Notice of Denial of Petitions for Rulemaking To Change the RFS Point of Obligation

E. Scott Pruitt
Environmental Protection Agency
30 November 2017

[Federal Register Volume 82, Number 229 (Thursday, November 30, 2017)]
[Proposed Rules]
[Pages 56779-56780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25827]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2016-0544; FRL-9971-36-OAR]


Notice of Denial of Petitions for Rulemaking To Change the RFS 
Point of Obligation

AGENCY: Environmental Protection Agency (EPA).

ACTION: Denials of rulemaking requests.

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SUMMARY: The Environmental Protection Agency (EPA) is providing notice 
of its denial of several petitions requesting that EPA initiate a 
rulemaking process to reconsider or change 40 CFR 80.1406, which 
identifies refiners and importers of gasoline and diesel fuel as the 
entities responsible for complying with the annual percentage standards 
adopted under the Renewable Fuel Standard (RFS) program.

DATES: November 30, 2017.

ADDRESSES: The EPA has established a docket for this action under 
Docket ID No. EPA-HQ-OAR-2016-0544. All documents in the docket are 
listed on the http://www.regulations.gov Web site. Although listed in 
the index, some information is not publicly available, e.g., CBI or 
other information whose disclosure is restricted by statute. Certain 
other material, such as copyrighted material, is not placed on the 
Internet and will be publicly available only in hard copy form. 
Publicly available docket materials are available electronically 
through http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; telephone number: 734-214-4131; email address: 
macallister.julia@epa.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    On March 26, 2010, the EPA issued a final rule (75 FR 14670) 
establishing regulatory amendments to the renewable fuel standards 
(``RFS'') program regulations to reflect statutory amendments to 
Section 211(o) of the Clean Air Act enacted as part of the Energy 
Independence and Security Act of 2007. These amended regulations 
included 40 CFR 80.1406, identifying refiners and importers of gasoline 
and diesel fuel as the ``obligated parties'' responsible for compliance 
with the RFS annual standards. Beginning in 2014, and continuing to the 
present, some obligated parties and other stakeholders have questioned 
whether 40 CFR 80.1406 should be amended, and a number of them have 
filed formal petitions for reconsideration of the definition of 
``obligated party'' in 40 CFR 80.1406, or petitions for rulemaking to 
amend the provision. On January 27, 2014, Monroe Energy LCC 
(``Monroe'') filed a ``petition to revise'' 40 CFR 80.1406 to change 
the RFS point of obligation, and on January 28, 2016, Monroe filed a 
``petition for reconsideration'' of the regulation. On February 11, 
2016, Alon Refining Krotz Springs, Inc.; American Refining Group, Inc.; 
Calumet Specialty Products Partners, L.P.; Lion Oil Company; Ergon-West 
Virginia, Inc.; Hunt Refining Company; Placid Refining Company LLC; 
U.S. Oil & Refining Company (the ``Small Refinery Owners Ad Hoc 
Coalition'') filed a petition for reconsideration of 40 CFR 80.1406. On 
February 12, 2016, Valero Energy Corporation and its subsidiaries 
(``Valero'') filed a ``petition to reconsider and revise'' the rule. On 
June 13, 2016, Valero submitted a petition for rulemaking to change the 
definition of ``obligated party.'' On August 4, 2016, the American Fuel 
and Petrochemical Manufacturers (``AFPM'') filed a petition for 
rulemaking to change the definition of ``obligated party.'' On 
September 2, 2016, Holly Frontier also filed a petition for rulemaking 
to change the definition of ``obligated party.''
    The petitioners all seek to have the point of obligation shifted 
from refiners and importers, but differed somewhat in their suggestions 
for alternatives in their petitions. Some requested in their petitions 
that EPA shift the point of obligation from refiners and importers to 
those parties that blend renewable fuel into transportation fuel. 
Others suggested that it be shifted to those parties that hold title to 
the gasoline or diesel fuel immediately prior to the sale of these 
fuels at the terminal (these parties are commonly called the ``position 
holders''), or to ``blenders and distributors''. All petitioners 
argued, among other things, that shifting the point of obligation to 
parties downstream of refiners and importers in the fuel distribution 
system would align compliance responsibilities with the parties best 
positioned to make decisions on how much renewable fuel is blended into 
the transportation fuel supply in the United States. Some of the 
petitioners further claimed that changing the point of obligation would 
result in an increase in the production, distribution, and use of 
renewable fuels in the United States and would reduce the cost of 
transportation fuel to consumers.
    On November 22, 2016, EPA published a notice in the Federal 
Register announcing its proposed denial of all petitions seeking a 
change in the definition of ``obligated party'' in 40 CFR 80.1406, and 
soliciting comment on its draft analysis of the petitions and proposed 
rationale for denial. (81 FR 83776). EPA opened a public docket under 
Docket ID No. EPA-HQ-OAR-2016-0544, where it made its draft analysis 
available. EPA received over 18,000 comments on the proposed denial, 
including comments from the petitioners, stakeholders, and individuals 
supporting the request that EPA change the point of obligation for the 
RFS program, as well as from many stakeholders and individuals 
supporting

[[Page 56780]]

EPA's proposed denial and reasoning. In comments, petitioners were in 
agreement that the point of obligation should be moved to ``position 
holders.''

II. Final Denial

    The final decision document describing EPA's analysis of the 
petitions seeking a change in the definition of ``obligated parties'' 
under the RFS program and our rationale for denying the petitions is 
available in the docket referenced above (Docket ID No. EPA-HQ-OAR-
2016-0544). In evaluating this matter, EPA's primary consideration was 
whether or not a change in the point of obligation would improve the 
effectiveness of the program to achieve Congress's goals. EPA does not 
believe the petitioners or commenters on the matter have demonstrated 
that this would be the case. At the same time, EPA believes that a 
change in the point of obligation would unnecessarily increase the 
complexity of the program and undermine the success of the RFS program, 
especially in the short term, as a result of increasing instability and 
uncertainty in programmatic obligations.
    We believe that the current structure of the RFS program is working 
to incentivize the production, distribution, and use of renewable 
transportation fuels in the United States, while providing obligated 
parties a number of options for acquiring the RINs they need to comply 
with the RFS standards. We do not believe that petitioners have 
demonstrated that changing the point of obligation would likely result 
in increased use of renewable fuels. Changing the point of obligation 
would not address challenges associated with commercializing cellulosic 
biofuel technologies and the marketplace dynamics that inhibit the 
greater use of fuels containing higher levels of ethanol, two of the 
primary issues that inhibit the rate of growth in the supply of 
renewable fuels today. Changing the point of obligation could also 
disrupt investments reasonably made by participants in the fuels 
industry in reliance on the regulatory structure the agency established 
in 2007 and reaffirmed in 2010. While we do not anticipate a benefit 
from changing the point of obligation, we do believe that such a change 
would significantly increase the complexity of the RFS program, which 
could negatively impact its effectiveness. In the short term we believe 
that initiating a rulemaking to change the point of obligation could 
work to counter the program's goals by causing significant confusion 
and uncertainty in the fuels marketplace. Such a dynamic would likely 
cause delays to the investments necessary to expand the supply of 
renewable fuels in the United States, particularly investments in 
cellulosic biofuels, the category of renewable fuels from which much of 
the majority of the statutory volume increases in future years is 
expected.
    In addition, changing the point of obligation could cause 
restructuring of the fuels marketplace as newly obligated parties alter 
their business practices to avoid the compliance costs associated with 
being an obligated party under the RFS program. We believe these 
changes would have no beneficial impact on the RFS program or renewable 
fuel volumes and would decrease competition among parties that buy and 
sell transportation fuels at the rack, potentially increasing fuel 
prices for consumers and profit margins for refiners, especially those 
not involved in fuel marketing. In addition, we note that in comments 
on EPA's proposed denial, commenters favoring a change in the 
definition of ``obligated party'' were predominantly in favor of 
designating position holders as obligated parties. However, position 
holders are not all refiners, importers or blenders. Therefore, EPA 
believes the petitioners' proposal is not well aligned with the 
authority provided EPA in the statute to place the RFS obligation on 
``refineries, importers and blenders, as appropriate.''
    A number of parties that either petitioned EPA to change the 
definition of ``obligated party,'' or commented favorably on those 
petitions also challenged the rule establishing RFS standards for 2014, 
2015 and 2016, alleging both that EPA had a duty to annually reconsider 
the appropriate obligated parties under the RFS program and that it was 
required to do so in response to comments suggesting that it could 
potentially avoid or minimize its exercise of the inadequate domestic 
supply waiver authority if it did so. In a recent ruling in that 
litigation, the United States Court of Appeals for the District of 
Columbia Circuit declined to rule on the matter, and instead indicated 
that EPA could address the matter either in the context of a remand of 
the rule ordered on other grounds, or in response to the administrative 
petitions that are the subject of this notice. See Americans for Clean 
Energy v. Environmental Protection Agency, 864 F.3d 691 (D.C. Cir. 
2017) (``ACE''). As noted above, EPA is denying the petitions seeking a 
change in the definition of ``obligated parties.'' EPA also is re-
affirming that the existing regulation applies in all years going 
forward unless and until it is revised. EPA does not agree with the 
petitioners in the ACE case that the statute requires annual 
reconsideration of the matter and, to the extent that EPA has 
discretion under the statute to undertake such annual reevaluations, 
EPA declines to do so since we believe the lack of certainty that would 
be associated with such an approach would undermine success in the 
program.
    EPA has determined that this action is nationally applicable for 
purposes of CAA section 307(b)(1). since the result of this action is 
that the current nationally-applicable regulation defining obligated 
parties who must comply with nationally applicable percentage standards 
developed under the RFS program remains in place. In the alternative, 
even if this action were considered to be only locally or regionally 
applicable, the action is of nationwide scope and effect for the same 
reason, and because the action impacts entities that are broadly 
distributed nationwide who must comply with the nationally-applicable 
RFS percentage standards, as well as other entities who are broadly 
distributed nationwide that could potentially have been subject to such 
requirements if EPA had elected to grant the petitions seeking a change 
in the definition of obligated parties.

    Dated: November 22, 2017.
E. Scott Pruitt,
Administrator.
[FR Doc. 2017-25827 Filed 11-29-17; 8:45 am]
 BILLING CODE 6560-50-P