D.C. Circuit tosses biofuel maker’s complaint that new guidance will cost it valuable credits

Source: By Sebastien Malo, Reuters • Posted: Sunday, August 16, 2020

A federal appeals court on Friday denied a challenge by leading ethanol maker POET Biorefining, LLC who accused the U.S. Environmental Protection Agency of making it impossible to certify its corn-fiber-derived ethanol under a renewable-fuel program.

A split three-judge panel of the U.S. Court of Appeals for the D.C. Circuit denied part of a petition by the company, concluding that EPA guidance that requires cellulosic-ethanol makers like POET to use a methodological gold standard that is not yet determined to certify their fuel under the Clean Air Act’s Renewable Fuels Standard (RFS) program is not arbitrary nor capricious.

POET, represented by Wilmer Cutler Pickering Hale and Dorr attorneys, petitioned the court in July 2019 to oppose this regulatory guidance the EPA released earlier that year.

The guidance clarifies how to measure the proportion of cellulosic versus starch ethanol simultaneously manufactured with corn kernel. Corn-kernel outer shell produces cellulosic ethanol, while its flesh makes starch-based ethanol.

Under RFS, refiners must blend renewable ethanol into U.S. gasoline and diesel supplies to accumulate credits, known as Renewable Identification Numbers (RINs). Cellulosic-ethanol credits are more valuable – potentially worth tens of millions of dollars – while starch-based ethanol RINs trade for less.

POET challenged the guidance by arguing that it in effect denies registration of cellulosic fuel under RFS because the new guidance requires that companies test their methods for calculating how much cellulosic ethanol their technology generates against a benchmark of excellence that is currently in development.

The Caro, Michigan-based company also argued that the guidance was a legislative rule, rather than an interpretive one, that must be invalidated because it was never subject to notice and comment.

The EPA, represented by Paul Salamanca with the U.S. Department of Justice, filed a sealed respondent brief in February.

Writing for the majority, U.S. Circuit Judge Cornelia Pillard, joined by U.S. Circuit Judge Merrick Garland, disagreed with POET. She reasoned that with its guidance document, the EPA was interpreting an RFS regulatory requirement that the methodologies biofuels producers resort to yield “reasonably accurate results”.

“Requiring EPA to undertake notice and comment whenever it refines an interpretation of its rules or statutory authorities would discourage the agency from synthesizing and documenting helpful and reliable advice like the Cellulosic Guidance,” the judge wrote.

U.S. Circuit Judge Karen Henderson, in a partial dissent, objected to construing the guidance as a mere interpretive document. The guidance changed the functioning of the RFS program with the effect that “that producers like POET are indefinitely foreclosed from successfully registering” their fuel under the regulatory scheme, she said.

The guidance “limits and thus effectively amends the 2014 regulation,” Henderson added.

In the 8th U.S. Circuit Court of Appeals, another lawsuit by POET that also challenges EPA’s cellulosic guidance is ongoing. That lawsuit specifically focuses on the agency’s decision not to certify the cellulosic biofuel POET makes at its Hudson, South Dakota plant.

POET spokeswoman Carla English said that company was “evaluating all options available to obtain the appropriate D3 registration for our corn fiber pathway.”

EPA’s spokeswoman Enesta Jones said: “We are reviewing the decision.”

The case is POET Biorefining, LLC, et al v. EPA, et al, U.S. Court of Appeals for the D.C. Circuit, No. 19-1139.

For POET Biorefining, LLC, et al: Seth Waxman of Wilmer Cutler Pickering Hale and Dorr