United States: Federal Appeals Court Limits U.S. EPA's General Waiver Authority Under The Renewable Fuel Standards Program

Last Updated: September 4 2017
Article by Van P. Hilderbrand Jr

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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