In a recent decision, the U.S. Court of Appeals for the District of Columbia Circuit determined that the U.S. Environmental Protection Agency (U.S. EPA) wrongly invoked its general waiver authority and set the volumes for renewable fuel that must be blended into transportation fuel below the targets called for by Congress.
The Renewable Fuel Standard Program
The Renewable Fuel Standard (RFS), established by the Energy
Policy Act of 2005, is a regulatory program that increases the
amount of renewable fuels, such as ethanol and biomass-based
diesel, to be introduced into the domestic transportation fuel
supply each year. The goal of the RFS is to replace or reduce the
petroleum-derived transportation fuel in the market and reduce
greenhouse gas emissions from the sector.
The RFS includes scheduled, annual volumetric targets for certain
renewable fuels that increase each year, starting with 9 billion
gallons of renewable fuel in 2008 and increasing to 36 billion
gallons by 2022. The U.S. EPA, which administers the program, will
set these targets after 2022. Although Congress set forth volume
targets, the U.S. EPA is required to establish annual enforceable
standards through a formal rule-making process. Obligated parties,
such as importers, blenders, and refiners of petroleum products,
are then required to meet these obligations and introduce the
specified amount of renewable fuel into the transportation market
with their petroleum-derived fuels. The RFS includes a statutory
waiver provision, subject to certain limitations outlined in the
statute, which may be exercised by U.S. EPA to set enforceable
standards lower than the volume targets set by Congress.
Uncertainty Over U.S. EPA's Waiver Authority Leads to Litigation
In late 2015, U.S. EPA promulgated a Final Rule, the Renewable
Fuel Standard Program: Standards for 2014, 2015, and 2016 and
Biomass-Based Diesel Volume for 2017, 80 Fed. Reg. 77,420 (Dec. 14,
2015). This Final Rule established the annual percentage standards
for cellulosic biofuel, biomass-based diesel, advanced biofuel, and
total renewable fuel that applies to transportation fuel (i.e.,
gasoline and diesel) produced or imported in 2014, 2015, and 2016.
The Final Rule also established the minimum volumes for
biomass-based diesel for 2017.
In setting the enforceable standards, U.S. EPA exercised its
statutory waiver authority for the first time and set standards
lower than the statutory minimums and benchmarks established by
Congress. To justify its use of its general waiver authority, U.S.
EPA considered and ultimately determined that there was an
"inadequate domestic supply" of renewable fuel,
interpreting this term to mean the Agency could consider
demand-side constraints, such as the demand for renewable fuel by
consumers. U.S. EPA pointed to vehicle engine warranties, the
technical difficulties increasing ethanol blends above ten percent,
a lack of retail outlets, and limited interest in renewable fuel
blends, among other factors, to justify the reduction.
Various petitioners challenged the Final Rule: the renewable fuel
industry challenged the use of the general waiver authority and the
consideration of demand-side factors, among other grounds, while
the oil and gas industry argued that the standards were still too
high. Americans for Clean Energy, et al. v. EPA, No.
16-1005, 2017 WL 3202630 (D.C. Cir. Apr. 24, 2017)(consolidated).
The case was argued before the U.S. Court of Appeals for the
District of Columbia Circuit on April 24, 2017.
The Court recently vacated the portion of the Final Rule that set
the volumes for renewable fuel that must be blended into
transportation fuels below the targets called for by Congress,
remanding the rule back to U.S. EPA to reformulate its analysis. In
a unanimous panel, the Court found that the U.S. EPA wrongly
invoked its general waiver authority by considering consumer-side
constraints when setting the fuel standards. The panel found that
the waiver refers to the supply of renewable fuel available to
refiners, blenders, and importers to meet the statutory volume
requirements — not how much is available to consumers or the
market constraints that may affect consumer consumption. The Court
also did not agree with U.S. EPA's conclusion that the
statutory phrase "inadequate domestic supply" was
ambiguous. Finally, the Court rejected the other challenges to the
Final Rule that the lower standards were still too high. A copy of
the full opinion can be found here.
The Court's decision to limit U.S. EPA's use of its general
waiver authority is seen as a victory for the ethanol,
biomass-based diesel, and other renewable fuels industry and a
setback for the traditional petroleum-derived fuel sector.
Participation in the Ligation by Industry Amici Curiae
Van P. Hilderbrand Jr. assisted a coalition of
"on-the-ground" businesses and national not-for-profit
trade associations that produce the feedstocks used to synthesize
biomass-based diesel to file an amicus curiae brief in the
Court of Appeals litigation. The trade associations and businesses
challenged U.S. EPA's authority to lower the advanced biofuel
volume standards under the RFS program and believed that larger
volumes than those proposed by U.S. EPA were warranted and
reasonable.
The amicus curiae brief was submitted to explain the
consequences of the Final Rule for the biomass-based diesel
industry, as well as the Final Rule's impact on their business
practices that would flow from the Court's decision to uphold
U.S. EPA's waiver authority. In particular, the coalition
argued that increased volume standards, clear market signals, and
regulatory certainty would enable the advanced biofuels industry to
grow, reduce greenhouse gas emissions, mitigate climate change
impacts, and increase the nation's energy security.
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