D.C. Circuit Rejects Suit Claiming EPA Fuels Test Bars New Ethanol Blends

Source: By Anthony Lacey, Inside EPA • Posted: Wednesday, July 15, 2015

The U.S. Court of Appeals for the District of Columbia Circuit has rejected biofuel producers’ suit claiming that an EPA fuels testing policy bars higher ethanol blends containing 30 percent ethanol (E30) from the marketplace, with the three-judge panel saying any such barrier is a statutory issue and not a fault in EPA’s policy.

Several ethanol producers filed the suit, Energy Future Coalition, et al. v. EPA, claiming that the agency’s recently finalized “Tier III” fuel and vehicle air rule included a revision to a years-old fuels compliance testing policy that the companies claimed reopened the test to judicial review.

They urged a three-judge panel of the D.C. Circuit to remand the testing policy to the agency to lift alleged barriers to ethanol, but the court’s July 14 opinion rejects that request on the merits, finding that EPA’s rule is not “arbitrary and capricious,” although the panel found the biofuels groups had standing to sue.

The petitioners in legal filings and at oral arguments charged that EPA adopted regulations requiring vehicle makers to test the emissions of new vehicles with a “test fuel,” which must be “commercially available.”

Those regulations implement Clean Air Act requirements that vehicles be tested under circumstances reflecting the “actual current driving conditions under which motor vehicles are used, including conditions relating to fuel,” according to the opinion.

The petitioners argue that EPA’s policy creates a catch-22 situation barring E30 — which is not in wide use — because it mandates that test fuels be commercially available, even though another air law provision prohibits the sale of a fuel that is not “substantially similar” to an already approved test fuel.

“Putting those two requirements together, petitioners see a catch-22: They contend that it is illegal to use a test fuel unless it is first approved for sale in the market, and that it is illegal to sell a fuel in the market unless it is first approved for use as a test fuel,” which makes it impossible to promote E30, the opinion says.

But the unanimous decision by Judge Brett Kavanaugh, written on behalf of fellow panelists David Tatel and Julia Pillard, rejects that argument and says EPA’s policy is not the source of any catch-22.

“Rather, to the extent a so-called catch-22 exists — which has been neither established nor conceded — it is the result of the statutory scheme adopted by Congress,” the opinion says. In a footnote, the judges note that they are not deciding on whether EPA could relax the “commercially available” requirement for its testing policy, and decline to take any position on that issue.

As a result, the judges reject petitioners’ claims that the testing policy is “arbitrary and capricious” — the air law standard for scrapping a rule. “[A]s we have already explained, the Clean Air Act provides that EPA’s test fuel regulations must ‘reflect the actual current driving conditions under which motor vehicles are used, including conditions relating to fuel.’ It is not arbitrary and capricious for EPA to fulfill that statutory mandate by requiring that test fuels be ‘commercially available.’ In short, the ‘commercially available’ requirement is not arbitrary and capricious.”

The decision denies the petition for review filed by the Energy Future Coalition of biofuels makers, leaving the group with the options of either urging the panel or full D.C. Circuit to rehear the case, or seeking Supreme Court review.

The D.C. Circuit ruled weeks after holding March 20 oral arguments in the case, at which the judges asked tough questions of both sides in the litigation, including whether the suit is “ripe” for review and querying EPA’s defenses against the companies’ claims that the policy blocks new ethanol blends from the market.

Legal Standing

Although the biofuel groups lost the suit on the merits, they were able to overcome EPA’s claims that they lacked standing to sue.

The agency argued that because the petitioners are not the object of the regulation, which is directed at vehicle manufacturers, they had to demonstrate Article III standing, which requires them to show injury, causation and redressability.

For example, the agency argued that the biofuel producers were unable to show injury from the regulation because the regulation “imposes no regulatory restrictions, costs, or other cognizable burdens directly on Petitioners,” meaning there is no injury.

But the court rejected EPA’s argument, finding that the testing policy is a regulatory impediment to the use of E30 as a test fuel. “That qualifies as an injury in fact” for standing, writes Kavanaugh.

The court also rejected the agency’s claims that the petitioners were unable to demonstrate the causation and redressability prongs of the standing test. “Put simply, petitioners have standing to challenge the legality of the test fuel regulation,” according to the opinion.

The court also rejected EPA’s arguments that the biofuels producers were outside the Clean Air Act “zone of interests” and therefore lack a statutory right of action to sue.

Under the “zone of interests” test, a party must either be regulated by the regulatory action being challenged or within the zone of interests Congress intended to protect, according to EPA. Because the biofuel producers are not regulated by the rule, they therefore fall outside the “zone of interest,” EPA charged.

But Kavanaugh notes that the Supreme Court’s test for the zone of interests “is not meant to be especially demanding,” citing a 2012 ruling in Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak, finding that the link between the producers and EPA’s policy meets that test.

Kavanaugh cites a 2002 D.C. Circuit ruling in Ethyl Corp. v. EPA as a similar case where the court granted zone of interests. “In Ethyl, this Court held that a fuel additive manufacturer fell within the zone of interests under the Clean Air Act and could challenge EPA regulations governing emissions testing for vehicles. Petitioners here challenge an EPA regulation governing emissions testing for vehicles under the same part of the Clean Air Act. We see no principled way to distinguish the fuel additive manufacturer in Ethyl from the biofuel producers in this case, a conclusion only strengthened by the Supreme Court’s recent cases emphasizing that the zone of interests test is not especially demanding. Petitioners are within the zone of interests,” according to the opinion.