In a unanimous ruling on July 28, 2017, the U.S. Court of Appeals for the D.C. Circuit rejected the U.S. Environmental Protection Agency’s (EPA) attempt to lower total renewable fuels targets in the agency’s 2014-2016 Renewable Fuel Standard (RFS) rule promulgated under the federal Clean Air Act (CAA). The decision follows challenges brought by numerous parties affected by the 2014-2016 RFS targets, including groups representing refiners, importers, and producers of renewable fuels. Americans for Clean Energy, et al. v. EPA, et al. explored several areas of EPA’s authority related to the RFS, but one key area impacted by the Court’s ruling is EPA’s general authority to waive total renewable fuels production targets.

RFS Background

The RFS was created after President Bush signed the Energy Policy Act of 2005, and was amended again by the Energy Independence and Security Act of 2007 (EISA). EISA amends the CAA and sets annual targets for the production of various renewable fuels, including advanced biofuels, cellulosic biofuels, and biomass-based diesel, as well as an overall renewable fuels target. Production of certain types of fuels, such as cellulosic biofuels and biomass-based diesel, also count as advanced biofuels, which in turn can be counted towards the statutory total renewable fuels volume mandates.

As production of advanced and cellulosic biofuels has lagged behind hopes and industry projections, corn ethanol-based fuels have been increasingly used to meet the RFS’s overall renewable fuels target. For several years, various groups have voiced concerns about the “blend wall.” The blend wall is the point at which renewable fuels can no longer be blended into a gasoline pool because of constraints on existing vehicles and fuel-related infrastructure. Since gasoline is limited to 10 percent ethanol because of safety concerns for its use in most vehicles and fuel-dispensing infrastructure, this means that the total fuel supply should contain no more than 10 percent ethanol.

EISA provides EPA with waiver authority over RFS production targets, two of which were primarily at issue in Americans for Clean Energy. EPA can reduce advanced biofuel targets based on lower than projected volumes of cellulosic biofuels (because the cellulosic category also counts towards the advanced and total renewable fuels volumes) pursuant to CAA § 211(o)(7)(D)(i). Separately, EPA has a general waiver authority under CAA § 211(o)(7)(A). This general waiver authority, however, is limited to two circumstances: (1) if EPA determines that “implementation of the requirement would severely harm the economy or environment of a State, a region, or the United States” or (2) if EPA determines that “there is an inadequate domestic supply.” While the language of both waiver provisions appears broad and invites deference to EPA, as explained below, the D.C. Circuit imposed several constraints on the agency’s waiver authority.

The D.C. Circuit's Decision

In 2015, EPA promulgated a final rule setting several renewable fuels requirements for the years 2014 through 2016. In that rulemaking, EPA first reduced not only the production targets for advanced biofuels and the total renewable fuels volume based on lower than projected production of cellulosic biofuels under CAA § 211(o)(7)(D)(i), but then reduced the total renewable fuels targets for 2014, 2015, and 2016 again using its general waiver authority under CAA § 211(o)(7)(A). This rulemaking represented the first time EPA attempted to use its general waiver authority. Below is a table included in the Court’s decision outlining EPA’s reductions.

Click here to view table

EPA based its decision to waive RFS targets under its general authority because of inadequate domestic supply due to impacts on consumers, as well as demand-side consumer considerations. The agency asserted that the word “supply” was ambiguous and that therefore the agency had the authority to not only examine constraints on the production of renewable fuels, but also constraints on consumers to use such fuels because of vehicle and infrastructure limitations.

The D.C. Circuit rejected this interpretation of EPA’s general waiver authority. The court took issue with EPA looking to the supply available to consumers when setting renewable fuels targets. The RFS does not regulate consumers, but rather places renewable fuels supply obligations on refiners, importers, and blenders. Moreover, the legislative history indicated that while the House version of the bill granting EPA waiver authority included language that referred to the distribution of fuel, and thereby would allow EPA to examine consumer-related issues, the Senate version, agreed to by the House, focused only on supply. According to the opinion, adoption of the Senate version foreclosed EPA’s ability to look at the supply of renewable fuels available to consumers.

In addition, EPA’s examination of demand-side factors that included things such as retail outlets that offer renewable fuels blends, the attractiveness of renewable fuels blends to consumers, and the marketing effectiveness of those promoting renewable fuels products could not be considered under EPA’s general waiver authority. The Court found that the goal of the statute was to be “market forcing,” meaning that the consumer’s ability to actually use the renewable fuels in the market could not be a component for determining if an inadequate domestic supply exists.

Case Impacts

The case may impact EPA’s general waiver authority when based on arguments of inadequate domestic supply, but the D.C. Circuit separately affirmed that EPA’s authority to grant waivers of advanced biofuels targets (and subsequent reductions in the total renewable fuels volume) based on lower than projected production of cellulosic biofuels is broad. In addition, the Court’s decision does not touch on the other aspect of EPA’s general RFS waiver authority: severe economic or environmental harm. Arguments could be made that the use of the word “severe” is vague and that determination of what may qualify as severe is left to EPA’s discretion. Parties seeking to petition EPA to exercise its general waiver authority might best be served using economic arguments, which could then include impacts to consumers such as damage to vehicles resulting from the use of gasoline with a higher ethanol content, or the costs to upgrade fuel-dispensing infrastructure to handle gasoline blends with high ethanol content.