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D.C. Circuit Court Sends 2019 RFS Back to EPA, Rejects Biofuels Argument on Gallons Lost to Exemptions

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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A federal court rejected a biofuels legal challenge to the EPA of its 2019 decision to not restore Renewable Fuel Standard gallons lost to small-refinery exemptions. (DTN file photo)

LINCOLN, Neb. (DTN) -- The U.S. Court of Appeals for the District of Columbia Circuit on Friday denied a biofuels group's challenge to EPA's inaction on restoring 4.3 billion gallons to the Renewable Fuel Standard lost to small-refinery exemptions between 2016 and 2018.

The court, however, sent back the 2019 RFS to EPA ruling the agency did not consider the rule's effects on endangered species.

Growth Energy brought a legal challenge the EPA, along with petroleum and environmental interests, challenging EPA's implementation of the 2019 volumes.

Growth Energy asked the D.C. Circuit to review the 2019 rule because EPA did not account for biofuels gallons lost to small-refinery exemptions the previous year.

"EPA's decision to maintain its approach to small-refinery exemptions in the 2019 rule was reasonable," the court said in its ruling on Friday.

"EPA reexamined its approach to retroactive exemptions one year earlier in the 2018 rule and the court upheld EPA's treatment of small-refinery exemptions as reasonable and reasonably explained. EPA could reasonably decline to reconsider the same issue again one year later when there had been no change in circumstances that would have required it to reexamine its approach again."

On a legal question about whether EPA made a proper endangered species determination in drafting the 2019 rule, the court ruled in favor of environmental groups.

"EPA's determination that the 2019 rule would not affect listed species is arbitrary and capricious because it is contrary to the weight of the evidence," the court said.

"Because EPA's effects determination is defective, its decision regarding severe environmental harm, which rests on the same faulty analysis, is also arbitrary and capricious. We therefore remand without vacatur of the 2019 rule for EPA to revisit its decision not to exercise the waiver for severe environmental harm."

The ruling comes one week after the D.C. Circuit Court vacated an EPA rule allowing for the year-round sales of E15. Prior to that ruling, the Supreme Court sided with refining companies on a small-refinery exemptions case.

The ethanol industry continues to watch to see how EPA responds to the recent court rulings.

Growth Energy CEO Emily Skor said although the court's ruling did not require EPA to restore the 4.3 billion gallons to the RFS, the group is encouraged the court rejected legal arguments about economic harm and inadequate supply.

"The RFS has and continues to call for increased biofuel blending," she said in a statement. "It is long past time for refiners to move ahead with higher biofuel blends."

Skor said her group will continue to make the case for EPA to restore RFS gallons lost to small-refinery exemptions. The agency is expected to release RFS volumes proposals for 2021 and 2022, in the coming weeks.

"We urge them to consider the demand destruction that delays cause for producers and farmers in rural America, as well as the effect of the delays on our country's efforts to decarbonize the transportation sector through cleaner energy," Skor said.

The Renewable Fuels Association on Friday called the court's ruling on Friday an "outright rejection" of arguments made by oil refiners that the RFS causes economic hardship.

"The court saw right through the many specious arguments raised by the oil refiners in this litigation, and today's decision is a strong repudiation of the false narrative refiners continue to push about the Renewable Fuel Standard," RFA President and CEO Geoff Cooper said in a statement.

In its ruling the court expressed disbelief in arguments raised by refining companies that they were unable to recover their costs of complying with the RFS. The EPA has indicated refiners are able to recover the costs of buying Renewable Identification Numbers, or RINs, through raising prices at the pump.

"Obligated parties assert that the 'pass-through' theory is flawed and that RFS requirements impose severe economic consequences on refiners in the eastern United States," the court said in its ruling.

"We reject this challenge. EPA reasonably concluded that obligated parties had failed to make the strong causal showing required to trigger the waiver. It was reasonable for EPA to conclude that RFS costs alone were not the primary driver of the refineries' economic difficulties."

The court also rejected claims by refiners that a waiver of 2019 RFS requirements was justified because of "inadequate domestic supply" of biofuels to meet the RFS. The court also ruled EPA's decision to not change the point of obligation in the RFS was "not an abuse of discretion."

The court also rejected a claim by refiners that exported fuel should be counted toward RFS compliance. "EPA at no point suggested that it was substantively reconsidering its longstanding policy concerning the treatment of exported renewable fuel," the court said.

Todd Neeley can be reached at todd.neeley@dtn.com

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