‘It’s crazy, I’m with you on that,’ judge says of RFS

Source: Amanda Reilly, E&E News reporter • Posted: Tuesday, April 25, 2017

Federal judges on Monday puzzled over complex litigation over U.S. EPA’s contentious rule setting biofuel targets for the years 2014 through 2016.

While the rule called for year-over-year increases in biofuel use, EPA’s targets fell short of the levels Congress wrote into the statute that created the renewable fuel standard. The agency is facing litigation from both the biofuels industry and oil interests.

Today, a three-judge panel in the U.S. Court of Appeals for the District of Columbia Circuit heard more than three hours of oral arguments that mostly centered on the meaning of the word “supply” and whether EPA appropriately invoked a waiver to lower the targets.

While at times appearing to side with EPA, judges questioned whether the agency was taking on the responsibility of overseeing the renewable fuels market in a way Congress never intended.

Judge Brett Kavanaugh, a George W. Bush appointee, said he was “completely sympathetic” to EPA’s difficulties in issuing the yearly biofuel standards: “It’s crazy, I’m with you on that.”

But, he said, “I don’t see this statute as that kind of grant to EPA. If this is totally screwed up, then Congress should fix it.”

In the 2007 renewable fuel standard, Congress set out certain levels of conventional ethanol and advanced biofuels that must be used each year through 2022. But it gave EPA the authority to “waive” those levels on a yearly basis.

A core issue in the litigation in front of the court is EPA’s use of the waiver for “inadequate domestic supply” of renewable fuels in its rule setting out targets for 2014 through 2016.

In 2014, the rule called for a total of 16.28 billion gallons of renewable fuels, which was equal to the amount actually used that year. EPA’s targets increased to 16.93 billion gallons in 2015 and 18.11 billion gallons in 2016. In contrast, Congress projected that renewable fuel use in 2016 would be 22.25 billion gallons.

Biofuel interests argue that EPA flouted the law when it took into account the collection of distribution and infrastructure challenges known as the “blend wall” in its determination that there was an inadequate domestic supply of renewable fuel available to meet the congressionally mandated levels.

In doing so, EPA allowed concerns about demand — and not supply — to drive the rule in violation of the law, argued Seth Waxman, an attorney for a coalition of biofuel producers. To make that interpretation work, Waxman told judges, EPA engaged in a “crazy circular exercise” that “completely defeated the meaning of the word ‘supply.'”

The agency also wrongfully interpreted its duty under the law as being a “superintendent” of the renewable fuels market, he said.

“EPA not only screwed up its assignment. It misunderstood its assignment,” said Waxman, who served as solicitor general during the Clinton administration.

EPA, on the other hand, today argued that the word “supply” in the law was ambiguous and that it reasonably interpreted it to mean the amount of renewable fuel that actually makes its way into consumers’ vehicles to replace petroleum fuel.

The agency’s interpretation squares with Congress’ goals for the RFS, which were lower greenhouse gas emissions and greater energy independence, argued Justice Department attorney Samara Spence.

The “oversimplified approach” advocated by biofuels advocates would lead to “absurd” results that don’t take into account real-world constraints on renewable fuel use, Spence said.

However, Judge Patricia Millett, an Obama appointee, told Spence she was “having a problem” with the language in the statute because it nowhere mentions the word “consumer” or “distribution.”

Kavanaugh said his “fundamental big-picture question” was why EPA chose to try to make the waiver for “inadequate domestic supply” work instead of invoking its authority to waive the yearly mandates because of severe economic harm.

“It seems odd to fit this into supply,” he said, adding that the other waiver authority appeared to give the agency “much more flexibility.”

Judges also grappled with the point in the supply chain that a fuel made from plants actually becomes a “renewable fuel” under the law and whether the term “is used” means the same thing as the term “for use.”

Thomas Lorenzen, a former Justice Department environmental attorney who represented American Fuel & Petrochemical Manufacturers, argued a biofuel is only a renewable fuel under the law if it’s actually used as a transportation fuel at the end of the supply chain.

“There’s a whole bunch of messy definitions here,” he said, arguing that the ambiguities in the law mean EPA should be afforded deference in its interpretation of the waiver authorities.

Kavanaugh and Millett both appeared to agree that EPA had “broad discretion” under a separate authority that allows EPA to ratchet down the advanced biofuels target if it lowers the standard for cellulosic biofuels.

EPA used that authority for the first time in its 2014-16 standards. The National Biodiesel Board is challenging that part of the rule, arguing that EPA was acting counter to Congress’ intent to “aggressively drive the market to advanced biofuels.”

Oil industry claims

Though it urged the court to reject the biofuels industry arguments, AFPM today also sought a remand of the rule because it says EPA failed to reconsider an important aspect of the broader RFS program.

The oil industry group argues that EPA unlawfully decided that considering whether to change which parties are subject to the RFS requirements was “beyond the scope” of the 2014-16 rule. AFPM says EPA is required to take that into consideration every year when it sets the annual targets.

As it stands now, refiners and importers must show compliance with the annual targets. But AFPM wants EPA to add blenders — parties that actually blend ethanol and advanced biofuel into petroleum gasoline — into the fold.

The “point of obligation” is a “fundamental market constraint” on renewable fuels use because “blenders aren’t doing what they need to do to increase renewable fuel use,” Samara Kline, an attorney representing AFPM and other refiners, told judges.

But EPA today told judges that the challenge is time-barred. AFPM should have brought its challenge in 2010, when EPA issued its implementing regulations for the RFS and defined which entities must comply, Spence said.

She said re-examining the point of obligation each calendar year would be a near impossible lift for EPA.

“It’s difficult enough to get annual volume standards out on time,” Spence said.

Judges appeared sympathetic at times to EPA’s argument. But Judge Janice Rogers Brown, a George W. Bush appointee who was otherwise relatively quiet during the oral arguments, twice asked EPA to explain its claim that the relationship between which parties must comply with the law and market constraints was irrelevant to the annual standards.

Spence noted that the agency was separately looking at the issue outside the context of the annual standards. EPA in February wrapped up a comment period on whether it should change the point of obligation.

Judges today also heard the American Petroleum Institute’s claims that EPA overestimated the amount of cellulosic biofuel — an advanced biofuel made from perennial grasses, agricultural residue and other plant-based materials — that would be produced in 2014 through 2016.

In the rule at issue, EPA predicted there would be 230 million gallons of cellulosic fuel in 2016; the actual number was 190 million.

API argued that the rule suffered from the same unrealistic assumptions that caused the D.C. Circuit in 2013 to fault EPA’s 2012 cellulosic target. In that court decision, the circuit found that EPA’s methodology included a “special tilt” toward promoting the growth of the cellulosic biofuel industry that had “no basis” in the law.

Spence, however, told judges that the analysis this time around was “rigorous” and had several new factors because of the inclusion of biogas as an approved cellulosic fuel.

“EPA has tried to do better,” she said.