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Judge Questions EPA’s Delay in Issuing 2013 Renewable Fuel Standard Rule

Tuesday, April 8, 2014

By Andrew Childers  

April 7 --A federal appellate judge questioned during oral arguments April 7 the Environmental Protection Agency's “egregious” delay in issuing the 2013 renewable fuel standard blending requirements.

“Why in the world is EPA so egregiously late on this, and why are they consistently [late]?” Judge Thomas Griffith of the U.S. Court of Appeals for the District of Columbia Circuit asked during arguments.

The EPA had a statutory deadline to issue the 2013 renewable fuel standards by Nov. 30, 2012, but the rule was not finalized until Aug. 15, 2013, halfway through the compliance year.

Monroe Energy LLC, the American Petroleum Institute and American Fuel & Petrochemical Manufacturers have asked the court to overturn the 2013 rule prior to the June 30 compliance date. They argue that the rule was issued retroactively and that the EPA failed to provide adequate notice of revisions it made to the blending requirements between proposal and finalization that increased obligated parties' burdens.

“EPA has not promulgated a rule that ensures parties can comply,” David DeBruin, a managing partner at Jenner & Block LLP who is representing Monroe Energy, told the court.

The EPA in its 2013 renewable fuel standard rule had reduced the cellulosic ethanol blending requirement from the 1 billion gallons set out in the Energy Independence and Security Act of 2007 (Pub. L. No. 110-140) to 6 million gallons. However, the agency chose not to reduce the overall requirement to blend 16.55 billion gallons of renewable fuels into the fuel supply.

Oral arguments were heard by Griffith and Judges Judith Rogers and Cornelia Pillard.

EPA Downplays Delay

Brian Lynk, the Justice Department attorney representing the EPA, argued that the EPA has not been as consistently late in issuing the renewable fuel standard rules as the challengers claimed. Lynk said the agency has only suffered significant delays in issuing the annual blending requirements when it had to respond to unique circumstances requiring additional analysis.

The D.C. Circuit previously upheld the EPA's renewable fuel standard for 2010, despite being issued after the statutory deadline (Nat'l Petrochemical & Refiners Ass'n v. EPA, 630 F.3d 145, 72 ERC 1276, 2010 BL 304531 (D.C. Cir. 2010); .

That rule was the first issued under the new requirements of the Energy Independence and Security Act, which caused some delays. Similarly, the EPA's 2013 renewable fuel standard was the first to address the prospect of hitting the so-called ethanol “blend wall.” That is the point at which the amount of ethanol that must be blended into the fuel system exceeds 10 percent, the maximum approved for use in all vehicles.

“When novel policy issues come up, it may take longer for the agency to address that,” Lynk said.

Final Rule Changed Requirements

In addition to the EPA's delay in issuing the 2013 standards, petroleum groups argued that the EPA made revisions to the blending requirements between the proposed rule and the final rule without being subject to a public comment period.

The EPA chose to exempt some small petroleum refiners from the annual blending requirements as part of the final rule. Additionally, the agency had proposed the 2013 standards based on transportation fuel production and consumption numbers produced by the Energy Information Administration in October 2012. The final rule was based on figures generated in May 2013. The petroleum industry argued that the EPA gave no indication that it would issue the final rule based on updated figures that effectively increased the industry's blending requirements, Robert Long, a partner at Covington & Burlington LLP who is representing the American Petroleum Institute and American Fuel& Petrochemical Manufacturers, said.

While the petroleum industry does not dispute the accuracy of the Energy Information Administration's revised figures, Long said that relying on the new numbers for the final rule increased some petroleum refiners' blending requirements by as much as 1 million gallons.

Compliance Not Assured

DeBruin argued that the rule should be vacated because the EPA conceded that not every obligated party would be able to meet their blending requirements.

DeBruin said that Monroe Energy will need to spend nearly $100 million to purchase the renewable identification numbers (RINs) necessary to demonstrate compliance with the standard at the current market price of 55 cents each. It remains to be seen whether the company will be able to purchase sufficient RINs to demonstrate compliance, he said.

RINs are serial numbers attached to batches of renewable fuels that can be traded as credits to demonstrate compliance with the blending mandates.

Monroe Energy does not operate any blending facilities and is reliant upon RINs to show compliance, DeBruin said.

Biofuels Groups Seek Narrow Decision

Biofuels groups intervened on behalf of the EPA in the lawsuit, but they asked the court to issue a narrow decision that upholds the 2013 renewable fuel standard without addressing the broader issue of the agency's authority to reduce the annual blending requirements due to the blend wall.

“If the court does, it should reject the EPA's request for broad discretion,” David Salmons, a partner at Bingham McCutchen LLP who is representing renewable fuels producers, said.

The EPA proposed the 2014 renewable fuel standard in November 2013. It would require petroleum refiners and importers to blend 15.21 billion gallons of renewable fuels into their products. That is less than the 18.15 billion gallons required by the Energy Independence and Security Act, as the EPA is proposing to use its general waiver authority to reduce the overall blending requirement (78 Fed. Reg. 71,732). This is the first time the EPA has used its waiver authority to reduce the overall blending requirement. Offering its first interpretation of its waiver authority, the agency said that mandating petroleum refiners and importers to blend more ethanol into the gasoline supply than customers demand could cause economic harm .

Renewable fuels producers have opposed the EPA's proposed use of its waiver authority under the 2014 standards.

Cellulosic Issues Severed

Challenges to the EPA's 2013 cellulosic ethanol standard were severed from the lawsuit and are being held in abeyance while the agency addresses industry petitions for reconsideration since insufficient fuel was produced that year to meet the blending requirement of 6 million gallons (Monroe Energy LLC v. EPA, D.C. Cir., No. 14-1033, 3/11/14).

 

To contact the reporter on this story: Andrew Childers in Washington at achilders@bna.com

To contact the editor responsible for this story: Larry Pearl in Washington at lpearl@bna.com

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