Court: EPA Erred on RFS Volumes

OMAHA (DTN) -- The U.S. Environmental Protection Agency erred in how it interpreted an "inadequate domestic supply" waiver provision in the Renewable Fuel Standard in 2016 volumes and must review the final volumes for 2014 to 2016, a federal court said on Friday. An ethanol group immediately hailed the ruling as a major victory for the industry.

In making its ruling, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit in Washington sided with Americans for Clean Energy, a group representing a number of biofuels interests, who filed a lawsuit against the EPA last year over the use of the domestic supply waiver in the RFS. In particular, the EPA issued RFS volumes in 2016 that included reductions in a variety of biofuels for the years in question.

"We hold that the 'inadequate domestic supply' provision authorizes EPA to consider supply side factors affecting the volume of renewable fuel that is available to refiners, blenders, and importers to meet the statutory volume requirements," the court said in its ruling, written by Judge Brett M. Kavanaugh.

"It does not allow EPA to consider the volume of renewable fuel that is available to ultimate consumers or the demand-side constraints that affect the consumption of renewable fuel by consumers. We therefore grant Americans for Clean Energy's petition for review of the 2015 final rule, vacate EPA's decision to reduce the total renewable fuel volume requirements for 2016 through use of its 'inadequate domestic supply' waiver authority, and remand the rule to EPA for further consideration in light of our decision."

During oral arguments before the court in April, Seth Waxman, an attorney for Americans for Clean Energy, told the court that EPA's limited role is to set biofuel volumes. Between 2014 and 2016, EPA set volumes below statute for many biofuels categories, prompting a number of biofuels groups and obligated parties in the RFS to sue the agency.

Part of EPA's decision to set volumes lower was based on what the agency said was an inadequate supply of biofuels.

The biofuels industry has maintained that the RFS obligations can be met through the sale and purchase of renewable identification numbers, or RINs, as well as actual biofuels gallons.

Waxman pointed to EPA's proposed rule for 2014 to show the agency knows there is adequate supply to meet RFS demands. For example, in that rule, the agency said there is the capacity for about 1 billion gallons of E85 to be consumed. Still, the EPA estimated in its rule the amount would be closer to 200 million gallons.

Bob Dinneen, president and chief executive officer for the Renewable Fuels Association, told DTN the ruling was a victory.

"We are still reviewing the decision, but the fact the court has affirmed our position that EPA abused its general waiver authority by including factors such as demand and infrastructure in its waiver intended to be based solely on available supply, is a great victory for consumers and the RFS program," he said.

Attorneys representing the Trump administration made the case in April that, even if there is a "glut" of fuel blended with ethanol and other biofuels, it is not considered renewable fuel until it is used by the consumer. In addition, the agency has argued some biofuel volumes were set lower because gasoline demand was down in the years in question.

The agency used that justification in drawing back on the RFS in recent years, arguing insufficient infrastructure made it more difficult to get biofuel-blended fuels to market, even if volumes were produced to match the mandate.

BIODIESEL RULING

In its ruling Friday, the court rejected a number of other challenges filed by the National Biodiesel Board and others.

A number of groups, including the petroleum industry, challenged EPA's implementation of the RFS. One of those groups, the National Biodiesel Board, argued in court that the agency had no reason to waive the advanced biofuels portion of the statute because of biomass-based biodiesel production.

Although the biodiesel industry was poised to produce about 2.6 billion gallons this year, the agency set the advanced biofuels volume at 2.1 billion. The NBB case was among those rejected by the court.

"EPA's analysis, more of which appears in the final rule, demonstrates that EPA fulfilled its duty to 'examine the relevant data and articulate a satisfactory explanation for' its biomass-based diesel projections, 'including a rational connection between the facts found and the choice made,'" the court said in its ruling.

"In such a situation, this Court 'is not to substitute its judgment' (nor National Biodiesel Board's) 'for that of the agency.' We conclude that EPA's calculation of the volume of advanced biofuel 'reasonably attainable' in the market in 2016 was not arbitrary or capricious."

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

Follow him on Twitter @toddneeleyDTN

(AG/BAS)

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