Breaking News: Appeals Court rules on API lawsuit challenging 2012 RFS cellulosic biofuel volume mandate

A court decision was handed down this morning regarding the challenge by the American Petroleum Institute (API) to the 2012 mandates for cellulosic fuels under the Renewable Fuel Standard (RFS). The decision is a mixed one, partially coming down on the side of EPA (and the biofuels industry) and partially on API’s side.

As described in a previous post on Biofuel Policy Watch, this is one of two lawsuits that API has filed challenging the revised volume mandates that EPA has set for cellulosic fuels (the 2007 “RFS2” legislation set yearly volume mandates for each category of renewable fuel but explicitly gave EPA the authority to reduce the cellulosic volume mandates on a year-by-year basis). One lawsuit challenged the 2011 cellulosic mandate, and while a portion of that lawsuit was dismissed in December, one aspect of that suit is still pending.  On December 10, 2012, a three-judge panel of the appeals court heard oral arguments on API’s second lawsuit, the one challenging the 2012 cellulosic requirements. That second lawsuit is the one that was decided today, following those oral arguments last month.

The Court’s opinion can be found at this link. I can briefly summarize the key portions of the ruling:

  • The Court ruled that EPA’s methodology to determine its revision to each year’s cellulosic mandate, which involved consideration of fuel production estimates from the Energy Information Administration (EIA) along with other factors, was permissible under the law. This is a small victory for EPA and the biofuels industry.
  • However, the court ruled that EPA’s action to deliberately set cellulosic mandates somewhat higher than EIA’s production estimates, in order to err on the side of promoting development of cellulosic fuels, was not permissible under the law. Among other reasons, the Court ruled that, although Congress stated that an overall goal of the RFS was to promote development of renewable fuels, the portion of the law specifying that EPA could adjust the cellulosic volumes was put in place not to promote the industry, but instead to correct for production shortfalls. This is a victory for API and biofuel opponents.
  • Finally, API had also tried to argue that, when EPA decided to reduce the cellulosic volumes, it should also have reduced the volume mandates for the Advanced Biofuels category under the RFS, of which cellulosic fuels are a subset. The Court rejected this argument, saying that, while the law allowed EPA to do so, it did not require such action, and that EPA was within its rights (and was supported by the available data) to determine that other advanced biofuels (sugarcane ethanol, biomass-derived diesel) could make up the difference caused by the shortfall of cellulosic fuel. This is a victory for EPA, and to a large extent, it validates the overall approach embodied by RFS2.

EPA may well decide to appeal the ruling, and there may be further court actions that could affect the outcome. If the ruling stands, I think it will have two major results. First, the 2012 cellulosic requirement will be “vacated” (i.e., eliminated), as also may be the case for the 2011 cellulosic mandate as well, and this means that obligated parties (fuel sellers and distributors) will no longer be subject to penalties that had been assessed for their failing to sell enough fuel or possess sufficient Renewable Identification Numbers (RINs) to meet their required volume obligations for those years. Second, the ruling will force EPA to be much more conservative in its future revisions to annual cellulosic fuel volume obligations, and in this regard I would note that EPA has not yet issued its decision about the 2013 cellulosic mandate – maybe it was holding off until this decision was handed down, but in any event, we can expect this year’s cellulosic volume mandate to be significantly smaller than last year’s, and to more closely correspond to actual estimates of production. It is widely expected that 2013 will be the first year to see a significant production volume of cellulosic fuels, which may enable EPA to set a realistic mandate for the year. (The EIA has projected that 9.6 million gallons of cellulosic fuels will be produced this year, substantially up from the 500,000 gallons produced in 2012 but less than the mandate under the RFS legislation of 1 billion gallons).

As a final word, I’d add that one can view the third prong of the decision as validating EPA’s overall approach to the RFS, and validating that, as a whole, the law is serving the public policy goals that Congress intended when it passed RFS2 in 2007. Whether this last point creates a presumption that might protect EPA and the RFS against future legal challenges remains to be seen.

I’ll continue to follow and report on developments on this and related court cases.

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. Dr. Glass also serves as director of regulatory affairs for Joule Unlimited Technologies, Inc. More information on D. Glass Associates’ regulatory affairs consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation,  are available at www.slideshare.net/djglass99 and  at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of Joule Unlimited Technologies, Inc. or any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

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