Federal Court Hands Ethanol Industry Big Victory on EPA Fuel Mandate

July 28, 2017

Print This Article Share it With Friends

by John Siciliano (Washington Examiner) A federal appeals court on Friday handed the ethanol industry a major victory, ruling that the Environmental Protection Agency under the Obama administration fundamentally misinterpreted its authority under the national renewable fuel mandate by reducing the amount of ethanol allowed to be blended in the nation's fuel supply and must correct the action.

The D.C. Circuit Court of Appeal's decision is a major victory for the ethanol and alternative fuel industry, which argued that the Obama EPA erred in its interpretation of its authority to waive biofuel requirements and that the EPA's misuse of the authority played into arguments touted by the oil industry and refiners.

...

"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. 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," the decision read. That means that the EPA can't waive the renewable fuel requirements because there are not enough biofuel refueling stations or pumps at gasoline stations, for example. It can waive the annual blending requirements for ethanol and other biofuels only because of lack of supply." READ MORE

Court rejects 2015 EPA biofuels waivers (The Hill)

Court: EPA Erred on RFS Volumes (DTN The Progressive Farmer)

US appeals court rejects EPA's use of RFS waiver authority (Platts)

Roth: A reprieve for ethanol? (Journal Record)

Icahn's biofuel bet faces significant headwinds (Reuters)

Ethanol Blog: D6 RINs Spike on Court Ruling Against EPA on RVO (DTN The Progressive Farmer)

US Court of Appeals bodyslams EPA in Renewable Fuel Standard battle (Biofuels Digest)

Court decision released on case against 2015 RFS (Ethanol Producer Magazine)

Trump May Have to Boost Biofuel After Court Deals Blow to Oil (Bloomberg)

Old Problem, New Headaches (Politico's Morning Energy)

Refiners Argue EPA Can Cut Biofuel Quota Despite Defeat in Court (Bloomberg)

Oil and natural gas industry react to US court ruling on RFS (Biofuels International)

No wiggle room allowed on Congressional mandates (The Prairie Star)

Excerpts from Bloomberg: Shares of ethanol producers rose on the news while refinery stocks declined.

...

The targets that the agency set for this year and proposed for 2018 won’t be affected by the court decision, EPA spokeswoman Liz Bowman said in an email. The EPA didn’t base either proposal on its waiver authority, she said.

“Furthermore, today’s decision upheld a number of methodologies and approaches that EPA used in setting the amount of renewable fuels that refiners and importers are required to use,” Bowman said.

...

Renewable Identification Numbers (RINs), biofuel credits that track 2017 ethanol consumption quotas, rose 1.2 percent to 82 cents apiece, the highest in a week, data compiled by Bloomberg show.

...

“The salient point here is that EPA agrees there is more than adequate supply,” Waxman (former U.S. Solicitor General Seth Waxman) said.

...

Valero Energy Corp., the biggest independent U.S. refiner and one of the largest biofuel producers, said the EPA still has other factors it can consider to adjust volume targets and that the ruling may serve to advance its push for the agency to change who is obligated to show compliance with the program.

“Valero regards this decision as a strong signal that EPA must take definitive action on the point of obligation issue,” Lillian Riojas, a spokeswoman for Valero wrote in an emailed statement.

...

The case is Americans for Clean Energy v. Environmental Protection Agency, 16-1005, U.S. Court of Appeals, District of Columbia (Washington). READ MORE

Excerpt from Biofuels Digest: In late May 2015, the EPA weighed in with staggeringly weak RFS volumetric proposals for 2014 through 2016, based on an arcane theory of “supply” vs. “demand” that the Court of Appeals found ridiculous. At the time, the industry was aghast, and responded with more than 200,000 comments. Among them, dire remarks like “POET expects to stop all future U.S. cellulosic investments if EPA’s proposed base renewable fuel requirements are not strengthened.”

And BIO’s Brent Erickson warned:

“EPA continues to assert authority under the general waiver provision to reduce biofuel volumes based on available infrastructure. This is a point that will have to be litigated. It goes against Congressional intent. EPA has proposed higher volumes for advanced biofuels, still below the statutory volumes, but maintained a methodology that discourages investment in the industry. That will likely undercut future production, requiring additional cuts to volumes in future.”

And so, industry sued. And now, as Judge Kavanaugh writes in his unanimous opinion:

EPA noted that the Renewable Fuel Program’s requirements were “readily achieved” in the few years after Congress created the program in 2005 and amended it in 2007. Id. That was due in large part to the fact that the industry had the capacity to produce – and the market had the capacity to consume – increasing quantities of ethanol. Id. But by 2014, ready compliance with the statutory volume requirements was no longer possible. That is because the industry hit the “E10 blendwall”: an “infrastructure and market-related constraint on ethanol demand” that “arises because most U.S. vehicle engines were not designed to handle gasoline consisting of more than 10 percent ethanol.” Put differently, a few years into the amended Renewable Fuel Program, the supply of ethanol was much greater than the demand in the market.

Now, you may ask yourself, why would the distribution industry (controlled by, ahem, you can guess who) ever embrace E15. E30, or E85 if they could, by refusing to put in infrastructure, they could get ethanol volumes waived down — volumes that would have to be replaced by more gasoline (made by, ahem, you can guess who).

Think of it this way. All a petroleum marketer would have to do to squash competition is to make sure that no pump in the United States could handle E10 ethanol, or any ethanol content whatsoever. Presto! The E0.00000001 blendwall, and we’re right back to the gasoline dependency we started with.

Congress debated this very problem in the 2007 EISA Act. As Judge Kavanaugh observed:

The drafting history of the “inadequate domestic supply” provision, to the extent it is relevant, counts as yet another strike against EPA’s interpretation. The version of the Energy Policy Act passed by the House would have allowed EPA to reduce the statutory volume requirements “based on a determination by the Administrator, after public notice and opportunity for comment, that there is an inadequate domestic supply or distribution capacity to meet the requirement.” The latter portion of the waiver provision – which would have allowed EPA to consider “distribution capacity” – was dropped in the version of the bill passed by the Senate.As relevant here, the House agreed to the Senate’s amendment to the bill. The “distribution capacity” language does not appear in the final version of the Act. Congress’s decision to drop the “distribution capacity” language counsels against EPA’s reading in this case, which in effect would add that kind of language back into the waiver.

Nevertheless, the EPA went ahead with its interpretation. Industry headed for the courts for justice. And justice they won.

Why is this so big?

If you’ve been asking where all the cellulosic biofuels are, the obvious answer is that very little has been made, but why? One primary reason — not the only one, but a completely major factor — has been the EPA’s insistence that the content standard for US gasoline can be limited in terms of ethanol should anyone in the oil or automobile industry decide not to build distribution capacity.

It struck us as absurd from the get-go. We noted that, by he same logic, that any obligated party could avoid mandates for safe drinking water by not building any distribution for anything but filthy water. Or a cruise ship could avoid rules for minimum lifeboat count by simply not installing the davits to hold them. READ MORE

Excerpt from Morning Energy's Politico: Another battle in the long-running war over the Renewable Fuel Standard may be ready to break out in the wake of last week's D.C. Circuit Court of Appeals decision voiding EPA's use of a waiver to lower the amount of ethanol that refiners had to blend into the gasoline supply in 2016, as compared with targets set by Congress more than a decade earlier.

The issue, Eric Wolff reports, is that the court offered little guidance on how to correct that problem for a year that is already in the history books, leaving EPA to decide whether to force refiners to spend up to a half a billion dollars on additional compliance credits for fuel that they've already sold, or find a way to let refiners off the hook.

The obvious solution - requiring additional Renewable Identification Numbers - has drawn protests from refiners. Instead, they argue the agency could simply rewrite the rule to reflect the actual amount of biofuels used in 2016, just as it did in previous years. But ethanol producers argue the agency should not be able to simply paper over its mistake. Here's Eric with more. READ MORE