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John Duff [john@sorghumgrowers.com] 5/9/2017 7:36:49 PM Schwab, Justin [/o=ExchangeLabs/ou=Exchange Administrative Group (FYDIBOHF23SPDLT)/cn=Recipients/cn=eed0f609c0944cc2bbdb05df3al0aadb-Schwab, Jus] Tim Lust [tim@sorghumgrowers.com]; Chris Cogburn [chris@sorghumgrowers.com]; Bernadette Bern Rappold, Esq. [rappoldb@gtlaw.com]; dohales@gtlaw.com Re: Sorghum Oil Update Grain Sorghum Oil Pathway Petition (2).pdf; NSP Responses to EPA Questions on Sorghum Oil Petition (l).pdf; NSP Responses to EPA Questions April 24 (4).pdf; 373478145_v 1RFS approvals Fed Reg July 2014 (l).PDF
Justin,
This email includes all the information relevant to the sorghum oil pathway process. The email includes a large amount of information, so I have grouped similar pieces of information and included bold headings and brief italicized summaries of each group for ease of reference.
Applicable Executive Orders
The provisions o fExecutive Order 13771 requiring two regulations be eliminatedfo r every one issued do not apply given approving sorghum oil is a permitting action that imposes no compliance cost. Furthermore, this Order as well as EO 13783 demonstrate intent by the Administration to streamline the regulatory process and remove regulatory obstaclesfo r businesses.
On our May 4 phone call with EPA staff, Sharyn Lie stated Executive Order 13771 would preclude a straightforward rulemaking (or similar approval) given it would require two regulations to be eliminated as well. This requirement is not applicable in this case given approving sorghum oil as a biodiesel feedstock does not increase compliance costs but rather functions as a permit for the petitioners to engage in a business activity. Subjecting our petition for approval to EO 13771 would undermine the intent of the EO, which was to reduce unnecessary costs of regulatory compliance.
The Order states in section 1: "It is the policy of the executive branch to be prudent and financially responsible in the expenditure of funds, from both public and private sources." This demonstrates an intent for the process of approving new regulations to be streamlined. An expeditious approval of sorghum oil as a biodiesel feedstock would save significant taxpayer resources and assist U.S. companies subject to a renewable volume obligation with compliance. In addition, we believe our proposed pathway is so similar to existing pathways that approval by letter, rather than rulemaking (as EPA has done in the past), is appropriate.
Similarly, section 1(c) of Executive Order 13783 states:
"Accordingly, it is the policy o f the United States that executive departments and agencies (agencies) immediately review existing regulations that potentially burden the development or use of domestically produced energy resources and appropriately suspend, revise, or rescind those that unduly burden the development o f domestic energy resources beyond the degree necessary1to protect the public interest or otherwise comply with the law."
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In section 2, the Order further directs:
"The heads of agencies shall review all existing regulations, orders, guidance documents, policies, and any other similar agency actions (collectively, agency actions) that potentially burden the development or use of domestically produced energy resources, with particular attention to oil, natural gas, coal, and nuclear energy resources."
It continues by defining "burden" in section 2(b):
"For purposes of this order, 'burden' means to unnecessarily obstruct, delay, curtail, or otherwise impose significant costs on the siting, permitting, production, utilization, transmission, or delivery o f energy resources."
Taken together, these sections demonstrate a desire by the Administration to remove regulatory7obstacles to greater energy production. When conducting its review under EO 13783, w7e suggest the EPA examine ways to reduce the burden on renewable fuels producers. As described below7, our lengthy journey to obtain a permit for a much-needed domestic energy source is a perfect example o f the kind o f burden the Administration seeks to eliminate.
Pathway petition and related documents sent to EPA staff
We have submitted three documents to EPA stafftotaling 325 pages. The original petition was submitted in July 2016, andfollow-up submissions answering sta ffquestions were sent in January 2017 and April 2017. We also sent afollow-up answer to Aaron Levy on M ay 4. He assured us the question we answered with this email would be the last in this process.
The first three attachments constitute our submissions to EPA staff. The first is the original petition submitted in July 2016. The second includes our answers to their first round of questions submitted in January 2017. The third includes our answers to their second round of questions submitted in April 2017.
We answered their third round o f questions on May 4 with the following email to Aaron Levy, who assured us via phone this w7ould be all staff needs to finish the pathway. On the questions of a) why we are unable to provide separate market data for sorghum DDGS with oil and sorghum DDGS without oil and b) why nutritionist Ryan Mass stated cattle feeders pay less for de-oiled DDGS:
"Per our discussion, these two statements are not contradictory. First, on the question o f marketing sorghum DDGS with and without oil, the two products are not physically separated and sold as such by the ethanol producer. An ethanol producer deploying oil extraction for the first time will not change anything with regard to storing or selling the DDGS.
Sierra Club v. EPA 18cv3472 NDCA
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Second, on the question about Dr. Mass's statement, he is correct in that cattle feeders do pay less for DDGS without oil. However, he also emphasizes the dynamic nature of feed markets. This applies to all feed ingredients as these are commodity markets and thus change on a minute-by-minute basis. Therefore, feed buyers do pay different prices for DDGS depending on market conditions for a multitude of ingredients.
For example, local supply and demand of soybean oil often has a significantly larger impact on the price and needed quantity of oil in DDGS than the oil content in DDGS itself. Other key prices in this calculation are the domestic and international supply and demand factors affecting energy as well as local availability of other energy sources. Prices of other ingredients, such as protein and starch, also exert influence. This holds for both com and sorghum DDGS as the change in composition from sorghum DDGS with oil to sorghum DDGS without oil is the same as the change in composition from com DDGS with oil to com DDGS without oil.
As Dr. Mass noted, species other than beef cattle (e.g., poultry1, swine and dairy cattle) in many cases perform better on de-oiled DDGS. And, in the case o f beef cattle, there is still a large amount o f oil left to meet the animals' needs. Furthermore, as stated above, feed markets are dynamic and complex, and feed buyers continuously change the price they are willing to pay based on a number of factors. This is the same whether the ingredient in question is sorghum DDGS or com DDGS."
Modeling
No new modeling is required as extensive modeling has already taken place fo r relatedfeedstocks and processes. Adding oil extraction means sorghum ethanol producers should achieve afootprint reduction o fapproximately 35-40%. This is because a) adding oil extraction improves the environmentalfootprint and b) sorghum ethanol has a betterfootprint than com ethanol.
As Aaron Levy verified via phone, adding oil extraction to an ethanol production facility actually improves the environmental footprint of the ethanol produced from the de-oiled grain (keep in mind a smaller footprint means a higher "score"). This is important as EPA staff is particularly interested in ensuring nothing related to the oil extraction process will adversely impact the footprint o f the ethanol produced from the de-oiled grain.
Per section V.C. of the RFS2 final mle:
"Based on the above, com ethanol facilities using natural gas or biomass as the process energy source will meet the applicable 20% GHG performance threshold if it either also uses at least two o f the technologies Table V .C -6 or one o f the technologies in Table V.C-6 but marketing at least 35% o f its DGS as wet. Alternatively, a facility using none o f the advanced technologies listed in Table V .C -6 will qualify as producing ethanol meeting the 20% performance threshold if it sells at least 50% of its DGS prior to drying."
Here is the table to which the passage refers:
Table V.C-6--Modeled Advanced Technlsses
Cam s i fraeioraion
Com tffexraeSoR Mambrane separation Raw stereb hydrolysis Camfeinad hgat and power
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This reference to com oil extraction as an advanced technology indicates it improves the footprint. Furthermore, per the following passage from section 1.4.1.3 o f the RFS2 regulator,' impact analysis:
"The oil recovered using the com oil extraction process is distressed oil and cannot be sold as a food grade product. Markets for this product do exist, however, as an additive to cattle feed or as a biodiesel feedstock. In addition to generating an additional revenue stream, extracting the com oil has several other benefits for the ethanol producer. Because the oil is an insulator, removing it improves the heating efficiency of the DGS dryers and reduces the energy demand o f the ethanol plant. Reducing the oil content o f the DGS also improves its flowability and concentrates its protein content."
This passage details the reasons why com oil extraction improves the footprint, and the following table provides a quantification. This table is included in the RFS2 notice o f proposed rulemaking:
Table V i.C .i-S-- LiFECYCLE GHG Emissions Chanqes tor Various Corn Ethanol Pathways m 2022 Relative to the 2005 Petroleum Baseline
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Notice adding com oil fractionation (which in the notice o f proposed rulemaking primarily means oil separated via centrifuge, or the process sorghum ethanol producers use) to a facility producing DDGS improves the footprint by 8%. For a facility producing WDGS, adding oil extraction improves the footprint by 3%. The coproduct credit is included in both cases.
According to the grain sorghum notice of data availability (EPA -H Q -OA R-2011-0542; FRL-9680-8), grain sorghum ethanol achieves a 32% footprint reduction, easily meeting the 20% reduction threshold necessary for qualification as a conventional biofuel eligible to generate RINs under RFS2. Accordingly, adding oil extraction means sorghum ethanol producers should achieve a footprint reduction of approximately 35-40%.
As noted above, EPA staff is particularly interested in ensuring nothing related to the oil extraction process will adversely impact the footprint o f the ethanol produced from the de-oiled grain. Any adverse impacts would relate to the coproduct credit, which improves the footprint by offsetting the amount of grain needed to replace the grain diverted away from the feed supply to produce ethanol.
Sierra Club v. EPA 18cv3472 NDCA
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ED 002061 00164219-00004
It is important to note the modeling summarized in table VI.C.1-2 above includes the coproduct credit. Given the similarities between com and sorghum DDGS we have demonstrated in our submissions and sorghum's smaller footprint, sorghum ethanol with oil extraction has already been effectively modeled with the result being an approximate 35-40% footprint reduction. Therefore, per EPA's own models, sorghum ethanol produced with de-oiled grain easily qualifies as a conventional biofuel eligible to generate RINs under RFS2. For this reason, sorghum oil qualifies as a biodiesel feedstock.
Between the wealth of data we have provided and the similarities between sorghum oil and other grain oils, the EPA has ample information that would allow it to quickly approve our pathway. In fact, the EPA's prior actions in approving renewable fuel pathways suggest there is already legal precedent for more streamlined action. Well-researched, proven sources of energy like our proposed pathway have usually qualified for expedited approval without the need for a lengthy rulemaking.
Legal precedents
A t least three precedentsfo r expeditious approval exist. The first two were approvals o f biodiesel pathways (in 2013 and 2014) using assumptions and models already approved. Neither approval included a protracted process, and one required no new modeling at all. The third was an approval o f all grain kernelfibers (in 2014) based on similarities to corn kernelfiber. No modeling was performedfo r this approval at all.
Here is an excerpt Bernadette Rappold prepared for us detailing what EPA has done in the past:
"Every1element of our proposed pathway has been evaluated during prior pathway approvals, which should provide the EPA with most o f the models and data needed to complete a quick analysis. In particular, the EPA's approval of renewable fuel pathways with non-food grade com oil (NFGCO) and grain sorghum feedstock should provide the necessary background and a blueprint for your analysis of our proposed grain sorghum oil pathway.
Since 2013, several proposed pathways for biodiesel produced from com oil and other crop residue oils have been approved with minimal additional analysis because o f their similarity to previously approved pathways. For example, in October 2013, the EPA approved a pathway petition from Diamond Green Diesel, LLC, after comparing DGD's proposal to existing modeling for three previously approved pathways that had the same components as DGD's proposal. Although DGD's proposal included several feedstock options in addition to NFGCO (soybean oil, canola oil, and biogenic waste oils/fats/greases), much of the EPA's straightforward analysis utilized the assumptions and models applicable to the already approved hydrotreating process, NFGCO, and CMmelina satvia oil feedstock, which had all been carefully evaluated. Similarly, in March 2014, the EPA determined that Duonix Beatrice's proposal to produce biodiesel from NFGCO, beef tallow, and/or yellow grease through transesterification did not even require a new fuel pathway petition because of its similarity to existing approved pathways.
Just like the DGD and Duonix Beatrice pathways, almost all aspects of our proposed pathway have been analyzed during the approval process for NFGCO pathways. Given the current industry practices ofblending com-based and sorghum-based distillers' grains, we would expect any analysis concerning the impact of sorghum grain oil feedstock to be virtually identical to the analysis already conducted for com oil. Further, in the EPA's July 2014 RFS Pathways II mle identifying com kernel fiber as a crop residue feedstock, it acknowledged the similarity between corn kernel fiber and other grain kernel fibers: 'The impacts o f fiber on the digestion o f ruminants, swine, and poultry are extremely similar, regardless of what grain that fiber came from, because all grain fiber is virtually 100 percent cellulosic. Therefore, we are confident that diverting that fiber to a fuel production stream would have similarly insignificant market and other GHG impacts to those of com kernel fiber...' Environmental Protection Agency; Regulation ofFuels and Fuel Additives: RFS Pathways II, and Technical Amendments to the RE'S Standards and E15 Misfueling Mitigation Requirements, 79 Fed. Reg. 42,150 (July 18, 2014)."
Sierra Club v. EPA 18cv3472 NDCA
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We believe the last reference, in particular, is key. I have attached this rale. As noted in the reference the key passage can be found on page 150, which is page 24 o f the attachment. You will notice all grain fibers were approved with little to no analysis based on similarity to com fiber.
Based on these precedents, we believe that the EPA could approve our sorghum oil pathway by letter, just as it did with the DGD and Duonix Beatrice pathways described above. If it still believes rulemaking is necessary, the 2014 RES rule approving several grain kernel fibers provides an ideal blueprint for an efficient rale that approves sorghum oil based on its similarities to com oil, soybean oil as well as other approved crop residue oils and includes the approval in a related rulemaking (i.e., renewable volume obligations). The EPA already has the infonnation it needs for an efficient approval, and we ask that it acts on our petition in the same manner that it did in its past approvals.
Please do not hesitate to let me know if you have questions.
Thanks,
John
John Duff Strateqic Business Director
Ex. 6 bffice
_______________pell sorghumgrowers.com
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Sierra Club v. EPA 18cv3472 NDCA
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