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Court offers mixed bag on 2019 RFS biofuels rule

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Past small refinery exemptions don’t have to be accounted for in future years, but refinery challenges also shot down.

In setting the 2019 volume obligations for the Renewable Fuel Standard, EPA failed to account for retroactive exemptions. In a challenge known as Growth Energy v. EPA brought by Growth Energy, RFS Power Coalition and the National Biodiesel Board, a D.C. Circuit Court denied their petitions but also denied challenges brought by the oil industry and environmental groups.

The biofuel industry associations challenged EPA’s failure to account for a flood of retroactive small refinery exemptions that undercut the annual volumes by 7% in 2019. A second set of petitioners consisting of Monroe Energy LLC, Small Retailers Coalition, American Fuel & Petrochemical Manufacturers and Valero Energy Corporation challenged that the rule’s fuel obligations were too demanding and the volumes too high. A final set of petitioners consisting of the National Wildlife Federation, Healthy Gulf and Sierra Club challenges certain aspects of the rule relating to the environment.

The court ruled, “Upon review of the record, we conclude that EPA’s decision not to reconsider its policy was reasonable,” and it denied the renewable producers’ challenge. EPA further rejected each of the challenges presented by the obligated parties and dismissed those concerns brought by the environmental groups as untimely.

Growth Energy CEO Emily Skor: “While we are disappointed the D.C. Circuit’s ruling fails to make up for the 4.3 billion gallons of biofuel demand lost from past SREs, we were pleased to see the courts reject the oil companies flawed arguments about economic harm and inadequate supply. The RFS has and continues to call for increased biofuel blending. It is long past time for refiners to move ahead with higher biofuel blends,” Skor says.

The Renewable Fuels Association also welcomed the D.C. Circuit Court’s outright rejection of arguments from oil refiners that the Renewable Fuel Standard causes them economic hardship and therefore the Environmental Protection Agency should have waived their 2019 RFS obligations.

“The court saw right through the many specious arguments raised by the oil refiners in this litigation, and today’s decision is a strong repudiation of the false narrative refiners continue to push about the Renewable Fuel Standard,” says RFA President and CEO Geoff Cooper. “RFA was pleased to see the court methodically reject the refiners' claims one by one, and this ruling should dispel the myth—once and for all—that the RFS somehow harms oil refiners.”

RFA specifically noted that in regard to the claim of severe economic harm waiver, the court rebuffed the refiners’ argument that EPA should have waived the 2019 RFS requirements because East Coast refiners purportedly could not pass through their RFS compliance costs and thus experienced “severe economic harm.”

According to the judges, “Obligated parties assert that the ‘pass-through’ theory is flawed and that RFS requirements impose severe economic consequences on refiners in the Eastern United States. We reject this challenge. EPA reasonably concluded that obligated parties had failed to make the strong causal showing required to trigger the waiver.” The court added, “It was reasonable for EPA to conclude that RFS costs alone were not the primary driver of the refineries' economic difficulties.”

On the issue of inadequate domestic supply waiver, the court also shot down the refiners’ claim that a waiver of 2019 RFS requirements would have been justified due to an “inadequate domestic supply” of renewable fuels to meet the standards. “EPA adequately explained its refusal to exercise the inadequate domestic supply waiver,” the judges wrote.

Refiners also argued that EPA should have used the 2019 RFS rulemaking to change the “point of obligation” for RFS compliance from refiners and importers to fuel blenders. But the court discarded that argument as well, stating “Refiners have repeatedly but unsuccessfully urged EPA to include blenders in the point of obligation…EPA’s decision not to undertake another reassessment in the 2019 rulemaking was not an abuse of discretion.”

The court similarly rejected refiner arguments that exported renewable fuels should count toward RFS compliance. “EPA at no point suggested that it was substantively reconsidering its longstanding policy concerning the treatment of exported renewable fuel, and it reasonably refused to consider obligated parties’ arguments for changing that policy…” the judges wrote.

Meanwhile, environmental petitioners involved in the litigation argued that EPA’s “aggregate compliance” approach for assessing the impact of the RFS on agricultural land use is “in violation of the Clean Air Act’s text.” The court disagreed and dismissed the environmental groups’ challenge because it was untimely.

Uncertainty remains

Kurt Kovarik, NBB’s vice president for federal affairs, states, “Small refinery exemptions harm biodiesel and renewable diesel producers when they retroactively reduce demand for advanced biofuels. Today’s decision creates renewed uncertainty for our industry because it does not require EPA to account for retroactive exemptions – something the 10th Circuit Court identified as ‘a gaping and ever-widening hole’ in the RFS.”

Kovarik called on EPA to quickly issue the 2021 and 2022 RFS rules, and “provide a strong signal of growth for advanced biofuels like biodiesel and renewable diesel, and fully account for any small refinery exemptions it plans to grant—as it has already done in the 2020 RFS rule.”

Cooper says he hopes the court's detailed denial of oil industry challenges can impact action going forward. “We hope Congress and the administration pay close attention to what the court had to say today about the real economic impacts of the RFS on refiners,” he says.

Growth Energy’s Skor adds, “As we work with EPA on upcoming RVOs, we urge them to consider the demand destruction that delays cause for producers and farmers in rural America, as well as the effect of the delays on our country’s efforts to decarbonize the transportation sector through cleaner energy.”

Skor continues, “EPA should move swiftly to set an RVO for 2021 and 2022 EPA should move swiftly to set a strong RVO for 2021 and 2022 to include 15 billion gallons of conventional biofuel as well as continued growth in cellulosic and advanced biofuels.”

TAGS: Policy
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