Governors' Biofuels Coalition

In a Dec. 8 brief filed on EPA’s behalf, the Department of Justice urged the court to dismiss the suit, saying ethanol producers lack legal standing to challenge the regulation because the fuels testing policy they oppose applies to vehicle manufacturers for determining compliance with federal GHG and other rules, and does not regulate the ethanol makers.

The brief also charges that the commercial success of such fuels depends on automakers manufacturing vehicles that can handle the fuels, not on whether EPA’s rules prevent the ethanol producers from bringing the fuels to market.

“By the time the manufacturers are ready to roll out the new vehicles commercially, there will be ample time for fuel suppliers to choose to make a new fuel available, for the market to settle on the desired specification and seek registrations, as needed, and for EPA to evaluate and potentially approve a new test fuel specification should the manufacturers so request,” the brief says.

Backed by the Governors’ Biofuel Coalition, a group representing 32 governors, the ethanol producers are suing EPAin the U.S. Court of Appeals for the District of Columbia Circuit over provisions in the Tier 3 rule that updated the agency’s long-standing test fuels policy.

EPA first established the test fuels policy in 2002 as a means of determining fuels’ compliance with its Clean Air Act emissions regulations for conventional pollutants. It has modified the policy several times since then, most recently in its Tier 3 rule — which generally limited the amount of sulfur allowed in gasoline — to require that fuels be “readily available nationwide” before they can be approved as alternative test fuels.

But the ethanol producers charge in Energy Future Coalition, et al. v. EPA that this new requirement effectively blocks them from marketing new fuels because a 1977 law bars such efforts unless the new fuels are “substantially similar” to existing test fuels, creating a Catch-22 situation.

“Auto manufacturers have no way of making a novel fuel commercially available. Nor do biofuel or other fuel producers, who cannot control how refiners or terminals blend their products into the fuel supply. And petroleum refiners and fuel retailers have no economic incentive to market a fuel for vehicles that do not exist,” they said in their brief.

Without new ethanol blends such as 30 percent ethanol (E30) available as test fuels, automakers cannot certify and sell engines that achieve higher fuel efficiency and lower greenhouse gas emissions, the groups say.

In their Oct. 8 opening brief, they argued that the test fuels policy as updated in the Tier 3 regulation therefore creates a “chicken and the egg” dilemma blocking higher ethanol blends from sale. The test policy “conditions approval of an alternative test fuel on that fuel’s commercial availability. But market availability is forever out of reach, because it is against the law to sell fuel that is not ‘substantially similar’ to an existing test fuel,” they say.

Existing approved test fuels include E10, for general use, and E85, for flexible fuel vehicles, but ethanol proponents say that blends in between would allow higher octane fuels for general use in more-efficient engines.

EPA’s Defense

DOJ on EPA’s behalf in the new brief, however, rejects ethanol producers’ argument that they are in an “impossible bind” in trying to bring new ethanol blends to market, saying the test fuel policy is a reasonable one.

The brief argues that the “chicken and egg” dilemma posited by pro-ethanol groups is false and fuel developers must work with engine manufacturers on new fuels if they want to the make such fuels viable for sale.

DOJ identifies a host of market and other factors, such as a lack of fueling infrastructure, as stumbling blocks to higher ethanol blends rather than the fuels-testing policy. Using Tier 3 or other rules to try and force open a market for higher ethanol blends, as suggested by pro-ethanol groups, is inappropriate and at odds with the safeguards Congress created to ensure new fuels comply with environmental protections, DOJ says.

As a threshold issue, DOJ says the ethanol groups cannot show any actual or imminent injury from the test fuel policy as applied in the Tier 3 rule, and therefore they lack legal standing to sue.

“Petitioners are ethanol producers and a pro-ethanol public policy group, not vehicle manufacturers, and thus are not directly regulated by the challenged provision. Petitioners have suffered no concrete or particularized injury-in-fact that is actual or imminent, their alleged injuries are not fairly traceable to EPA’s alternative test fuel provision, and they offer only speculation that their situation is likely to be redressed by a favorable court decision,” DOJ says.

The groups aim to protect their competitive interests in selling ethanol, but such interests are insufficient to establish standing under a broad “sphere of interests” test as sometimes applied by the courts, DOJ says.

Energy Future Coalition, representing ethanol producers, in public comments on the Tier 3 rule “wanted EPA to mandate under its authority to specify test fuels that every light-duty vehicle to be sold in the United States would be capable of running on E30,” DOJ says, a demand beyond the scope of test-fuel rules.

DOJ describes as a “fallacy” the assertion that EPA rules and policies create a chicken and egg dilemma. “To the extent Petitioners believe they face hurdles in gaining market acceptance of new vehicle technologies, those hurdles were not created by EPA and are not appropriately addressed through the test fuel regulations.”

DOJ adds that “Any new vehicle technology that is dependent on the availability of an alternative fuel faces the so-called ‘chicken and egg’ problem apart from EPA’s Tier 3 regulations. It is primarily a marketplace issue, and it is incorrect to attribute the barriers that may exist in the marketplace, such as low consumer demand or lack of existing infrastructure to sell certain types of new fuels” to EPA policy.

‘Readily Available’

DOJ says the petitioners misread a key sentence in the Tier 3 regulation. EPA’s one-time use of the phrase “readily available nationwide” is merely a paraphrase of the “commercially available” language in its 2002 fuels policy, DOJ claims. EPA is not “purporting to issue a new, binding interpretation of the rule’s language. There is nothing in the preamble suggesting that EPA essentially intended to substitute the term ‘readily available nationwide’ for ‘commercially available’ in the regulatory text,” according to the brief.

Although petitioners claim that the requirement that test fuels be “commercially available” is already prohibitive of higher ethanol blends, DOJ defends the language. DOJ says “the ‘commercial availability’ factor is entirely consistent with the purpose of the process for approving alternative test fuels because it furthers confidence that tested vehicles will continue to meet emission standards throughout their useful lives.”

Cooperation between fuel makers and vehicle makers would enable new test fuels to reach market, DOJ argues. “If, hypothetically, manufacturers were to develop E30-specific vehicles or other high ethanol blend vehicles, they would have to work with fuel suppliers to define the specifications of the fuel and how it is to be used in those new engines.”

DOJ adds that, “Each step in the new vehicle development process, whether it concerns the engine design or preparing to bring the new fuel to market, does not have to wait for an earlier step to be completed, unlike a true ‘chicken and egg’ dilemma.”

DOJ also raises additional procedural grounds for the court to reject petitioners’ case. For example, the government says the case is unripe for judicial review. “EPA should be permitted to implement its emission control policies with respect to potential future alternative test fuels in a concrete setting with respect to a vehicle manufacturer’s specific request. Any subsequent judicial review of EPA’s action would benefit from a more developed record where EPA actually has applied” its test fuel policy, DOJ says.

DOJ also rejects the ethanol groups’ use of the so-called reopener doctrine, under which petitioners challenge old regulations by claiming that grounds arising after the deadline for filing suit over the original rule justify reopening the original rule to judicial review.

Clean Air Act rules are ordinarily subject to a 60-day filing deadline, but petitioners claim that EPA’s incorporation by reference of the 2002 test fuels policy into the April 28 Tier 3 final rule reopens the policy to review in full.

DOJ says that the doctrine only applies narrowly to application of the 2002 policy to vehicles covered by Tier 3, not other vehicles. The doctrine “does not expand this Court’s jurisdiction to encompass EPA’s prior rules or permit review as to other vehicle types not addressed in Tier 3,” DOJ says. —  (sparker@iwpnews.com)