--Net Reductions in Oil Imports in 2022 (Regional Gasoline
                        Market Approach Results)
                      [Millions of barrels per day]
------------------------------------------------------------------------
                   Category of reduction                         2022
------------------------------------------------------------------------
Imports of Finished Petroleum Products.....................        0.250
Imports of Crude Oil.......................................        0.637
Total Reduction............................................        0.887
Percent Reduction..........................................        6.17%
------------------------------------------------------------------------

    The Regional Gasoline Market approach projects that for 2022, 72%
of the petroleum supply displacement (on a volume basis) comes out of
reduced net crude oil imports, and 28% out of net imports of finished
petroleum products (excluding biofuels). Using our two approaches for
projecting total petroleum import reductions (the NEMS and the Regional
Gasoline Market), we estimate that petroleum product imports will fall
between 0.815 to 0.887 million barrels per day in 2022 as a result of
the RFS2 proposal.
    Using the NEMS model, we also calculated the change in expenditures
in both U.S. petroleum and ethanol imports with the RFS2 proposal and
compared these with the U.S. trade position measured as U.S. net
exports of all goods and services economy-wide. Changes in fuel
expenditures were estimated by multiplying the changes in gasoline,
diesel, and ethanol net imports by the respective AEO 2008 wholesale
gasoline and distillate price forecasts, and ethanol price forecasts
from the Food and Agricultural Policy Research Institute (FAPRI) for
the specific analysis years. In Table IX.B.1-3, the net expenditures in
reduced petroleum imports and increased ethanol imports are compared to
the total value of U.S. net exports of goods and services for the whole
economy for 2022. The U.S. net exports of goods and services estimates
are taken from Energy Information Administration's Annual Energy
Outlook 2008. We project that avoided expenditures on imported
petroleum products due to this proposal would be roughly $16 billion in
2022. Relative to the 2022 projection, the total avoided expenditures
on liquid transportation fuels are projected to be $12.4 billion with
the RFS2 proposal.

   Table IX.B.1-3--Changes in Expenditures on Transportation Fuel Net
                                 Imports
                           [Billions of 2006$]
------------------------------------------------------------------------
                         Category                               2022
------------------------------------------------------------------------
AEO Total Net Exports.....................................           16
Expenditures on Net Petroleum Imports.....................       (15.96)
Expenditures on Net Ethanol and Biodiesel Imports.........         3.52
Net Expenditures on Transportation Fuel Imports...........       (12.44)
------------------------------------------------------------------------

2. Energy Security Implications
    In order to understand the energy security implications of reducing
U.S. oil imports, EPA has worked with Oak Ridge National Laboratory
(ORNL), which has developed approaches for evaluating the social costs
and energy security implications of oil use. In a new study entitled
``The Energy Security Benefits of Reduced Oil Use, 2006-2015,''
completed in February, 2008, ORNL has updated and applied the
analytical approach used in the 1997 Report ``Oil Imports: An
Assessment of Benefits and Costs.'' 485 486 This new study
is included as part of the record in this rulemaking.\487\
---------------------------------------------------------------------------

    \485\ Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and
Russell Lee, Oil Imports: An Assessment of Benefits and Costs, ORNL-
6851, Oak Ridge National Laboratory, November, 1997.
    \486\ The 1997 ORNL paper was cited and its results used in DOT/
NHTSA's rules establishing CAFE standards for 2008 through 2011
model year light trucks. See DOT/NHTSA, Final Regulatory Impacts
Analysis: Corporate Average Fuel Economy and CAFE Reform MY 2008-
2011, March 2006.
    \487\ Leiby, Paul N. ``Estimating the Energy Security Benefits
of Reduced U.S. Oil Imports,'' Oak Ridge National Laboratory, ORNL/
TM-2007/028, Final Report, 2008.

---------------------------------------------------------------------------

[[Page 25092]]

    The approach developed by ORNL estimates the incremental benefits
to society, in dollars per barrel, of reducing U.S. oil imports, called
the ``oil premium.'' Since the 1997 publication of the ORNL Report,
changes in oil market conditions, both current and projected, suggest
that the magnitude of the oil premium has changed. Significant driving
factors that have been revised include: Oil prices, current and
anticipated levels of OPEC production, U.S. import levels, the
estimated responsiveness of regional oil supplies and demands to price,
and the likelihood of oil supply disruptions. For this analysis, oil
prices from the AEO 2007 were used. Using the ``oil premium'' approach,
the analysis calculates estimates of benefits of improved energy
security from reduced U.S. oil imports due to this proposal.
    When conducting this analysis, ORNL considered the full economic
cost of importing petroleum into the U.S. The full economic cost of
importing petroleum into the U.S. is defined for this analysis to
include two components in addition to the purchase price of petroleum
itself. These are: (1) The higher costs for oil imports resulting from
the effect of U.S. import demand on the world oil price and OPEC market
power (i.e., the ``demand'' or ``monopsony'' costs); and (2) the risk
of reductions in U.S. economic output and disruption of the U.S.
economy caused by sudden disruptions in the supply of imported oil to
the U.S. (i.e., macroeconomic disruption/adjustment costs). Maintaining
a U.S. military presence to help secure stable oil supply from
potentially vulnerable regions of the world was excluded from this
analysis because its attribution to particular missions or activities
is difficult.
    Also excluded from the prior analysis was risk-shifting that might
occur as the U.S. reduces its dependency on petroleum and increases its
use of biofuels. The analysis to date focused on the potential for
biofuels to reduce oil imports, and the resulting implications of lower
imports for energy security. The Agency recognizes that as the U.S.
relies more heavily on biofuels, such as corn-based ethanol, there
could be adverse consequences from a supply-disruption associated with,
for example, a long-term drought. While the causal factors of a supply-
disruption from imported petroleum and, alternatively, biofuels, are
likely to be unrelated, diversifying the sources of U.S. transportation
fuel will provide energy security benefits. The Agency was not able to
conduct an analysis of biofuel supply disruption issue for this proposal.
    Between today's proposal and the final rulemaking, EPA will attempt
to broaden our energy security analysis to incorporate estimates of
overall motor fuel supply and demand flexibility and reliability, and
impacts of possible agricultural sector market disruptions (for
example, a drought) for presentation in the final rule. The expanded
analysis will also consider how the use of biofuels can alter short and
long run elasticity (flexibility) in the motor fuel market, with
implications for robustness of the fuel system in the face of diverse
supply shocks. As part of this analysis, the Agency plans on analyzing
those factors that can cause shifts in the prices of biofuels, and the
impact these factors have on the energy security estimate.
    EPA sponsored an independent-expert peer review of the most recent
ORNL study. A report compiling the peer reviewers' comments is provided
in the docket.\488\ In addition, EPA has worked with ORNL to address
comments raised in the peer review and develop estimates of the energy
security benefits associated with a reduction in U.S. oil imports for
this proposal. In response to peer reviewer comments, EPA modified the
ORNL model by changing several key parameters involving OPEC supply
behavior, the responsiveness of oil demand and supply to a change in
the world oil price, and the responsiveness of U.S. economic output to
a change in the world oil price. EPA is soliciting comments on how to
incorporate additional peer reviewer comments into the ORNL energy
security analysis. (See the DRIA, Chapter 5, for more information on
how EPA responded to peer reviewer comments.)
---------------------------------------------------------------------------

    \488\ Peer Review Report Summary: Estimating the Energy Security
Benefits of Reduced U.S. Oil Imports, ICF, Inc., September 2007.
---------------------------------------------------------------------------

    With these changes for this proposal, ORNL has estimated that the
total energy security benefits associated with a reduction of imported
oil is $12.38/barrel. Based upon alternative sensitivities about OPEC
supply behavior and the responsiveness of oil demand and supply to a
change in the world oil price, the energy security premium ranged from
$7.65 to $17.23/barrel. Highlights of the analysis are described below.
a. Effect of Oil Use on Long-Run Oil Price, U.S. Import Costs, and
Economic Output
    The first component of the full economic costs of importing
petroleum into the U.S. follows from the effect of U.S. import demand
on the world oil price over the long-run. Because the U.S. is a
sufficiently large purchaser of foreign oil supplies, its purchases can
affect the world oil price. This monopsony power means that increases
in U.S. petroleum demand can cause the world price of crude oil to
rise, and conversely, that reduced U.S. petroleum demand can reduce the
world price of crude oil. Thus, one benefit of decreasing U.S. oil
purchases is the potential decrease in the crude oil price paid for all
crude oil purchased. ORNL estimates this component of the energy
security benefit to be $7.65/barrel of U.S. oil imports reduced. A
number of the peer reviewers suggested a variety of ways OPEC and other
oil market participants might react to a decrease in the quantity of
oil purchased by the U.S. ORNL has attempted to reflect a variety of
possible market reactions in the analysis, but continues to evaluate
ways to more explicitly model OPEC and other market participants'
behavior. EPA welcomes comments on this issue. Based upon alternative
sensitivities about OPEC supply behavior, the price-responsiveness of
combined non-OPEC, non-U.S. supply and demand and a lower GDP
elasticity with respect to disrupted oil prices, the monopsony premium
ranged from $3.35-$12.45/barrel of U.S. imported oil reduced.
    EPA recognizes that as the world price of oil falls in response to
lower U.S. demand for oil, there is the potential for an increase in
oil use outside the U.S. This so-called international oil ``take back''
or ``rebound'' effect is hard to estimate. Given that oil consumption
patterns vary across countries, there will be different demand
responses to a change in the world price of crude oil. For example, in
Europe, the price of crude oil comprises a much smaller portion of the
overall fuel prices seen by consumers than in the U.S. Since Europeans
pay significantly more than their U.S. counterparts for transportation
fuels, a decline in the price of crude oil is likely to have a smaller
impact on demand. In many other countries, particularly developing
countries, such as China and India, oil is used more widely in
industrial and even electricity applications, although China and
India's energy picture is evolving rapidly. In addition, many countries
around the world subsidize

[[Page 25093]]

their oil consumption. It is not clear how oil consumption would change
due to changes in the market price of oil with the current pattern of
subsidies. Emerging trends in worldwide oil consumption patterns
illustrates the difficulty in trying to estimate the overall effect of
a reduction in world oil price. However, the Agency recognizes that
this effect is important to capture and is examining methodologies for
quantifying this effect. EPA is exploring the development of this
effect at the regional and country level in an effort to capture the
net effect of different drivers. For example, a lower world oil price
might encourage consumption of oil, but a country might deploy programs
and policies discouraging oil consumption, which would have the net
effect of lowering oil consumption to some level less than otherwise
would be expected. EPA solicits comments on how to estimate this effect.
b. Short-Run Disruption Premium From Expected Costs of Sudden Supply
Disruptions
    The second component of the external economic costs resulting from
U.S. oil imports arises from the vulnerability of the U.S. economy to
oil shocks. The cost of shocks depends on their likelihood, size, and
length; the capabilities of the market and U.S. Strategic Petroleum
Reserve (SPR), the largest stockpile of government-owned emergency
crude oil in the world, to respond; and the sensitivity of the U.S.
economy to sudden price increases. While the total vulnerability of the
U.S. economy to oil price shocks depends on the levels of both U.S.
petroleum consumption and imports, variation in import levels or demand
flexibility can affect the magnitude of potential increases in oil
price due to supply disruptions. Disruptions are uncertain events, so
the costs of alternative possible disruptions are weighted by
disruption probabilities. The probabilities used by the ORNL study are
based on a 2005 Energy Modeling Forum \489\ synthesis of expert
judgment and are used to determine an expected value of disruption
costs, and the change in those expected costs given reduced U.S. oil
imports. ORNL estimates this component of the energy security benefit
to be $4.74/barrel of U.S. imported oil reduced. Based upon alternative
sensitivities about OPEC supply behavior, the price-responsiveness of
combined non-OPEC, non-U.S. supply and demand and a lower GDP
elasticity with respect to disrupted oil prices, the macroeconomic
disruption premium ranged from $2.64-$6.96/barrel of U.S. imported oil
reduced. EPA continues to review recent literature on the macroeconomic
disruption premium and welcomes comment on this issue.
---------------------------------------------------------------------------

    \489\ Stanford Energy Modeling Forum, Phillip C. Beccue and
Hillard G. Huntington, ``An Assessment of Oil Market Disruption
Risks,'' Final Report, EMF SR 8, October, 2005.
---------------------------------------------------------------------------

c. Costs of Existing U.S. Energy Security Policies
    Another often-identified component of the full economic costs of
U.S. oil imports is the cost to the U.S. taxpayers of existing U.S.
energy security policies. The two primary examples are maintaining a
military presence to help secure stable oil supply from potentially
vulnerable regions of the world and maintaining the SPR to provide
buffer supplies and help protect the U.S. economy from the consequences
of global oil supply disruptions.
    U.S. military costs are excluded from the analysis performed by
ORNL because their attribution to particular missions or activities is
difficult. Most military forces serve a broad range of security and
foreign policy objectives. Attempts to attribute some share of U.S.
military costs to oil imports are further challenged by the need to
estimate how those costs might vary with incremental variations in U.S.
oil imports. Similarly, while the costs for building and maintaining
the SPR are more clearly related to U.S. oil use and imports,
historically these costs have not varied in response to changes in U.S.
oil import levels. Thus, while SPR is factored into the ORNL analysis,
the cost of maintaining the SPR is excluded.
    A majority of the peer reviewers agreed with the exclusion of
military expenditures from the current premium analysis primarily
because of the difficulty in defining and measuring how military
programs and expenditures might respond to incremental changes in U.S.
oil imports. One reviewer clearly opposed including military costs on
principle, and one peer reviewer clearly supported their inclusion if
they could be shown to vary with import levels. The matter of whether
military needs and programs can and do vary with U.S. oil imports or
consumption levels would require careful consideration and analysis. It
also calls for expertise in areas outside the scope of the peer review
such as national security and military affairs. EPA solicits comment in
this area.
d. Anticipated Future Effort
    Between the proposal and the final rule, EPA intends to undertake a
variety of actions to improve its energy security premium estimates.
For the monopsony premium, we intend to develop energy security
premiums with alternative AEO oil price cases (e.g., Reference, High,
Low), develop a dynamic analysis methodology (i.e., how the energy
security premium evolves through time), and assess and apply literature
on OPEC strategic behavior/gaming models where possible. For the
macroeconomic disruption impacts, EPA intends to examine recent
literature on the elasticity of GDP to the oil price. Based upon that
literature review, we intend to determine whether there is a difference
in macro disruption impacts in the pre-2000 and post-2000 time period.
Further, we intend to break down the macroeconomic disruption costs by
GDP losses and oil import costs.
    EPA solicits comments on the energy security analysis in a number
of areas. Specifically, EPA is requesting comment on its interpretation
of ORNL's results, ORNL's methodology, the monopsony effect, and the
macroeconomic disruption effect.
e. Total Energy Security Benefits
    Total annual energy security benefits associated with this proposal
were derived from the estimated reductions in imports of finished
petroleum products and crude oil using an energy security premium price
of $12.38/barrel of reduced U.S. oil imports. Based on these values, we
estimate that the total annual energy security benefits would be $3.7
billion in 2022 (in 2006 dollars).

C. Benefits of Reducing GHG Emissions

1. Introduction
    The wider use of renewable fuels from this proposal results in
reductions in greenhouse gas (GHG) emissions. Carbon dioxide
(CO2) and other GHGs mix well in the atmosphere, regardless
of the location of the source, with each unit of emissions affecting
global regional climates; and therefore, influencing regional
biophysical systems. The effects of changes in GHG emissions are felt
for decades to centuries given the atmospheric lifetimes of GHGs. This
section provides estimates for the marginal and total benefits that
could be monetized for the projected GHG emissions reductions of the
proposal. EPA requests comment on the approach utilized to estimate the
GHG benefits associated with the proposal.
2. Marginal GHG Benefits Estimates
    The projected net GHG emissions reductions associated with the
proposal reflect an incremental change to projected total global emissions.

[[Page 25094]]

Therefore, as shown in Section VI.G, the projected global climate
signal will be small but discernable (i.e., incrementally lower
projected distribution of global mean surface temperatures). Given that
the climate response is projected to be a marginal change relative to
the baseline climate, it is conceptually appropriate to use an approach
that estimates the marginal value of changes in climate change impacts
over time as an estimate for the monetized marginal benefit of the GHG
emissions reductions projected for this proposal. The marginal value of
carbon is equal to the net present value of climate change impacts over
hundreds of years of one additional net global metric ton of GHGs
emitted to the atmosphere at a particular point in time. This marginal
value (i.e., cost) of carbon is sometimes referred to as the ``social
cost of carbon.''
    Based on the global implications of GHGs and the economic
principles that follow, EPA has developed ranges of global, as well as
U.S., marginal benefits estimates (Table IX.C.2-1).\490\ It is
important to note at the outset that the estimates are incomplete since
current methods are only able to reflect a partial accounting of the
climate change impacts identified by the IPCC (discussed more below).
Also, domestic estimates omit potential impacts on the United States
(e.g., economic or national security impacts) resulting from climate
change impacts in other countries. The global estimates were developed
from a survey analysis of the peer reviewed literature (i.e., meta
analysis). U.S. estimates, and a consistent set of global estimates,
were developed from a single model and are highly preliminary, under
evaluation, and likely to be revised. The latter set of estimates was
developed because the peer reviewed literature does not currently
provide regional (i.e., at the U.S. or China level) marginal benefits
estimates, and it was important to have a consistent set of regional
and global estimates. Ranges of estimates are provided to capture some
of the uncertainties associated with modeling climate change impacts.
---------------------------------------------------------------------------

    \490\ For background on economic principles and the marginal
benefit estimates, see Technical Support Document on Benefits of
Reducing GHG Emissions, U.S. Environmental Protection Agency, June
12, 2008, www.regulations.gov (search phrase ``Technical Support
Document on Benefits of Reducing GHG Emissions'').
---------------------------------------------------------------------------

    The range of estimates is wide due to the uncertainties relating to
socio-economic futures, climate responsiveness, impacts modeling, as
well as the choice of discount rate. For instance, for 2007 emission
reductions and a 2% discount rate the global meta analysis estimates
range from $-3 to $159/tCO2, while the U.S. estimates range
from $0 to $16/tCO2. For 2007 emission reductions and a 3%
discount rate, the global meta-estimates range from $-4 to $106/
tCO2, and the U.S. estimates range from $0 to $5/
tCO2.\491\ The global meta analysis mean values for 2007
emission reductions are $68 and $40/tCO2 for discount rates
of 2% and 3%, respectively (in 2006 real dollars), while the domestic
mean value from a single model are $4 and $1/tCO2 for the
same discount rates. The estimates for future year emission changes
will be higher as future marginal emissions increases are expected to
produce larger incremental damages as physical and economic systems
become more stressed as the magnitude of climate change increases.\492\
---------------------------------------------------------------------------

    \491\ See Table IX.C.1 for global (FUND) estimates consistent
with the U.S. estimates.
    \492\ The IPCC suggests an increase of 2-4% per year (IPCC WGII,
2007. Climate Change 2007--Impacts, Adaptation and Vulnerability.
Contribution of Working Group II to the Fourth Assessment Report of
the IPCC, www.ipcc.ch/ Exit Disclaimer). For Table IX.C.1., we
assumed the estimates increased at 3% per year. For the final rule, we
anticipate that we will explicitly estimate FUND marginal benefits
values for each emissions reduction year.

                Table IX.C.2-1--Marginal GHG Benefits Estimates for Discount Rates of 2%, 3%, and 7% and Year of Emissions Change in 2022
                                                         [All values are reported in 2006$/tCO2]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      2%                               3%                             7% \b\
                                                      --------------------------------------------------------------------------------------------------
                                                          Low      Central      High       Low      Central      High       Low      Central      High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Meta global..........................................         -2        105        247         -2         62        165        n/a        n/a        n/a
FUND global..........................................         -4        136       1083         -4         26        206         -2         -1          9
FUND domestic........................................      \a\ 0          7         26      \a\ 0          2          9      \a\ 0      \a\ 0      \a\ 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ These estimates, if explicitly estimated, may be greater than zero, especially in later years. They are currently reported as zero because the
  explicit estimates for an earlier year were zero and were grown at 3% per year. However, we do not anticipate that the explicit estimates for these
  later years would be significantly above zero given the magnitude of the current central estimates for discount rates of 2% and 3% and the effect of
  the high discount rate in the case of 7%.
\b\ Except for illustrative purposes, the marginal benefits estimates in the peer reviewed literature do not use consumption discount rates as high as 7%.

    The meta analysis ranges were developed from the Tol (2008) meta
analysis. The meta analysis range only includes global estimates
generated by more recent peer reviewed studies (i.e., published after
1995). In addition, the ranges only consider regional aggregations
using simple summation and intergenerational consumption discount rates
of approximately 2% and 3%.\493\ Discount rates of 2% and 3% are
consistent with EPA and OMB guidance on intergenerational discount
rates (EPA, 2000; OMB, 2003).\494\ The estimated distributions of the
meta global estimates are right skewed with long right tails, which is
consistent with characterizations of the low probability high impact
damages (see the DRIA for the estimated probability density functions
by discount rate).\495\ The central meta estimates in Table IX.C.2-1
are means, and the low and high are the 5th and 95th percentiles. Means are

[[Page 25095]]

presented because, as a central statistic, they better represent the
skewed shape of these distributions compared to medians.
---------------------------------------------------------------------------

    \493\ Tol (2008) is an update of the Tol (2005) meta analysis.
Tol (2005) was used in the IPCC Working Group II's Fourth Assessment
Report (IPCC WGII, 2007).
    \494\ OMB and EPA guidance on inter-generational discounting
suggests using a low but positive discount rate if there are
important intergenerational benefits/costs. Consumption discount
rates of 1-3% are given by OMB and 0.5-3% by EPA (OMB Circular A-4,
2003; EPA Guidelines for Preparing Economic Analyses, 2000).
    \495\ E.g., Webster, M., C. Forest, J.M. Reilly, M.H. Babiker,
D.W. Kicklighter, M. Mayer, R.G. Prinn, M. Sarofim, A.P. Sokolov,
P.H. Stone & C. Wang, 2003. Uncertainty Analysis of Climate Change
and Policy Response, Climatic Change 61(3): 295-320. Also, see
Weitzman, M., 2007, ``The Stern Review of the Economics of Climate
Change,'' Journal of Economic Literature. Weitzman, M., 2007,
``Structural Uncertainty and the Statistical Life in the Economics
of Catastrophic Climate Change,'' Working paper
http://econweb.fas.harvard.edu/faculty/weitzman/papers/ValStatLifeClimate.pdf.
---------------------------------------------------------------------------

    The consistent domestic and global estimates were developed using
the FUND integrated assessment model (i.e., the Climate Framework for
Uncertainty, Negotiation, and Distribution).\496\ The ranges were
generated from sensitivity analyses where we varied assumptions with
respect to climate sensitivity (1.5 to 6.0 degrees Celsius),\497\ the
socio-economic and emissions baseline scenarios (the FUND default
baseline and three baselines from the Intergovernmental Panel on
Climate Change (IPCC) Special Report on Emissions Scenarios,
SRES),\498\ and the consumption discount rates of approximately 2%, 3%,
and 7%, where 2% and 3% are consistent with intergenerational
discounting.\499\ Furthermore, the model was calibrated to the EPA
value of a statistical life of $7.4 million (in 2006 real
dollars).\500\ The FUND global estimates are the sum of the regional
estimates within FUND. The FUND global and domestic central values in
Table IX.C.2-1 are weighted averages of the FUND estimates from the
sensitivity analysis (see the DRIA for details). The low and high
values are the low and high estimates across the sensitivity runs.
---------------------------------------------------------------------------

    \496\ FUND is a spatially and temporally consistent framework--
across regions of the world (e.g., U.S., China), impacts sectors,
and time. FUND explicitly models impacts sectors in 16 global
regions. FUND is one of the few models in the world that explicitly
models global and regional marginal benefits estimates. Numerous
applications of FUND have been published in the peer reviewed literature
dating back to 1997. See http://www.fnu.zmaw.de/FUND.5679.0.html. Exit Disclaimer
    \497\ In IPCC reports, equilibrium climate sensitivity refers to
the equilibrium change in the annual mean global surface temperature
following a doubling of the atmospheric equivalent carbon dioxide
concentration. The IPCC states that climate sensitivity is
``likely'' to be in the range of 2 [deg]C to 4.5 [deg]C and
described 3 [deg]C as a ``best estimate'', which is the mode (or
most likely) value. The IPCC goes on to note that climate
sensitivity is ``very unlikely'' to be less than 1.5 [deg]C and
``values substantially higher than 4.5 [deg]C cannot be excluded.''
IPCC WGI, 2007, Climate Change 2007--The Physical Science Basis,
Contribution of Working Group I to the Fourth Assessment Report of
the IPCC, http://www.ipcc.ch/. Exit Disclaimer
    \498\ The IMAGE model SRES baseline data was used for the A1b,
A2, and B2 scenarios (IPCC, 2000. Special Report on Emissions
Scenarios. A special report of Working Group III of the
Intergovernmental Panel on Climate Change. Cambridge University
Press, Cambridge).
    \499\ The EPA guidance on intergenerational discounting states
that ``[e]conomic analyses should present a sensitivity analysis of
alternative discount rates, including discounting at two to three
percent and seven percent as in the intra-generational case, as well
as scenarios using rates in the interval one-half to three percent
as prescribed by optimal growth models.'' (EPA, 2000).
    \500\ This number may be updated to be consistent with recent
EPA regulatory impact analyses that have used a value of $6.4
million (in 2006 real dollars).
---------------------------------------------------------------------------

    From Table IX.C.2-1, we see that, in terms of the current monetized
benefits, the domestic marginal benefits are a fraction of the global
marginal benefits. Given uncertainties and omitted impacts, it is
difficult to estimate the actual ratio of total domestic benefits to
total global benefits. The estimates suggest that an emissions
reduction will have direct benefits for current and future U.S.
populations and large benefits for global populations. The long-run and
intergenerational implications of GHG emissions are evident in the
difference in results across discount rates. In the current modeling,
there are substantial long-run benefits (beyond the next two decades to
over 100 years) and some near-term benefits as well as negative effects
(e.g., agricultural productivity and heating demand). High discount
rates give less weight to the distant benefits in the net present value
calculations, and more weight to near-term effects. While not obvious
in Table IX.C.2-1, an additional unit of emissions in the higher
climate sensitivity scenarios, versus the lower climate sensitivity
scenarios, is estimated to have a proportionally larger effect on the
rest of the world compared to the U.S. (see more detailed results in
DRIA). These points are discussed more below.
3. Discussion of Marginal GHG Benefits Estimates
    This section briefly discusses important issues relevant to the
marginal benefits estimates in Table IX.C.2-1 (see the DRIA for more
extensive discussion). The broad range of estimates in Table IX.C.2-1
reflects some of the uncertainty associated with estimating monetized
marginal benefits of climate change. The meta analysis range reflects
differences in these assumptions as well as differences in the modeling
of changes in climate and impacts considered and how they were modeled.
EPA considers the meta analysis results to be more robust than the
single model estimates in that the meta results reflect uncertainties
in both models and assumptions.
    The current state-of-the-art for estimating benefits is important
to consider when evaluating policies. There are significant partially
unquantified and omitted impact categories not captured in the
estimates provided above. The IPCC WGII (2007) concluded that current
estimates are ``very likely'' to be underestimated because they do not
include significant impacts that have yet to be monetized.\501\ Current
estimates do not capture many of the main reasons for concern about
climate change, including nonmarket damages (e.g., species existence
value and the value of having the option for future use), the effects
of climate variability, risks of potential extreme weather (e.g.,
droughts, heavy rains and wind), socially contingent effects (such as
violent conflict or humanitarian crisis), and thresholds (or tipping
points) associated with species, ecosystems, and potential long-term
catastrophic events (e.g., collapse of the West Antarctic Ice Sheet,
slowing of the Atlantic Ocean Thermohaline Circulation).
Underestimation is even more likely when one considers that the current
trajectory for GHG emissions is higher than typically modeled, which
when combined with current regional population and income trajectories
that are more asymmetric than typically modeled, imply greater climate
change and vulnerability to climate change. See the DRIA for an
initial, partial list of impacts that are currently not modeled in the
FUND model and are thus not reflected in the FUND estimates. EPA is
planning to develop a full assessment of what is not currently being
captured in FUND for the final rule. In addition, EPA plans to quantify
omitted impacts and update impacts currently represented to the maximum
extent possible for the final rule.
---------------------------------------------------------------------------

    \501\ IPCC WGII, 2007. In the IPCC report, ``very likely'' was
defined as a greater than 90% likelihood based on expert judgment.
---------------------------------------------------------------------------

    The current estimates are also deterministic in that they do not
account for the value people have for changes in risk due to changes in
the likelihood of potential impacts associated with reductions in
CO2 and other GHG emissions (i.e., a risk premium). This is
an issue that has concerned Weitzman and other economists.\502\ We plan
to conduct a formal uncertainty analysis for the final rule to attempt
to account for, to the extent possible, these and other changes in uncertainty.
---------------------------------------------------------------------------

    \502\ E.g, Webster et al., 2003; Weitzman, M., 2007.
http://econweb.fas.harvard.edu/faculty/weitzman/papers/ValStatLifeClimate.pdf.
---------------------------------------------------------------------------

    The estimates in Table IX.C.2-1 are only relevant for incremental
policies relative to the projected baselines (that do not reflect
potential future climate policies) and there is substantial uncertainty
associated with the estimates themselves both in terms of what is being
modeled and what is not being modeled, with many uncertainties outside
of observed variability.\503\ Both

[[Page 25096]]

of these points are important for non-marginal emissions changes and
estimating total benefits. Also, the uncertainties inherent in this
kind of modeling, including the omissions of many important impacts
categories, present problems for approaches attempting to identify an
economically efficient level of GHG reductions and to positive net
benefit criteria in general, and point to the importance of considering
factors beyond monetized benefits and costs. In uncertain situations
such as that associated with climate, EPA typically recommends that
analysis consider a range of benefit and cost estimates, and the
potential implications of non-monetized and non-quantified benefits.
---------------------------------------------------------------------------

    \503\ Because some types of potential climate change impacts may
occur suddenly or begin to increase at a much faster rate, rather
than increasing gradually or smoothly, different approaches are
necessary for quantifying the benefits of ``large'' (non-
incremental) versus ``small'' (incremental) reductions in global
GHGs. Marginal benefits estimates, like those presented above, can
be useful for estimating benefits for small changes in emissions.
See the DRIA for additional discussion of this point. Note that even
small reductions in global GHG emissions are expected to reduce
climate change risks, including catastrophic risks.
---------------------------------------------------------------------------

    Economic principles suggest that global benefits should also be
considered when evaluating alternative GHG reduction policies.\504\
Typically, because the benefits and costs of most environmental
regulations are predominantly domestic, EPA focuses on benefits that
accrue to the U.S. population when quantifying the impacts of domestic
regulation. However, OMB's guidance for economic analysis of federal
regulations specifically allows for consideration of international
effects.\505\ GHGs are global and very long-run public goods, and
economic principles suggest that the full costs to society of emissions
should be considered in order to identify the policy that maximizes the
net benefits to society, i.e., achieves an efficient outcome (Nordhaus,
2006).\506\ As such, estimates of global benefits capture more of the
full value to society than domestic estimates and will result in higher
global net benefits for GHG reductions when considered.\507\
---------------------------------------------------------------------------

    \504\ Recently, the National Highway Traffic Safety
Administration (NHTSA) issued the final Environmental Impact
Statement for their proposed rulemaking for average fuel economy
standards for passenger cars and light trucks in which the preferred
alternative is based upon a domestic marginal benefit estimate for
carbon dioxide reductions. See Average Fuel Economy Standards,
Passenger Cars and Light Trucks, MY 2011-2015, Final Environmental
Impact Statement http://www.nhtsa.dot.gov/portal/site/nhtsa/
menuitem.43ac99aefa80569eea57529cdba046a0/.
    \505\ OMB (2003), page 15.
    \506\ Nordhaus, W., 2006, ``Paul Samuelson and Global Public
Goods,'' in M. Szenberg, L. Ramrattan, and A. Gottesman (eds),
Samuelsonian Economics, Oxford.
    \507\ Both the United Kingdom and the European Commission
following these economic principles in consideration of the global
social cost of carbon (SCC) for valuing the benefits of GHG emission
reductions in regulatory impact assessments and cost-benefit
analyses (Watkiss et al. 2006).
---------------------------------------------------------------------------

    Furthermore, international effects of climate change may also
affect domestic benefits directly and indirectly to the extent U.S.
citizens value international impacts (e.g., for tourism reasons,
concerns for the existence of ecosystems, and/or concern for others);
U.S. international interests are affected (e.g., risks to U.S. national
security, or the U.S. economy from potential disruptions in other
nations); and/or domestic mitigation decisions affect the level of
mitigation and emissions changes in general in other countries (i.e.,
the benefits realized in the U.S. will depend on emissions changes in
the U.S. and internationally). The economics literature also suggests
that policies based on direct domestic benefits will result in little
appreciable reduction in global GHGs (e.g., Nordhaus, 1995).\508\ While
these marginal benefits estimates are not comprehensive or economically
optimal, the global estimates in Table IX.C.2-1 internalize a larger
portion of the global and intergenerational externalities of reducing a
unit of emissions.
---------------------------------------------------------------------------

    \508\ Nordhaus, William D. (1995). ``Locational Competition and
the Environment: Should Countries Harmonize Their Environmental
Policies?'' in Locational Competition in the World Economy,
Symposium 1994, ed., Horst Siebert, J. C. B. Mohr (Paul Siebeck),
Tuebingen, 1995.
---------------------------------------------------------------------------

    A key challenge facing EPA is the appropriate discount rate over
the longer timeframe relevant for GHGs. With the benefits of GHG
emissions reductions distributed over a very long time horizon, benefit
and cost estimations are likely to be very sensitive to the discount
rate. When considering climate change investments, they should be
compared to similar alternative investments (via the discount rate).
Changes in GHG emissions--both increases and reductions--are
essentially long-run investments in changes in climate and the
potential impacts from climate change, which includes the potential for
significant impacts from climate change, where the exact timing and
magnitude of these impacts are unknown.
    When there are important benefits or costs that affect multiple
generations of the population, EPA and OMB allow for low but positive
discount rates (e.g., 0.5-3% noted by U.S. EPA, 1-3% by OMB).\509\ In
this multi-generation context, the three percent discount rate is
consistent with observed interest rates from long-term investments
available to current generations (net of risk premiums) as well as
current estimates of the impacts of climate change that reflect
potential impacts on consumers. In addition, rates of three percent or
lower are consistent with long-run uncertainty in economic growth and
interest rates, considerations of issues associated with the transfer
of wealth between generations, and the risk of high impact climate
damages. Given the uncertain environment, analysis could also consider
evaluating uncertainty in the discount rate (e.g., Newell and Pizer,
2001, 2003).\510\
---------------------------------------------------------------------------

    \509\ EPA (U.S. Environmental Protection Agency), 2000.
Guidelines for Preparing Economic Analyses. EPA 240-R-00-003. See
also OMB (U.S. Office of Management and Budget), 2003. Circular A-4.
September 17, 2003. These documents are the guidance used when
preparing economic analyses for all EPA rulemakings.
    \510\ Newell, R. and W. Pizer, 2001. Discounting the benefits of
climate change mitigation: How much do uncertain rates increase
valuations? PEW Center on Global Climate Change, Washington, DC.
Newell, R. and W. Pizer, 2003. Discounting the distant future: how
much do uncertain rates increase valuations? Journal of
Environmental Economics and Management 46:52-71.
---------------------------------------------------------------------------

    For the final rulemaking, we will be developing and updating the
FUND model as best as possible based on the latest research and peer
reviewing the estimates. To improve upon our estimates, we hope to
evaluate several factors not currently captured in the proposed
estimates due to time constraints. For example, we will quantify
additional impact categories as is possible and provide a qualitative
evaluation of the implications of what is not monetized. We also plan
to conduct an uncertainty analysis, consider complementary bottom-up
analyses, and develop estimates of the marginal benefits associated
with non-CO2 GHGs relevant to the rule (e.g.,
CH4, N2O, and HFC-134a).\511\
---------------------------------------------------------------------------

    \511\ Due to differences in atmospheric lifetime and radiative
forcing, the marginal benefit values of non-CO2 GHG
reductions and their growth rates over time will not be the same as
the marginal benefits of CO2 emissions reductions (IPCC
WGII, 2007).
---------------------------------------------------------------------------

    EPA solicits comment on the appropriateness of using U.S. and
global values in quantifying the benefits of GHG reductions and the
appropriate application of benefits estimates given the state of the
art and overall uncertainties. We also seek comment on our estimates of
the global and U.S. marginal benefits of GHG emissions reductions that
EPA has developed, including the scientific and economic foundations,
the methods employed in developing the estimates, the discount

[[Page 25097]]

rates considered, current and proposed future consideration of
uncertainty in the estimates, marginal benefits estimates for non-
CO2 GHG emissions reductions, and potential opportunities
for improving the estimates. We are also interested in comments on
methods for quantifying benefits for non-incremental reductions in
global GHG emissions.
    Because the literature on SCC and our understanding of that
literature continues to evolve, EPA will continue to assess the best
available information on the social cost of carbon and climate
benefits, and may adjust its approaches to quantifying and presenting
information on these areas in future rulemakings.
4. Total Monetized GHG Benefits Estimates
    As described in Section VI.F, annualized equivalent GHG emissions
reductions associated with the RFS2 proposal in 2022 would be 160
million metric tons of CO2 equivalent (MMTCO2eq)
with a 2% discount rate, and 155 and 136 MMCO2eq with
discount rates of 3% and 7%, respectively. This section provides the
monetized total GHG benefits estimates associated with the proposal in
2022. As discussed above in Section IX.C.3, these estimates do not
include significant impacts that have yet to be monetized. Total
monetized benefits in 2022 are calculated by multiplying the marginal
benefits per metric ton of CO2 in that year by the
annualized equivalent emissions reductions. For the final rulemaking,
we plan to separate the emissions reductions by gas and use
CO2 and non-CO2 marginal benefits estimates. Non-
CO2 GHGs have different climate and atmospheric implications
and therefore different marginal climate impacts.
    Table IX.C.4-1 provides the estimated monetized GHG benefits of the
proposal for 2022. The large range of values in the Table reflects some
of the uncertainty captured in the range of monetized marginal benefits
estimates presented in Table IX.C.2-1.\512\ All values in this section
are presented in 2006 real dollars.
---------------------------------------------------------------------------

    \512\ EPA notes, however, that the Ninth Circuit recently
rejected an approach of assigning no monetized value to greenhouse
gas reductions resulting from vehicular fuel economy. Center for
Biodiversity v. NHTSA, F. 3d, (9th Cir. 2007).

                       Table IX.C.4-1--Monetized GHG Benefits of the Proposed Rule in 2022
                                                 [Billion 2006$]
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
                        Marginal benefit                                2%              3%              7%
----------------------------------------------------------------------------------------------------------------
Meta global...........................  Low.....................           -$0.3           -$0.3             n/a
                                        Central.................            16.8             9.6             n/a
                                        High....................            39.4            25.5             n/a
FUND global...........................  Low.....................            -0.6            -0.6            -0.3
                                        Central.................            21.7             4.0            -0.1
                                        High....................           172.8            31.9             1.2
FUND domestic.........................  Low.....................             0.0             0.0             0.0
                                        Central.................             1.1             0.3             0.0
                                        High....................             4.1             1.4             0.0
----------------------------------------------------------------------------------------------------------------

D. Co-pollutant Health and Environmental Impacts

    This section describes EPA's analysis of the co-pollutant health
and environmental impacts that can be expected to occur as a result of
this renewable fuels proposal throughout the period from initial
implementation through 2030. GHG emissions are predominantly the
byproduct of fossil fuel combustion processes that also produce
criteria and hazardous air pollutants. The fuels that are subject to
the proposed standard are also significant sources of mobile source air
pollution such as direct PM, NOX, VOCs and air toxics. The
proposed standard would affect exhaust and evaporative emissions of
these pollutants from vehicles and equipment. They would also affect
emissions from upstream sources such as fuel production, storage, and
distribution and agricultural emissions. Any decrease or increase in
ambient ozone, PM2.5, and air toxics associated with the
proposal would impact human health in the form of avoided or incurred
premature deaths and other serious human health effects, as well as
other important public health and welfare effects.
    As can be seen in Section II.B, we estimate that the proposal would
lead to both increased and decreased criteria and air toxic pollutant
emissions. Making predictions about human health and welfare impacts
based solely on emissions changes, however, is extremely difficult.
Full-scale photochemical modeling is necessary to provide the needed
spatial and temporal detail to more completely and accurately estimate
the changes in ambient levels of these pollutants. EPA typically
quantifies and monetizes the PM- and ozone-related health and
environmental impacts in its regulatory impact analyses (RIAs) when
possible. However, we were unable to do so in time for this proposal.
EPA attempts to make emissions and air quality modeling decisions early
in the analytical process so that we can complete the photochemical air
quality modeling and use that data to inform the health and
environmental impacts analysis. Resource and time constraints precluded
the Agency from completing this work in time for the proposal. EPA
will, however, provide a complete characterization of the health and
environmental impacts, both in terms of incidence and valuation, for
the final rulemaking.
    This section explains what PM- and ozone-related health and
environmental impacts EPA will quantify and monetize in the analysis
for the final rules. EPA will base its analysis on peer-reviewed
studies of air quality and health and welfare effects and peer-reviewed
studies of the monetary values of public health and welfare
improvements, and will be consistent with benefits analyses performed
for the recent analysis of the proposed Ozone NAAQS and the final PM
NAAQS analysis.513 514 These methods will be described in
detail in the DRIA prepared for the final rule.
---------------------------------------------------------------------------

    \513\ U.S. Environmental Protection Agency. July 2007.
Regulatory Impact Analysis of the Proposed Revisions to the National
Ambient Air Quality Standards for Ground-Level Ozone. Prepared by:
Office of Air and Radiation. EPA-452/R-07-008.
    \514\ U.S. Environmental Protection Agency. October 2006. Final
Regulatory Impact Analysis (RIA) for the Proposed National Ambient
Air Quality Standards for Particulate Matter. Prepared by: Office of
Air and Radiation.
---------------------------------------------------------------------------

    Though EPA is characterizing the changes in emissions associated
with toxic pollutants, we will not be able to

[[Page 25098]]

quantify or monetize the human health effects associated with air toxic
pollutants for either the proposal or the final rule analyses. This is
primarily because available tools and methods to assess air toxics risk
from mobile sources at the national scale are not adequate for
extrapolation to benefits assessment. In addition to inherent
limitations in the tools for national-scale modeling of air quality and
exposure, there is a lack of epidemiology data for air toxics in the
general population. For a more comprehensive discussion of these
limitations, please refer to the final Mobile Source Air Toxics
rule.\515\ Please refer to Section VII for more information about the
air toxics emissions impacts associated with the proposed standard.
---------------------------------------------------------------------------

    \515\ U.S. Environmental Protection Agency. February 2007.
Control of Hazardous Air Pollutants from Mobile Sources: Final
Regulatory Impact Analysis. Office of Air and Radiation. Office of
Transportation and Air Quality. EPA420-R-07-002.
---------------------------------------------------------------------------

1. Human Health and Environmental Impacts
    To model the ozone and PM air quality benefits of the final rules,
EPA will use the Community Multiscale Air Quality (CMAQ) model (see
Section VII.D.2 for a description of the CMAQ model). The modeled
ambient air quality data will serve as an input to the Environmental
Benefits Mapping and Analysis Program (BenMAP).\516\ BenMAP is a
computer program developed by EPA that integrates a number of the
modeling elements used in previous DRIAs (e.g., interpolation
functions, population projections, health impact functions, valuation
functions, analysis and pooling methods) to translate modeled air
concentration estimates into health effects incidence estimates and
monetized benefits estimates.
---------------------------------------------------------------------------

    \516\ Information on BenMAP, including downloads of the
software, can be found at http://www.epa.gov/air/benmap/.
---------------------------------------------------------------------------

    Table IX.D.1-1 lists the co-pollutant health effect exposure-
response functions (PM2.5 and ozone) we will use to quantify
the co-pollutant incidence impacts associated with the proposal.

    Table IX.D.1-1--Health Impact Functions Used in BenMAP to Estimate Impacts of PM2.5 and Ozone Reductions
----------------------------------------------------------------------------------------------------------------
             Endpoint                  Pollutant             Study                    Study population
----------------------------------------------------------------------------------------------------------------
Premature Mortality:
    Premature mortality--daily     O3                 Multi-city.........  All ages.
     time series.                                     Bell et al. (2004)--
                                                       Non-accidental.
                                   .................  Huang et al.
                                                       (2005)--Cardiopulm
                                                       onary.
                                   .................  Schwartz (2005)--
                                                       Non-accidental.
                                   .................  Meta-analyses:
                                   .................     Bell et al.
                                                          (2005)--All
                                                          cause.
                                   .................     Ito et al.
                                                          (2005)--Non-
                                                          accidental.
                                   .................     Levy et al.
                                                          (2005)--All
                                                          cause.
Premature mortality--cohort        PM2.5              Pope et al. (2002).  >29 years.
 study, all-cause.                                    Laden et al. (2006)  >25 years.
Premature mortality, total         PM2.5              Expert Elicitation   >24 years.
 exposures.                                            (IEc, 2006).
Premature mortality--all-cause...  PM2.5              Woodruff et al.      Infant (<1 year).
                                                       (1997).
Chronic Illness:
    Chronic Bronchitis...........  PM2.5              Abbey et al. (1995)  >26 years.
    Nonfatal heart attacks.......  PM2.5              Peters et al.        Adults (>18 years).
                                                       (2001).
Hospital Admissions:
    Respiratory..................  O3                 Pooled estimate....  >64 years.
                                   .................     Schwartz (1995)--
                                                          ICD 460-519
                                                          (all resp).
                                   .................     Schwartz (1994a;
                                                          1994b)--ICD 480-
                                                          486 (pneumonia).
                                   .................     Moolgavkar et
                                                          al. (1997)--ICD
                                                          480-487
                                                          (pneumonia).
                                   .................     Schwartz
                                                          (1994b)--ICD
                                                          491-492, 494-
                                                          496 (COPD).
                                   .................     Moolgavkar et
                                                          al. (1997)--ICD
                                                          490-496 (COPD).
                                   .................  Burnett et al.       <2 years.
                                                       (2001).
                                   PM2.5              Pooled estimate....  >64 years.
                                   .................     Moolgavkar
                                                          (2003)--ICD 490-
                                                          496 (COPD).
                                   .................     Ito (2003)--ICD
                                                          490-496 (COPD).
                                   PM2.5              Moolgavkar (2000)--  20-64 years.
                                                       ICD 490-496 (COPD).
                                   PM2.5              Ito (2003)--ICD 480- >64 years.
                                                       486 (pneumonia).
                                   PM2.5              Sheppard (2003)--    <65 years.
                                                       ICD 493 (asthma).
    Cardiovascular...............  PM2.5              Pooled estimate....  >64 years.
                                   .................     Moolgavkar
                                                          (2003)--ICD 390-
                                                          429 (all
                                                          Cardiovascular).
                                   .................     Ito (2003)--ICD
                                                          410-414, 427-
                                                          428 (ischemic
                                                          heart disease,
                                                          dysrhythmia,
                                                          heart failure).
                                   PM2.5              Moolgavkar (2000)--  20-64 years.
                                                       ICD 390-429 (all
                                                       Cardiovascular).
    Asthma-related ER visits.....  O3                 Pooled estimate....  5-34 years.
                                   .................     Jaffe et al.      All ages.
                                                          (2003).
                                   .................     Peel et al.       All ages.
                                                          (2005).
                                   .................     Wilson et al.
                                                          (2005).
                                   PM2.5              Norris et al.        0-18 years.
                                                       (1999).
Other Health Endpoints:

[[Page 25099]]

    Acute bronchitis.............  PM2.5              Dockery et al.       8-12 years.
                                                       (1996).
    Upper respiratory symptoms...  PM2.5              Pope et al. (1991).  Asthmatics, 9-11 years.
    Lower respiratory symptoms...  PM2.5              Schwartz and Neas    7-14 years.
                                                       (2000).
    Asthma exacerbations.........  PM2.5              Pooled estimate....  6-18 years.
                                   .................     Ostro et al.
                                                          (2001) (cough,
                                                          wheeze and
                                                          shortness of
                                                          breath).
                                   .................     Vedal et al.
                                                          (1998) (cough).
    Work loss days...............  PM2.5              Ostro (1987).......  18-65 years.
    School absence days..........  O3                 Pooled estimate....  5-17 years.
                                   .................     Gilliland et al.
                                                          (2001).
                                   .................     Chen et al.
                                                          (2000).
    Minor Restricted Activity      O3                 Ostro and            18-65 years.
     Days (MRADs).                                     Rothschild (1989).
                                   PM2.5              Ostro and            18-65 years.
                                                       Rothschild (1989).
----------------------------------------------------------------------------------------------------------------

2. Monetized Impacts
    Table IX.D.2-1 presents the monetary values we will apply to
changes in the incidence of health and welfare effects associated with
the RFS2 standard.

  Table IX.D.2-1--Valuation Metrics Used in BenMAP To Estimate Monetary
                                Benefits
------------------------------------------------------------------------
                                                           Valuation
           Endpoint                Valuation method         (2000$)
------------------------------------------------------------------------
Premature mortality...........  Assumed Mean VSL.....         $5,500,000
Chronic Illness
    Chronic Bronchitis........  WTP: Average Severity            340,482
    Myocardial Infarctions,     Medical Costs Over 5   .................
     Nonfatal.                   Years. Varies by age
                                 and discount rate.
                                 Russell (1998).
                                Medical Costs Over 5   .................
                                 Years. Varies by age
                                 and discount rate.
                                 Wittels (1990).
Hospital Admissions
    Respiratory, Age 65+......  COI: Medical Costs +              18,353
                                 Wage Lost.
    Respiratory, Ages 0-2.....  COI: Medical Costs...              7,741
    Chronic Lung Disease (less  COI: Medical Costs +              12,378
     Asthma).                    Wage Lost.
    Pneumonia.................  COI: Medical Costs +              14,693
                                 Wage Lost.
    Asthma....................  COI: Medical Costs +               6,634
                                 Wage Lost.
    Cardiovascular............  COI: Medical Costs +              22,778
                                 Wage Lost (20-64).
                                COI: Medical Costs +              21,191
                                 Wage Lost (65-99).
ER Visits, Asthma.............  COI: Smith et al.                    312
                                 (1997).
                                COI: Standford et al.                261
                                 (1999).
Other Health Endpoints
    Acute Bronchitis..........  WTP: 6 Day Illness,                  356
                                 CV Studies.
    Upper Respiratory Symptoms  WTP: 1 Day, CV                        25
                                 Studies.
    Lower Respiratory Symptoms  WTP: 1 Day, CV                        16
                                 Studies.
    Asthma Exacerbation.......  WTP: Bad Asthma Day,                  43
                                 Rowe and Chestnut
                                 (1986).
    Work Loss Days............  Median Daily Wage,     .................
                                 County-Specific.
    Minor Restricted Activity   WTP: 1 Day, CV                        51
     Days.                       Studies.
    School Absence Days.......  Median Daily Wage,                    75
                                 Women 25+.
    Worker Productivity.......  Median Daily Wage,     .................
                                 Outdoor Workers,
                                 County-Specific,
                                 Crocker and Horst
                                 (1981).
Environmental Endpoints         WTP: 86 Class I Areas  .................
 Recreational Visibility.
------------------------------------------------------------------------
Source: Dollar amounts for each valuation method were extracted from
  BenMAP version 2.4.5.

3. Other Unquantified Health and Environmental Impacts
    In addition to the co-pollutant health and environmental impacts we
will quantify for the analysis of the RFS2 standard, there are a number
of other health and human welfare endpoints that we will not be able to
quantify because of current limitations in the methods or available
data. These impacts are associated with emissions of air toxics
(including benzene, 1,3-butadiene, formaldehyde, acetaldehyde,
acrolein, and ethanol), ambient ozone, and ambient PM2.5
exposures. For example, we have not quantified a number of known or
suspected health effects linked with ozone and PM for which appropriate
health impact functions are not available or which do not provide
easily interpretable outcomes (i.e., changes in heart rate
variability). Additionally, we are currently unable to quantify a
number of known welfare effects, including reduced acid and particulate
deposition damage to cultural monuments and other materials, and
environmental benefits due to reductions of impacts of eutrophication
in coastal areas. For air toxics, the available tools and methods to
assess risk from mobile sources at the national scale are not adequate
for extrapolation to benefits assessment. In addition to inherent
limitations in the

[[Page 25100]]

tools for national-scale modeling of air toxics and exposure, there is
a lack of epidemiology data for air toxics in the general population.
Table IX.D.3-1 lists these unquantified health and environmental impacts.

    Table IX.D.3-1--Unquantified and Non-Monetized Potential Effects
------------------------------------------------------------------------
                                             Effects not included in
           Pollutant/Effects                  analysis--changes in:
------------------------------------------------------------------------
Ozone Health \a\.......................  Chronic respiratory damage.
                                         Premature aging of the lungs.
                                         Non-asthma respiratory
                                          emergency room visits.
                                         Exposure to UVb (&plusmn;)
                                          \d\.
Ozone Welfare..........................  Yields for:
                                         --commercial forests.
                                         --some fruits and vegetables.
                                         --non-commercial crops.
                                         Damage to urban ornamental
                                          plants.
                                         Impacts on recreational demand
                                          from damaged forest
                                          aesthetics.
                                         Ecosystem functions.
                                         Exposure to UVb (&plusmn;).
PM Health \b\..........................  Premature mortality--short term
                                          exposures.\c\
                                         Low birth weight.
                                         Pulmonary function.
                                         Chronic respiratory diseases
                                          other than chronic bronchitis.
                                         Non-asthma respiratory
                                          emergency room visits.
                                         Exposure to UVb (&plusmn;).
PM Welfare.............................  Residential and recreational
                                          visibility in non-Class I
                                          areas.
                                         Soiling and materials damage.
                                         Damage to ecosystem functions.
                                         Exposure to UVb (&plusmn;).
Nitrogen and Sulfate Deposition Welfare  Commercial forests due to
                                          acidic sulfate and nitrate
                                          deposition.
                                         Commercial freshwater fishing
                                          due to acidic deposition.
                                         Recreation in terrestrial
                                          ecosystems due to acidic
                                          deposition.
                                         Existence values for currently
                                          healthy ecosystems.
                                         Commercial fishing,
                                          agriculture, and forests due
                                          to nitrogen deposition.
                                         Recreation in estuarine
                                          ecosystems due to nitrogen
                                          deposition.
                                         Ecosystem functions.
                                         Passive fertilization.
CO Health..............................  Behavioral effects.
Hydrocarbon (HC)/Toxics Health \e\.....  Cancer (benzene, 1,3-butadiene,
                                          formaldehyde, acetaldehyde,
                                          ethanol).
                                         Anemia (benzene).
                                         Disruption of production of
                                          blood components (benzene).
                                         Reduction in the number of
                                          blood platelets (benzene).
                                         Excessive bone marrow formation
                                          (benzene).
                                         Depression of lymphocyte counts
                                          (benzene).
                                         Reproductive and developmental
                                          effects (1,3-butadiene,
                                          ethanol).
                                         Irritation of eyes and mucus
                                          membranes (formaldehyde).
                                         Respiratory irritation
                                          (formaldehyde).
                                         Asthma attacks in asthmatics
                                          (formaldehyde).
                                         Asthma-like symptoms in non-
                                          asthmatics (formaldehyde).
                                         Irritation of the eyes, skin,
                                          and respiratory tract
                                          (acetaldehyde).
                                         Upper respiratory tract
                                          irritation and congestion
                                          (acrolein).
HC/Toxics Welfare \f\..................  Direct toxic effects to
                                          animals.
                                         Bioaccumulation in the food
                                          chain.
                                         Damage to ecosystem function.
                                         Odor.
------------------------------------------------------------------------
\a\ In addition to primary economic endpoints, there are a number of
  biological responses that have been associated with ozone health
  effects including increased airway responsiveness to stimuli,
  inflammation in the lung, acute inflammation and respiratory cell
  damage, and increased susceptibility to respiratory infection. The
  public health impact of these biological responses may be partly
  represented by our quantified endpoints.
\b\ In addition to primary economic endpoints, there are a number of
  biological responses that have been associated with PM health effects
  including morphological changes and altered host defense mechanisms.
  The public health impact of these biological responses may be partly
  represented by our quantified endpoints.
\c\ While some of the effects of short-term exposures are likely to be
  captured in the estimates, there may be premature mortality due to
  short-term exposure to PM not captured in the cohort studies used in
  this analysis. However, the PM mortality results derived from the
  expert elicitation do take into account premature mortality effects of
  short term exposures.
\d\ May result in benefits or disbenefits.
\e\ Many of the key hydrocarbons related to this rule are also hazardous
  air pollutants listed in the Clean Air Act. Please refer to Section
  VII.E.4 for additional information on the health effects of air
  toxics.
\f\ Please refer to Section VII.E for additional information on the
  welfare effects of air toxics.

    While there will be impacts associated with air toxic pollutant
emission changes that result from the RFS2 standard, we will not
attempt to monetize those impacts. This is primarily because currently
available tools and methods to assess air toxics risk from mobile
sources at the national scale are not adequate for extrapolation to
incidence estimations or benefits assessment. The best suite of tools
and methods currently available for assessment at the national scale
are those used in the National-Scale Air Toxics Assessment (NATA). The
EPA Science Advisory Board specifically commented in their review of
the 1996 NATA that these tools were not yet ready for use in a
national-scale benefits analysis, because they did not consider the
full distribution of exposure and risk, or address sub-chronic health
effects.\517\ While EPA has since improved the tools, there remain
critical limitations for estimating incidence and assessing benefits of
reducing mobile source air toxics. EPA continues to work to address
these limitations; however, we do not anticipate having methods and
tools available for national-scale application in time for the analysis
of the final rules. Please refer to the final Mobile Source Air Toxics
Rule RIA for more discussion.\518\
---------------------------------------------------------------------------

    \517\ Science Advisory Board. 2001. NATA--Evaluating the
National-Scale Air Toxics Assessment for 1996--an SAB Advisory.
http://www.epa.gov/ttn/atw/sab/sabrev.html.
    \518\ U.S. EPA. 2007. Control of Hazardous Air Pollutants From
Mobile Sources--Regulatory Impact Analysis. Assessment and Standards
Division. Office of Transportation and Air Quality. EPA420R-07-002.
February.
---------------------------------------------------------------------------

E. Economy-Wide Impacts

    It is anticipated that this proposed rulemaking will have impacts
on the U.S. economy that extend beyond the two sectors most directly
affected--the transportation and agriculture sectors. Consider how the
proposed rulemaking will affect the overall U.S. economy. By requiring
36 billion gallons of renewable transportation fuels in the U.S.
transportation sector by 2022, it is anticipated that the cost of motor
vehicle fuels will increase. This cost increase will impact all sectors
of the economy that use motor vehicles fuels, as intermediate inputs to
production. For example, manufacturing firms will see an increase in
their shipping costs. Households will also be impacted as consumers of
these goods, and directly as consumers of motor vehicle fuels.
Additionally, it is anticipated that the production of renewable fuels
will increase the demand for U.S. farm

[[Page 25101]]

products, and increase farm incomes. This will have ripple effects for
sectors that supply inputs to the U.S. farm sector (e.g. tractors), and
sectors that demand outputs from the farm sector. The sum of all of
these impacts will affect the total levels of output and consumption in
the U.S. economy. Because multiple markets beyond the transportation
sector will be affected by the proposed rulemaking, a general
equilibrium analysis is required to provide a more accurate picture of
the social cost of the policy than a partial equilibrium analysis. (A
partial equilibrium analysis looks at the impacts in one market of the
economy but does not attempt to capture the full interaction of a
policy change in all markets simultaneously, as a general equilibrium
model does).
    In order to estimate the impacts of the RFS2 rule on U.S. gross
domestic product (GDP) and consumption, EPA intends to use an economy-
wide, computable general equilibrium (CGE) model between proposal and
the final rule. This model will use detailed fuel sector cost estimates
provided in Section VIII as inputs to determine the economy-wide
impacts of the rulemaking. The economy-wide model to be utilized for
this analysis is the Intertemporal General Equilibrium Model (IGEM).
IGEM is a model of the U.S. economy with an emphasis on the energy and
environmental aspects. It is a dynamic model, which depicts growth of
the economy due to capital accumulation, technical change and
population change. It is a detailed multi-sector model covering thirty-
five industries of the U.S. economy. It also depicts changes in
consumption patterns due to demographic changes, price and income
effects. The substitution possibilities for both producers and
consumers in IGEM are driven by model parameters that are based on
observed market behavior revealed over the past forty to fifty years.
EPA seeks comment on the modeling approach to be utilized to estimate
the economy-wide impacts of the RFS2 proposal.
    An additional issue that arises is how biofuel subsidies are
considered from an economy-wide perspective. The Renewable Fuels
Standard, by encouraging the use of biofuels, will result in an
expansion of subsidy payments by the U.S. For example, each gallon of
corn-based ethanol sold in the U.S. qualifies for a $0.45/gallon
subsidy. One assumption that could be made is that biofuel subsidies,
which are a loss in revenue to the U.S. government, are offset by an
increase in taxes by the U.S. In this case, the Renewable Fuels
Standard program becomes revenue neutral. If taxes are raised to offset
the revenue loss from the subsidies, the taxes could have a
distortionary impact on the economy. For example, if taxes are raised
on labor and capital, then there will less output. To account for the
potential distortionary impacts of increased taxes, as a rule of thumb,
it is sometimes assumed that for each dollar of tax revenue raised,
there is a $0.25 loss in output in the economy. We intend to consider
the impact of the expansion of biofuel subsidies from the RFS2 in the
context of the economy-wide modeling.

X. Impacts on Water

A. Background

    As the production and price of corn and other biofuel feedstocks
increase, there may be substantial impacts to both water quality and
water quantity. To analyze the potential water-related impacts, EPA
focused on agricultural corn production for several reasons. Corn acres
have increased dramatically, 20% in 2007. Although corn acres declined
seven percent in 2008, total corn acres remained the second highest
since 1946.\519\ Corn has the highest fertilizer and pesticide use per
acre and accounts for the largest share of nitrogen fertilizer use
among all crops.\520\ Corn generally utilizes only 40 to 60% of the
applied nitrogen fertilizer. The remaining nitrogen is available to
leave the field and runoff to surface waters, leach into ground water,
or volatilize to the air where it can return to water through
depositional processes.
---------------------------------------------------------------------------

    \519\ U.S. Department of Agriculture, National Agricultural
Statistics Service, ``Acreage'', 2008, available online at: http://
usda.mannlib.cornell.edu/usda/current/Acre/Acre-06-30-2008.pdf. Exit Disclaimer
    \520\ Committee on Water Implications of Biofuels Production in
the United States, National Research Council, 2008, Water
implications of biofuels production in the United States, The
National Academies Press, Washington, DC, 88 p.
---------------------------------------------------------------------------

    There are three major pathways for contaminants to reach water from
agricultural lands: run off from the land's surface, subsurface tile
drains, or leaching to ground water. A variety of management factors
influence the potential for contaminants such as fertilizers, sediment,
and pesticides to reach water from agricultural lands. These factors
include nutrient and pesticide application rates and application
methods, use of conservation practices and crop rotations by farmers,
and acreage and intensity of tile drained lands.
    Historically, corn has been grown in rotation with other crops,
especially soybeans. As corn prices increase relative to prices for
other crops, more farmers are choosing to grow corn every year
(continuous corn). Continuous corn production results in significantly
greater nitrogen losses annually than a corn-soybean rotation and lower
yields per acre. In response, farmers may add higher rates of nitrogen
fertilizer to try to match yields of corn grown in rotation. Growing
continuous corn also increases the viability of pests such as corn
rootworm. Farmers may increase use of pesticides to control these
pests. As corn acres increase, use of the common herbicides like
atrazine and glyphosate (e.g. Roundup) may also increase.
    High corn prices may encourage farmers to grow corn on lands that
are marginal for row production such as hay land or pasture. Typically,
agricultural producers apply far less fertilizer and pesticide on
pasture land than land in row crops. Corn yield on these marginal lands
will be lower and may require higher fertilizer rates. However since
nitrogen fertilizer prices are tied to oil prices, fertilizer costs
have increased significantly recently. It is unclear how agricultural
producers have responded to these increases in both corn and fertilizer
prices. EPA solicits comments on the impact of corn and fertilizer
prices on nitrogen fertilizer use.
    Tile drainage is another important factor in determining the losses
of fertilizer from cropland. Tile drainage consists of subsurface tiles
or pipes that move water from wet soils to surface waters quickly so
crops can be planted. Tile drainage has transformed large expanses of
historic wetland soils into productive agriculture lands. However, the
tile drains also move fertilizers and pesticides more quickly to
surface waters without any of the attenuation that would occur if these
contaminants moved through soils or wetlands. The highest proportion of
tile drainage occurs in the Upper Mississippi and the Ohio-Tennessee
River basins.\521\
---------------------------------------------------------------------------

    \521\ U.S. Environmental Protection Agency, EPA Science Advisory
Board, Hypoxia in the northern Gulf of Mexico, EPA-SAB-08-003, 275
p, available online at: http://yosemite.epa.gov/sab/sabproduct.nsf/
C3D2F27094E03F90852573B800601D93/$File/EPA-SAB-08-
003complete.unsigned.pdf.
---------------------------------------------------------------------------

    The increase in corn production and prices may also have
significant impacts on voluntary conservation programs funded by the
U.S. Department of Agriculture (USDA) that are important to protect
water quality. As land values increase due to higher crop prices, USDA
payments may not keep up with the need for farmers and tenant farmers,
to make an adequate return. For example, farmland in Iowa increased an

[[Page 25102]]

average of 18% in 2007 from 2006 prices.
    Both land retirement programs like the Conservation Reserve Program
(CRP) and working land programs like the Environmental Quality
Incentives Program (EQIP) can be affected. Under CRP, USDA contracts
with farmers to take land out of agricultural production and plant
grasses or trees. Generally farmers put land into CRP because it is not
as productive and has other characteristics that make the cropland more
environmentally sensitive, such as high erosion rates. CRP provides
valuable environmental benefits both for water quality and for wildlife
habitat. Midwestern states, where much of U.S. corn is grown, tend to
have lower CRP reenrollment rates than the national average. Under
EQIP, USDA makes cost-share payments to farmers to implement
conservation practices. Some of the most cost-effective practices
include: Riparian buffers; crop rotation; appropriate rate, timing, and
method of fertilizer application; cover crops; and, on tile-drained
lands, treatment wetlands and controlled drainage. Producers may be
less willing to participate and require higher payments to offset
perceived loss of profits through implementation of conservation practices.
1. Ecological Impacts
    Nitrogen and phosphorus enrichment due to human activities is one
of the leading problems facing our nation's lakes, reservoirs, and
estuaries. Nutrient enrichment also has negative impacts on aquatic
life in streams; adverse health effects on humans and domestic animals;
and impairs aesthetic and recreational use. Excess nutrients can lead
to excessive growth of algae in rivers and streams, and aquatic plants
in all waters. For example, declines in invertebrate community
structure have been correlated directly with increases in phosphorus
concentration. High concentrations of nitrogen in the form of ammonia
are known to be toxic to aquatic animals. Excessive levels of algae
have also been shown to be damaging to invertebrates. Finally, fish and
invertebrates will experience growth problems and can even die if
either oxygen is depleted or pH increases are severe; both of these
conditions are symptomatic of eutrophication. As a biologic system
becomes more enriched by nutrients, different species of algae may
spread and species composition can shift.
    Nutrient pollution is widespread. The most widely known examples of
significant nutrient impacts include the Gulf of Mexico and the
Chesapeake Bay. There are also known impacts in over 80 estuaries/bays,
and thousands of rivers, streams, and lakes. Waterbodies in virtually
every state and territory in the U.S. are impacted by nutrient-related
degradation. Reducing nutrient pollution is a priority for EPA. The
combustion of transportation fuels results in significant loadings of
nitrogen from air deposition to waterbodies around the country,
including the Chesapeake Bay, Long Island Sound, and Lake Tahoe.
2. Gulf of Mexico
    Production of corn for ethanol may exacerbate existing serious
water quality problems in the Gulf of Mexico. Nitrogen fertilizer
applications to corn are already the major source of total nitrogen
loadings to the Mississippi River. A large area of low oxygen, or
hypoxia, forms in the Gulf of Mexico every year, often called the
``dead zone.'' The primary cause of the hypoxia is excess nutrients
(nitrogen and phosphorus) from the Upper Midwest flowing into the
Mississippi River to the Gulf. These nutrients trigger excessive algal
growth (or eutrophication) resulting in reduced sunlight, loss of
aquatic habitat, and a decrease in oxygen dissolved in the water.
Hypoxia threatens commercial and recreational fisheries in the Gulf
because fish and other aquatic species cannot live in the low oxygen waters.
    In 2008, the hypoxic zone was the second largest since measurements
began in 1985--8,000 square miles, an area larger than the state of
Massachusetts, and slightly larger than the 2007 measurement.\522\ The
Mississippi River/Gulf of Mexico Watershed Nutrient Task Force's ``Gulf
Hypoxia Action Plan 2008'' calls for a 45% reduction in both nitrogen
and phosphorus reaching the Gulf to reduce the size of the zone.\523\
An additional reduction in nitrogen and phosphorus reduction would be
necessary as a result of increased corn production for ethanol and
climate change impacts.
---------------------------------------------------------------------------

    \522\ Louisiana Universities Marine Consortium, 2008, `Dead
zone' again rivals record size, available online at: 
http://www.gulfhypoxia.net/research/shelfwidecruises/2008/
PressRelease08.pdf. Exit Disclaimer
    \523\ Mississippi River/Gulf of Mexico Watershed Nutrient Task
Force, 2008, Gulf hypoxia action plan 2008 for reducing, mitigating,
and controlling hypoxia in the northern Gulf of Mexico and improving
water quality in the Mississippi River basin, 61 p., Washington, DC,
available online at: http://www.epa.gov/msbasin/actionplan.htm.
---------------------------------------------------------------------------

    Alexander, et al.\524\ modeled the sources of nutrient loadings to
the Gulf of Mexico using the USGS SPARROW model. They estimated that
agricultural sources contribute more than 70% of the delivered nitrogen
and phosphorus. Corn and soybean production accounted for 52% of
nitrogen delivery and 25% of the phosphorus.
---------------------------------------------------------------------------

    \524\ Alexander, R.B., Smith, R.A., Schwarz, G.E., Boyer, E.W.,
Nolan, J.V., and Brakebill, J.W., 2008, Differences in phosphorus
and nitrogen delivery to the Gulf of Mexico from the Mississippi
River basin, Environmental Science and Technology, v. 42, no. 3, p.
822-830, available online at: http://pubs.acs.org/cgi-bin/
abstract.cgi/esthag/2008/42/i03/abs/es0716103.html. Exit Disclaimer
---------------------------------------------------------------------------

    Several recent scientific reports have estimated the impact of
increasing corn acres for ethanol in the Gulf of Mexico watershed.
Donner and Kucharik's \525\ study showed increases in nitrogen export
to the Gulf as a result of increasing corn ethanol production from 2007
levels to 15 billion gallons in 2022. They concluded that the expansion
of corn-based ethanol production could make it almost impossible to
meet the Gulf of Mexico nitrogen reduction goals without a ``radical
shift'' in feed production, livestock diet, and management of
agricultural lands. The study estimated a mean dissolved inorganic
nitrogen load increase of 10 to 18% from 2007 to 2022 to meet the 15
billion gallon corn ethanol goal. EPA's Science Advisory Board report
to the Mississippi River/Gulf of Mexico Watershed Task Force estimated
that corn grown for ethanol will result in an additional national
annual loading of almost 300 million pounds of nitrogen. An estimated
80% of that nitrogen loading or 238 million pounds will occur in the
Mississippi-Atchafalaya River basin and contribute nitrogen to the
hypoxia in the Gulf of Mexico.\526\
---------------------------------------------------------------------------

    \525\ Donner, S. D. and Kucharik, C. J., 2008, Corn-based
ethanol production compromises goal of reducing nitrogen export by
the Mississippi River, PNAS, v. 105, no. 11, p. 4513-4518, available
online at: http://www.pnas.org/content/105/11/4513.full. Exit Disclaimer
    \526\ U.S. EPA, supra note 4.
---------------------------------------------------------------------------

B. Upper Mississippi River Basin Analysis

    To provide a quantitative estimate of the impact of this proposal
and production of corn ethanol generally on water quality, EPA
conducted an analysis that modeled the changes in loadings of nitrogen,
phosphorus, and sediment from agricultural production in the Upper
Mississippi River Basin (UMRB). The UMRB drains approximately 189,000
square miles, including large parts of the states of Illinois, Iowa,
Minnesota, Missouri, and Wisconsin. Small portions of Indiana,
Michigan, and South Dakota are also within the basin. EPA selected the
UMRB because it is representative of the many potential issues
associated with ethanol production, including its connection to major
water quality

[[Continued on page 25103]]

 
 


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