EPA delays, ethanol credits take center stage in RFS court battle

Source: Amanda Peterka, E&E reporter • Posted: Tuesday, April 8, 2014

The oil industry today took its fight against U.S. EPA’s 2013 renewable fuel mandate to court, urging appellate judges to vacate the agency’s target for biofuel use in gasoline and diesel.
In arguments this morning, the three-judge panel from the U.S. Court of Appeals for the District of Columbia Circuit posed hard questions to both the oil industry and U.S. EPA. Judges appeared skeptical of the merits of the oil industry’s lawsuit as well as EPA’s delay in issuing the yearly renewable fuel targets.”Why in the world is EPA so egregiously late on this and so consistently late?” Judge Thomas Griffith asked.EPA in August proposed a renewable fuel standard that requires refiners to blend 16.55 billion ethanol-equivalent gallons of renewable fuel in 2013. Of that total, 13.8 billion gallons was to be conventional ethanol and 2.75 billion gallons advanced biofuel not made from corn.

At the center of the case is whether EPA has discretion over and adequately considered carryover credits from previous years that refiners could use to comply with biofuel targets.

The court is also weighing whether EPA broke the law by issuing the final rule more than eight months after a statutory Nov. 30 deadline.

Monroe Energy LLC, a subsidiary of Delta Air Lines Inc., argued that the rule burdens merchant refiners like itself that do not blend their own ethanol and must meet their RFS obligations solely by purchasing credits known as Renewable Identification Numbers (RINs). It argues that EPA failed to account for other refiners hoarding their RINs, which correspond to gallons of ethanol, in 2013 to meet future compliance targets.

EPA’s rule “poses devastating costs” on independent refiners, attorney David DeBruin, representing Monroe, told the judges. He said the refinery estimated it would spend $100 million to buy 2013 RINs.

“The critical fact is you have to consider 2014. This is a two-year currency,” DeBruin said.

But Judge Judith Rogers said the agency did discuss carryover RINs in its final rule, pointing to a section in the appendix of the rule laying out expected carryover credits. And the agency testified that it expects refiners should have at least 1.2 billion credits available from the end of 2013 to use toward their 2014 obligations.

“We assume that the agency is not writing nonsense,” Rogers said.

Rogers and Judge Cornelia “Nina” Pillard, both Democratic appointees, questioned whether EPA is even obligated to consider carryover credits. Pillard also asked why Monroe had not taken advantage of other ways to comply with the RFS.

Department of Justice attorney Lisa Bell, representing EPA, argued that Monroe has other compliance options beyond simply buying RINs on the market. It could, for example, purchase and market ethanol on its own.

Unlike Monroe, the American Petroleum Institute’s arguments today centered on whether the delay in issuing the rule should be cause for overturning it. Although EPA issued a proposed rule in January of last year, it did not finalize the rule until August. The agency did, though, extend the compliance period for last year until June 2014.

Robert Long, an attorney representing API, argued that the delay hurt refiners because EPA used an updated version of fuel data in the final rule that would never have been considered if the agency had released the rule on time.

Long said EPA did not notify refiners that it would be using the updated fuel consumption data from the Energy Information Administration, which he said increased their burden under the standard.

The judges questioned why EPA shouldn’t use the data, since they were more accurate than earlier data.

“If you don’t dispute its accuracy, then what is the harm?” asked Griffith, a Republican appointee.

Griffith also at times seemed sympathetic to the industry argument.

“At some point, there has to be some line drawn here to give the regulated entities certainty,” he said.

DOJ attorney Brian Lynk, representing EPA, said the agency’s track record is not as bad as critics claim. He said last year’s delay occurred because the agency was considering the blend wall, the term for the physical constraints to the amount of ethanol that can be used in the market, for the first time.

Rogers, though, raised concerns about whether the law allows API to challenge the delay in the first place. She indicated that the court may lack jurisdiction over issues related to the timeliness of the rule in the first place.

Long, API’s counsel, argued that EPA had forfeited its right to raise jurisdictional concerns because it did not raise those concerns in court briefs. However, he also said API may be willing to put that challenge on hold while the court decides the other issues in the case.

The court has also put on hold API’s challenge to the agency’s standard for cellulosic biofuels, a subset of the RFS that mandates the blending of fuels made from plant-based materials like agricultural residues and grasses. EPA earlier this year independently said it would reconsider the target.

Monroe has asked for an expedited ruling on the case. EPA will likely wait for the lawsuit’s conclusion to issue its final 2014 RFS. This year, the agency has proposed to lower the targets for both ethanol and advanced biofuels for the first time, based largely on blend wall concerns; both biofuel and oil industry groups have already threatened litigation (E&ENews PM, Nov. 15, 2013).