Governors' Biofuels Coalition

A federal court Friday rejected U.S. EPA’s justification for reducing renewable fuel requirements in a win for the biofuels industry.

The U.S. Court of Appeals for the District of Columbia Circuit agreed with biofuel producers that the agency wrongly relied on its “inadequate domestic supply” waiver authority to lower the nation’s renewable fuel targets.

The court vacated EPA’s decision to reduce overall renewable fuel requirements in 2016 using the supply waiver authority.

Conservative Judge Brett Kavanaugh, a George W. Bush appointee, wrote the 85-page opinion for the three-judge panel of the court.

“We hold that EPA exceeded its authority under the ‘inadequate domestic supply’ provision when it interpreted the term ‘supply’ to allow it to consider demand-side constraints in the market for renewable fuel,” Kavanaugh wrote.

The D.C. Circuit rejected all other petitions challenging the rule, including the oil industry’s challenges to the agency’s cellulosic biofuel projections and its argument that EPA unlawfully failed to consider whether to change which parties are subject to renewable fuel standard requirements.

In the 2007 renewable fuel standard, or RFS, Congress set out certain levels of conventional ethanol and advanced biofuels that must be used each year through 2022. But it also gave EPA the authority to “waive” those levels on a yearly basis.

In its rule setting out biofuels targets for 2014-2016 during the Obama administration, EPA for the first time relied on its authority to waive the overall renewable fuel target for 2016 based on “inadequate domestic supply.”

EPA justified the use of the authority by explaining that it interpreted “supply” to mean the amount of biofuels that reaches the consumer, as opposed to the amount of fuels available for refiners to use. The agency said the array of infrastructure impediments known as the “blend wall” was barring ethanol from reaching consumers.

According to the agency, the approach balanced Congress’ desire to increase the use of biofuels with “real-world” constraints on the fuel. The Trump EPA later defended the Obama administration’s position.

EPA, though, faced backlash from the biofuels industry over the December 2015 rule, a prior version of which the agency failed to finalize after facing intense criticism. Arrayed under Americans for Clean Energy, producers challenged the rule for lowballing total renewable fuel requirements for 2016.

The oil industry supported EPA’s use of the waiver but also sued, arguing that EPA overestimated the amount of cellulosic biofuel available in the market.

American Fuel & Petrochemical Manufacturers also argued that EPA was required to consider whether entities other than refiners should be required to purchase renewable fuel credits and show compliance. The oil industry group wanted EPA to add blenders — parties that actually blend ethanol and advanced biofuel into petroleum gasoline — into the fold.

And the biodiesel industry filed its own lawsuit over EPA’s decision to lower the targets for advanced biofuels.

At oral arguments in April, Kavanaugh expressed sympathy for EPA’s difficulty in setting yearly biofuel standards: “It’s crazy, I’m with you on that,” he said.

But he also expressed skepticism of whether the law gave EPA the authority to lower the renewable fuel volume requirements (E&E News PM, April 24).

In today’s opinion, Kavanaugh wrote that EPA “acted reasonably” in setting the 2014 and 2015 targets at the actual volume of biofuel that was produced and used those years.

But he criticized EPA for folding demand constraints into its analysis of “inadequate domestic supply” when it came to the 2016 targets.

“EPA was wrong,” Kavanaugh wrote.

The agency erred, according to Kavanaugh, when it decided to consider consumers in its analysis of where to set the level of total renewable fuels.

“EPA’s reading of the provision makes little sense,” Kavanaugh wrote. “Whether consumers have an adequate supply of renewable fuel to fill their cars is not relevant to whether refiners, blenders, and importers have an adequate supply of renewable fuel to meet the statutory volume requirements.”

Kavanaugh also noted that Congress, when it debated the 2007 renewable fuel standard, specifically rejected language that would add distribution constraints into EPA’s authority to waive targets.

“Congress’s decision to drop the ‘distribution capacity’ language counsels against EPA’s reading in this case,” Kavanaugh wrote.

In short, EPA misread “inadequate domestic supply” to read “inadequate domestic supply and demand.” In doing so, Kavanaugh said, the agency turned the renewable fuel program’s market-forcing provisions “on their head.”

Kavanaugh rejected one part of Americans for Clean Energy’s arguments: that EPA should have considered refiners’ carry-over renewable fuel credits in setting the 2016 standard.

The court remanded the rule to EPA. Kavanaugh said it was up to the agency to decide whether to grant the oil industry’s request to change the point of obligation as it reconsidered the rule.

Judges Janice Rogers Brown, another George. W. Bush appointee, and Patricia Millett, an Obama appointee, heard the case with Kavanaugh.

The Renewable Fuels Association, which represents ethanol producers, cheered the decision as a “great victory.”

“We are still reviewing the decision,” RFA President and CEO Bob Dinneen said, “but the fact the court has affirmed our position that EPA abused its general waiver authority by including factors such as demand and infrastructure in a waiver intended to be based solely on available supply is a great victory for consumers and the RFS program.”

The decision will likely affect pending litigation over EPA’s 2017 RFS rule in the D.C. Circuit, which involves similar legal issues.

Click here to read the court’s opinion.

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