Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program
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PDF Version (50 pp, 978K, About PDF) [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/.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 [GRAPHIC] [TIFF OMITTED] TP26MY09.009 [[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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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). --------------------------------------------------------------------------- \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 --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \365\ Sim V.M., Pattle R.E. Effect of possible smog irritants on human subjects. JAMA 165:1980-2010, 1957. --------------------------------------------------------------------------- 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 --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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.
\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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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/. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \411\ U.S. EPA. Integrated Risk Information System (IRIS) database is available at: www.epa.gov/iris. --------------------------------------------------------------------------- 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 --------------------------------------------------------------------------- \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/.
\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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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.
--------------------------------------------------------------------------- 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.
\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 $1/tCO2 for the same discount rates. The estimates for future year emission changes will be higher as future marginal emissions increases are expected to produce larger incremental damages as physical and economic systems become more stressed as the magnitude of climate change increases.\492\ --------------------------------------------------------------------------- \491\ See Table IX.C.1 for global (FUND) estimates consistent with the U.S. estimates. \492\ The IPCC suggests an increase of 2-4% per year (IPCC WGII, 2007. Climate Change 2007--Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the IPCC, www.ipcc.ch/
). For Table IX.C.1., we assumed the estimates increased at 3% per year. For the final rule, we anticipate that we will explicitly estimate FUND marginal benefits values for each emissions reduction year. Table IX.C.2-1--Marginal GHG Benefits Estimates for Discount Rates of 2%, 3%, and 7% and Year of Emissions Change in 2022 [All values are reported in 2006$/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.
\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/.
\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 (±) \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 (±). 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 (±). PM Welfare............................. Residential and recreational visibility in non-Class I areas. Soiling and materials damage. Damage to ecosystem functions. Exposure to UVb (±). 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.
\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.
\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.
--------------------------------------------------------------------------- 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.
\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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