Judges Give EPA the Side Eye on Waiver Authority

by Anthony Adragna (Politico's Morning Energy) EPA got caught in a cross-fire of skepticism at the D.C. Circuit Monday over its use of general waiver authority to lower RFS volumes for 2016, Pro's Eric Wolff reports . The RFS typically defies partisan allegiance, and Judges Brett Kavanaugh (appointed by George W. Bush) and Patricia Millett (appointed by Obama) both sounded doubtful over EPA's position that it had taken into account the full ethanol supply line when it said there wasn't enough "supply" of ethanol. "I don't see the statute as necessarily giving that grant of authority to EPA," said Kavanaugh. "It's a separation of powers issue - if it's screwed up, Congress can fix it."

Could save Pruitt a choice: EPA Administrator Scott Pruitt is even now engaged in deep meditation over where to set 2018 conventional biofuel volumes. If the judges say EPA was wrong in its use of waiver authority, he'll have little choice in the matter.

50-50 on Point of Obligation?: Samara Spence. the DOJ lawyer representing EPA, told judges that comments on the EPA's proposed denial of petitions to change which companies must comply with the program were "split 50-50." If that's accurate, it would blow up one of the arguments put forward by biofuel advocates and the American Petroleum Institute that most of the industry wants the status quo, and only a small minority is agitating for the change. Unfortunately, ME couldn't locate the stat in the written record (though we welcome help from sharper legal eyes!), and EPA declined to say if Spence had the right information. A DOJ spokesman also declined to comment, saying it was part of ongoing litigation.

MAIL CALL: RFA WANTS EPA TO HIT CRUISE CONTROL ON RFS: The Renewable Fuels Association sent Pruitt a letter Monday saying, "We respectfully ask that EPA ensures the 2018 RVO rulemaking process remains on schedule, and that the 2018 conventional renewable fuel volume requirement remains at the statutory level of 15 billion gallons." READ MORE and MORE (Argus Media) and MORE (DTN Progressive Farmer) and MORE (Ethanol Producer Magazine) and MORE (Energy.AgWired.com) and MORE / MORE (Bloomberg BNA) and MORE (Ethanol Producer Magazine) and MORE (Biofuels Digest)

Excerpt from Argus Media: Judge Brett Kavanaugh said the biofuel blending requirements that the US Congress prescribed in the law were "perhaps impossible" and could lead to "crazy" outcomes. But he questioned if it was EPA's place to modify the requirements, since lawmakers were trying to force the market to consume more biofuels.

"I don't see the statute as giving grand authority to EPA," Kavanaugh said. "If this thing is so screwed up, Congress can fix it."

Judge Patricia Millett, along with Kavanaugh, appeared skeptical there was enough ambiguity in the statute to support EPA's interpretation that inadequate supply might not just refer to biofuels but also to the base transportation fuels. Federal courts usually give deference to agency interpretations of ambiguous laws if they are reasonable.

"I have a lot of problems understanding how a glut turned into inadequate supply," Millet said.

Biofuels producers have challenged EPA's decision to reduce the blending requirements and say it undercuts the objectives of the law. Seth Waxman, an attorney for the biofuels producer group Americans for Clean Energy, said it would be "incoherent" to allow EPA to reduce the biofuels growth that the Congress had hoped to artificially create when it passed the law, even if there could be short-term consequences. READ MORE

Excerpt from DTN The Progressive Farmer: 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.

"Nobody disputes there is more than enough renewable fuels to blend into transportation fuel," Waxman said.

Though the EPA has maintained there is insufficient infrastructure to meet the RFS, he said the agency is required to enforce a statute designed to spark investments in expanded infrastructure downstream.

National Biodiesel Board, argued in court Monday 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.

David Salmons, an attorney for the National Biodiesel Board, told the court the agency's recent decision to lower the advanced biofuel mandate using the cellulosic waiver is something new.

"This is the first time EPA reduced volumes based on inadequate supply," he told the court.

In particular, Salmons said the agency is required to see if there is enough of a variety of fuels to meet the mandate. For advanced biofuels that can include liquid and compressed natural gas.

"EPA's reading (of the law) is too inconsistent with the fundamentals of the act," he said.

In a combined statement to DTN on Monday, the American Coalition for Ethanol, BIO, Growth Energy, National Corn Growers Association, National Sorghum Producers and Renewable Fuels Association said the agency dropped the ball on how it implements the RFS.

"Today's proceedings reinforced our view that the Environmental Protection Agency's renewable fuel targets for 2014 through 2016 were legally and factually indefensible, as well as wholly inconsistent with Congressional intent behind the Renewable Fuel Standard program," the groups said.

"That program was designed to transform the fuel market and force the oil industry to change the status quo -- not to perpetuate it, as EPA has done through its annual rulemakings. The statutory basis for granting a waiver based on an 'inadequate domestic supply' of 'renewable fuels' does not allow EPA to take into account 'factors that affect the consumption of renewable fuels,' as the agency has suggested.

"Moreover, since the RFS program allows obligated parties to use carryover renewable identification numbers to demonstrate compliance with the annual volume obligations, it would be hypocritical for the agency to exclude such carryover RIN credits when determining whether the amount of available renewable fuel is adequate to achieve compliance." READ MORE