Federal appeals court vacates EPA's renewable fuel waivers authority

Aug. 7, 2017
A three-judge federal appeals court panel struck down the US Environmental Protection Agency's waiver authority for quotas under its program to increase renewable fuels used in domestic gasoline.

A three-judge federal appeals court panel struck down the US Environmental Protection Agency's waiver authority for quotas under its program to increase renewable fuels used in domestic gasoline. The US Appeals Court for the District of Columbia's July 28 opinion specifically addressed waivers EPA issued under the inadequate domestic supply provision in its 2014-16 renewable fuel obligations (RFOs).

EPA issues RFOs for refiners, blenders, and importers under the Renewable Fuels Standard (RFS) that was enacted under the 2005 Energy Policy Act and expanded in the 2007 Energy Independence and Security Act. The American Petroleum Institute and American Fuel & Petrochemicals Manufacturers each strongly criticized the latest ruling.

Groups that support the use of more ethanol in gasoline applauded it. The judges rejected their other petitions and several from RFS-obligated parties in their wide-ranging Jan. 20, 2016, legal challenge, however.

"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," Judge Brett M. Kavanaugh wrote on behalf of himself and Judges Janice Rogers Brown and Patricia A. Millett.

"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," he continued.

The inadequate domestic supply provision authorizes EPA to waive renewable fuel quota requirements when they can't be met, the decision noted. "Whether consumers have an adequate supply of renewable fuel to fill their cars is not relevant to whether refiners, blenders, and importers have an adequate supply of renewable fuel to meet the statutory volume requirements. For purposes of measuring available 'supply,' the 'persons' at issue are refiners, blenders, and importers," it said.

What can be considered

Under that reading, the court said EPA may consider that group's renewable fuel availability under factors including the availability of feedstocks used to make renewable fuel, renewable fuel producers' production capacity, the amount of renewable fuel available from foreign producers, or the transportation capacity needed to get renewable fuel from producers to refiners, importers, and blenders.

But EPA may not consider availability factors affecting entities further downstream such as constraints on transportation to distribute fuel from blenders to gasoline stations or the number of retail outlets that offer renewable fuel blends, the decision said.

It said that EPA's waiver authority interpretation also was flawed because it tried to consider not just supply but also demand factors such as pricing, prevalence of engines that can use renewable fuel, and marketing efforts of those promoting renewable fuel products.

The court accordingly vacated EPA's reading of the inadequate domestic supply provision and remanded the decision to reduce RFOs for 2016 under that provision to the agency for further consideration.

API and AFPM officials expressed their disappointment soon after the opinion was issued on July 29. The ruling underscores the need for meaningful and comprehensive reform of the RFS by Congress, they agreed in separate statements.

"EPA's waiver was necessary to protect consumers from an outdated mandate that attempts to force the use of ethanol beyond the limits that the vehicle fleet and refueling infrastructure were designed to handle," said API Downstream Group Director Frank Macchiarola. "The outdated goals of the ethanol mandate have led to implementation challenges for EPA and the refining industry"

Current policy not sustainable

"We are confident that EPA has additional authority [it] can exercise to address the blend wall and other challenges until this flawed program is either repealed or significantly reformed," AFPM Pres. Chet Thompson observed. "The current policy is not sustainable and must be addressed by Congress to protect the best interests of the American consumer."

When the RFS was expanded in 2007, US crude oil and product imports and costs were rising, making the mandated use of corn-based ethanol seem like a viable option to lower both while reducing emissions, according to Macchiarola. Since then, however, the US has changed into a major global crude producer and exporter of petroleum products, he added.

Macchiarola said that API supported EPA's basing its waiver on the mandate's broader negative economic consequences, "and as EPA considers implementing a revised and retroactive standard for 2014-16, we will encourage EPA to reconsider this option." Congress also needs to substantially reform the RFS so it reflects current supply realities and recognizes environmental progress that has been made, he maintained.

The opinion came 3 weeks after EPA proposed RFOs for 2018 that generally are lower than quotas it previously adopted for 2017 (OGJ Online, July 6, 2017). The proposed volumes reflect market realities focused on actual production and consumer demand while recognizing challenges in bringing advanced biofuels to the marketplace, Administrator E. Scott Pruitt said.

About the Author

Nick Snow

NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.