Court ruling muddles EPA’s next move on RFS

Source: Marc Heller, E&E News reporter • Posted: Tuesday, August 1, 2017

After a federal court last week told U.S. EPA it shortchanged renewable fuels by 500 million gallons in 2016, the agency now has to decide how to fix that mistake.

Advocates for renewable fuels are pulling for a revised mandate under the renewable fuel standard that would put an additional 500 million gallons in the nation’s fuel supply. But stakeholders said they’re not sure whether EPA will share that interpretation or how fast such a revision might happen.

The agency might keep the reduced requirement and just cite a different reason, such as “severe economic harm,” from putting an additional burden on refiners, said Scott Segal, a lobbyist for energy companies that oppose the RFS as currently written. The renewable fuels law allows economic harm as a reason to waive congressionally mandated fuel levels.

“That’s one way out of the box of retroactivity,” Segal said.

Ethanol supporters say they see a potential boost for renewables.

“The EPA has to make up for those 500 million 2016 gallons somehow, such as adding gallons to future obligations,” said Matt Merritt, a spokesman for POET LLC, a renewable fuels company based in Sioux Falls, S.D., and a leading advocate for the RFS.

The U.S. Court of Appeals for the District of Columbia Circuit last week said EPA had erroneously reduced the required level for overall renewable fuels in 2016 by citing weakened consumer demand. The agency’s waiver authority allows it to set lower levels based on “inadequate domestic supply,” but that doesn’t allow a demand-side consideration, the court said.

In its ruling, the court sent the issue back to EPA but didn’t direct the agency on how to correct the 2016 mandate, which was part of a broader RFS rule covering 2014 and 2015, as well. The agency cited similar reasoning in its fuel-level requirement for 2017 but didn’t do so in the proposed rule for 2018, which is in a public-comment phase.

An EPA spokesman didn’t have an immediate comment today on the agency’s plans.

EPA could boost renewable fuel requirements incrementally to make up for the 500 million gallons, which could make for a smoother process, said Brooke Coleman, executive director of the Advanced Biofuels Business Council. Adding renewable fuels would be easier now that it would have been at the time, he said, given ethanol’s increased penetration in the market.

“The bottom line seems to be that they have to go back and fix 2016,” Coleman said.

Stakeholders said the agency will surely have to reconsider how it interprets its waiver authority in forthcoming years, although the agency appeared to abandon that approach in the proposed rule for next year. Ethanol advocates cheered the decision and said they plan to work with EPA officials on interpreting and implementing renewable fuel requirements.

“EPA can send a strong signal that it will support the biofuels industry and grow advanced and cellulosic biofuel production,” said Jim Greenwood, president and CEO of the Biotechnology Innovation Organization, a pro-ethanol industry group.

Segal said boosting the fuels requirement retroactively “would certainly be a challenge.” The RFS law does allow for alternatives such as banking renewable fuel credits, which can be used for compliance in subsequent years, he said.

Representatives for oil and gas companies, as well as other critics of the RFS, said the ruling should pressure Congress to scale back the RFS, although proposals to do so haven’t shown much progress.

“The ruling handcuffs [EPA] from making much-needed improvements to the corn ethanol mandate that can protect our clean water, wildlife, and habitat — and it sends an unmistakable message that the only way that the ethanol mandate will be fixed is through congressional action,” said the National Wildlife Federation in a statement.