D.C. Circuit Court Skeptical of EPA Justifications for Reducing Biofuel Targets

On April 24, 2017, the D.C. Circuit Court heard oral arguments in a case challenging the Environmental Protection Agency’s (EPA) use of its waiver authority to reduce annual volume requirements for biofuels under the Renewable Fuel Standard (RFS). Under the RFS, which was established to reduce dependence on foreign petroleum and promote environmental benefits, Congress set targets for the amounts of renewable fuels to be incorporated into the fuel supply each year. The EPA, however, has statutory authority to waive those levels and reduce the annual volume of renewable fuels if there is an “inadequate domestic supply” of such biofuels, or if incorporating those fuels would result in economic or environmental harm. The EPA set biofuel targets for 2014, 2015, and 2016 below the levels specified in the statute, claiming that there was not enough infrastructure available to get biofuels into the market, and that this triggered the “inadequate supply” prong of the waiver authority.

Renewable fuel supporters argued there was more than enough biofuel available and that EPA’s interpretation of inadequate supply is not in line with the goals of the RFS. Two of the three judges, Brett Kavanaugh, a George W. Bush appointee, and Patricia Millett, an Obama appointee, generally appeared to agree with this assertion. In particular, Judge Millett noted that Congress created the RFS – and increased the volume targets over time – to force biofuels distribution infrastructure to expand.

The ruling in this case could affect how EPA, under Administrator Scott Pruitt, sets 2018 biofuels volumes, as any lowering of the standards would necessitate use of the waiver provision in question. Proposed volume standards need to be submitted to the Office of Management and Budget by late May to hit the November 30th deadline for the final standards. However, D.C. court decisions often take months, so EPA may end up publishing its volume proposal before the court’s ruling. It is unclear at this time where EPA will go with the 2018 volume requirements.

In addition to discussions about EPA’s waiver authority, the judges also heard arguments regarding which parties should be required to comply with the RFS. A small group of merchant refiners is advocating shifting the RFS “point of obligation” from refiners, manufacturers, and importers, to position holders – the entity that holds title to product before it is dispensed from a terminal. Moving the point of obligation downstream would impose significant compliance burdens on businesses that are incapable of satisfying RFS requirements and likely lead to an increase in the retail price of fuels. In November 2016, EPA proposed to deny a petition to change the point of obligation and requested comments on its proposal by Feb. 22, 2017. NATSO filed comments with EPA opposing efforts to change the point of obligation.

During the oral arguments, challengers contended the law requires EPA to deal with the point of obligation issue every year when it issues volume standards. Judge Millett appeared skeptical of that assertion though she acknowledged that EPA may take a long time to decide the point of obligation issue.

via Business Feeds

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