Court weighs challenge to cellulosic standards

Source: Lawrence Hurley, E&E reporter • Posted: Tuesday, December 11, 2012

A federal appeals court yesterday appeared to be inching toward finding U.S. EPA’s 2012 cellulosic biofuel requirements unlawful.

The three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit did not, however, appear sure how exactly EPA should calculate its annual requirements, which industry has consistently failed to reach.

The American Petroleum Institute challenged the regulation, pointing out the delays in commercializing the fuel (E&ENews PM, March 12).

The rule issued in December 2011 requires producers to generate 8.65 million gallons of cellulosic biofuel this year or purchase renewable fuel credits to meet the obligation.

EPA bases its annual biofuels requirements on predictions from the federal Energy Information Administration and industry production assumptions.

API argues that the standard is arbitrary and capricious under the Administrative Procedure Act because EPA failed to correctly determine the projected volume of production. The group claims the EIA projection should have been only a “starting point” for EPA’s own analysis.

Secondly, API says the 8.65 million gallons number is based on open-ended projections rather than “Congress’ directive to project the amount of fuel that actually will be produced,” as outlined in the Energy Policy Act of 2005 and amended by the Energy Independence and Security Act of 2007.

Furthermore, EPA “based its projections on the predictions of cellulosic biofuel facility owners, even though those projections have proved to be highly unreliable,” API says.

At yesterday’s oral argument, at least two of the judges seemed to share some of API’s concerns. They appeared to be inclined to vacate this year’s standard and ask EPA to carry out a new calculation based more closely on the statutory language.

Judge Brett Kavanaugh suggested that although it was understood by everyone that the aim of the legislation was to stimulate the industry, “it does seem that Congress was focused on getting the accurate projection.”

Both he and Senior Judge Stephen Williams questioned whether EPA had the leeway to put its “thumb on the scale” quite as much as it did in making the projections.

Addressing Congress’ role in growing the industry, Williams noted that there was “no language” in the statute that suggests EPA can take that into account when making its projections.

But Kavanaugh also probed API lawyer Robert Long about how EPA should come up with its numbers, appearing concerned at the court’s ability to find an appropriate way forward.

“Setbacks and delays don’t necessarily lead to a specific number,” he said.

If the court was to vacate the 2012 requirements and send the matter back to EPA, “it’s generally better if we give them some parameters,” Kavanaugh added.

Long responded only that what API found to be “clearly unreasonable” was that EPA had taken certain projections at face value and did not build in consideration of setbacks and delays.

The trade group pointed out in its brief that, in 2011, refiners and importers ended up paying $17 million to EPA to meet that year’s requirement. This year, “API’s members once again face the prospect of paying what amounts to a tax of millions of dollars,” the brief states.