Industry critics foreshadow legal arguments against EPA ethanol proposal

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, January 29, 2014

Industry opponents of a U.S. EPA proposal for shrinking the nation’s ethanol mandate are predicting a legal barrage on the rule.

With the 60-day public comment period on the renewable fuel standard (RFS) 2014 goal ending today, critics are questioning EPA’s legal authority under the Clean Air Act to reduce the mandate.

And a new coalition of renewable energy and biofuels interests led by the American Council on Renewable Energy is going as far as to argue that EPA created and perpetuated the problems with ethanol that are being used as reasons to lower the mandate. The coalition plans to announce its opposition today.

ACORE President Michael Brower told Greenwire in advance of the announcement that the argument can be seen as an appellate-level brief that lays the groundwork for possible litigation.

“We honestly believe that the EPA is going to get sued — not by us, that’s not what we do,” Brower said. “You can probably hear the noise of the litigation papers hitting the table on this. What we thought was we would talk about why this is incorrect.”

Since it was released last year, first as a leaked draft and then as a proposed rule, EPA’s proposal has shaken markets for corn and ethanol and threatened to halt investments in next-generation fuel projects.

EPA’s rule proposal calls for a 16 percent cut in ethanol and advanced biofuel usage this year compared to the level set out in the 2007 Energy Independence and Security Act. The agency would mandate 13 billion gallons of conventional ethanol — 1.4 billion gallons below what the act requires — and 2 billion gallons of advanced biofuels made from feedstocks other than cornstarch, a reduction of 1.75 billion gallons from the act’s goal.

The agency argues that there was an inadequate domestic supply of ethanol due the “blend wall,” refiners’ term for the limit on ethanol that can be used given today’s fueling infrastructure. EPA also said it lacked confidence in the amount of advanced biofuels that can be produced this year.

The agency has received 15,501 comments on its proposal.

Almost immediately after EPA’s plans were first reported last year by Greenwire, biofuels producers and advocates threatened litigation over the proposal. It’s unclear whether EPA will modify the proposal before issuing a final rule, but if the agency doesn’t, industry observers expect legal attacks on the proposal from all sides.

Should there be lawsuits, industry supporters are likely to claim that EPA’s interpretation of inadequate domestic supply to include blend wall concerns is an illegal interpretation of the Clean Air Act, which contains the RFS.

ACORE’s coalition also maintains that EPA itself created the blend wall by not carrying out its obligations under the Clean Air Act.

According to the coalition, EPA has failed to update a 1990s-era study that found ethanol did not reduce harmful tailpipe emissions, despite more recent outside studies showing ethanol has a tailpipe emissions benefit.

“The original assessment of ethanol in 1992 concluded that ethanol was bad for the environment, it was bad for the air quality,” Brower said. “And so they built the blend wall upon that foundation. It was more of a constraint for environmental reasons.”

The agency has based subsequent decisions on that study and has not enforced parts of the Clean Air Act that require EPA to promulgate regulations that reduce tailpipe emissions, according to the coalition. EPA hasn’t taken steps required by statute to update fueling infrastructure and create incentives for higher ethanol blends and, as a result, perpetuated the blend wall, the ACORE coalition argues.

“They make reference to it, that the blend wall they’ve created is the reason that they are lowering the renewable fuel standard,” said Jeramy Shays, a policy associate at ACORE who spearheaded the group’s comments.

The coalition signing onto the comment includes ethanol trade group Growth Energy, ethanol producer POET LLC and others.

Cart before the horse?

Brower vowed his group would step up efforts to support renewable fuels. A former naval officer, Brower said ACORE would emphasize the renewable fuel standard’s national security benefits.

“These comments are merely our Lexington and Concord in this event,” Brower said. “We’ve thrown our lot in with all our friends and neighbors and allies, and we are going to step up our involvement on this front.”

While biofuel groups have hinted at possible lawsuits, they are waiting to see the final rule before making any decisions, said Bob Dinneen, president and CEO of the Renewable Fuels Association.

Lawsuits will likely depend on whether EPA modifies its proposal in a final rule, which could take months still to complete.

“In terms of litigation — look, that puts the cart a bit before the horse, obviously, because we’ll want to evaluate what they do in a final rule,” Dinneen said last week. “I do expect there to be changes to the final rule. I do expect there to be significant changes to the final rule.”

Advanced biofuel producers have warned that the likely court action on the proposal will significantly draw out the final figures for 2014, creating more uncertainty in the market and dimming the hopes for investment.

Already, large biofuel producers are looking outside the United States for their next investments in advanced biofuels, according to Brooke Coleman, executive director of the Advanced Ethanol Council.

“Who loses if we get stuck in court? This is something that the administration should be focused on,” Coleman said. “If we go into court on this proposal, the result will be that we’re going to perpetuate the uncertainty in the marketplace for the duration of the lawsuits. The projects that are looking to go outside of the country will be more inclined to go outside of the country.”