RFS Court Battle

OMAHA (DTN) -- The future of how the U.S. Environmental Protection Agency implements the Renewable Fuel Standard is at the epicenter of a federal court case set for oral arguments April 24 in Washington, D.C.

This week a number of groups filed briefs with the U.S. Court of Appeals District of Columbia Circuit challenging EPA's management of the RFS on a number of fronts.

Though Congress may at some point consider changing the RFS, the lawsuit originally filed by Americans for Clean Energy attempts to force the agency to apply the law as the groups believe was intended. The group argues in a brief this week the EPA has no statutory basis to control or limit the growth of biofuels. Joining the group is the American Coalition for Ethanol, Biotechnology Innovation Organization, Growth Energy, National Corn Growers Association, National Sorghum Producers, Renewable Fuels Association and the National Farmers Union.

The EPA has faced a wide array of criticism for missing statutory deadlines and about the methods used in setting biofuel volumes.

Monroe Energy, LLC, an obligated party in the RFS, in two separate briefs challenged EPA's methods for determining renewable volume obligations on cellulosic ethanol and biomass-based diesel. In addition, Monroe argues the agency did not follow the law by rejecting a petition to change the point of obligation in the RFS. Monroe asks the court to essentially wipe out renewable volume obligations set for a number of years from 2014 to 2017.

The biofuels and agriculture groups said in their brief the EPA hasn't followed the law when setting the annual blending volumes.

"...Because EPA's approach measures the 'maximum' 'supply' in light of market constraints on transportation fuel consumption, the general waiver under that approach would be available to reduce the statutory requirements precisely when those requirements need to be enforced to drive growth, and consequently would entrench the very constraints Congress intended the RFS program to overcome," the groups said.

"Indeed, EPA's interpretation would give certain market participants an incentive not to make the investments necessary for the rapid growth Congress prescribed."

The groups said setting RFS volumes annually has led to market uncertainty.

"The idea that EPA provides market certainty by using waivers to annually reset volume requirements 30 days before they take effect -- and upon conducting a complex and unpredictable analysis of the entire transportation-fuel market -- is baffling," the brief said.

OBLIGATED PARTIES

In recent months, the EPA rejected a petition from a number of petroleum interests to change the point of obligation in the RFS from refiners and importers of gasoline and diesel, to ethanol blenders.

The claim is obligating blenders would spread compliance costs throughout the renewable identification number, or RIN, market. EPA opposed the switch because the agency claims it would make the law more complex by expanding the number of companies required to comply from hundreds to thousands.

Obligated parties including Monroe this week argue in a brief that the EPA should review the point of obligation annually when the agency sets RFS volumes.

"Contrary to EPA's argument, the statute does not allow EPA to place the question of which parties are appropriately obligated beyond the bounds of an annual rulemaking," the brief argues.

"Thus, EPA was required to consider comments demonstrating that the point of obligation no longer obligates the 'appropriate' parties."

CELLULOSIC BIOFUELS

In a separate brief, the petroleum groups challenge EPA's methodology for determining cellulosic biofuel and biomass-based diesel volumes, in particular focusing on 2016.

"With respect to five aspects of its methodology, EPA did not explain why an approach that failed dismally in prior years was likely to prove accurate in 2016," the brief said.

"In many instances, EPA did not even acknowledge past failures. The fact that each of the flaws in EPA's methodology had the effect of increasing the 2016 cellulosic volume requirement confirms that, as in past years, EPA failed to take neutral aim at accuracy."

The brief said EPA has "consistently overestimated" cellulosic production by a "large margin."

"...It was unreasonable for EPA to conclude that liquid-cellulosic production in 2016 would be 10 times greater than in prior years," the brief said.

The obligated parties also argue EPA violated a requirement to allow for a 14-month lead time when setting biomass-based diesel volumes. EPA missed statutory deadlines for RVOs from 2014 to 2017.

COMPLIANCE COSTS

The National Biodiesel Board argues EPA ignored Congressional intent on the RFS when it comes to advanced biofuels like biomass-based diesel.

"It prioritizes reducing obligated parties' compliance costs," the NBB said in a brief filed this week.

"...Considering compliance costs, as EPA did here, is inconsistent with the statute...and with Monroe, where this court rejected concerns about high compliance costs, finding they should 'incentivize precisely the sorts of technology and infrastructure investments and fuel supply diversification' Congress sought..."

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

Follow him on Twitter @toddneeleyDTN

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