D.C. Circuit Hears Argument on 2013 Renewable Fuels Standard

On Monday, April 7, the D.C. Circuit heard oral argument in Monroe Energy v. EPA, No. 13-1265, which challenges the 2013 renewable fuels standards (RFS).  Judges Rogers, Griffith, and Pillard presided over the argument. Monroe Energy, an independent refiner, and trade associations API and AFPM challenged the 2013 RFS. PBF Holding Company LLC intervened on behalf of Petitioners, and multiple parties intervened on behalf of EPA.

Key Legal Challenges to the 2013 RFS

Monroe Energy made three arguments seeking vacatur of the RFS, arguing that:

  1. the rule should be vacated because EPA missed the statutory deadline to issue the final rule,
  2. the rule imposes devastating and legally unjustifiable costs on certain parties, and
  3. EPA set the 2013 standard based on criteria other than the projected volumes of advanced biofuels available. 

API and AFPM argued that EPA failed to provide notice that the final 2013 rule would be based on updated data from the U.S. Energy Information Administration (EIA).  Under the Clean Air Act, the EIA is obligated to provide EPA with an estimate of the projected amount of renewable fuel to be sold into commerce.  However, between issuing the proposed rule and the final rule, EPA obtained a new projection from the EIA, which was never subjected to public comment.  Based on that updated information, the final rule - which was issued midway through the 2013 compliance year - imposed a higher renewable volume obligation (RVO) for 2013 than was proposed.

Oral Argument

At oral argument, Monroe expressed concern that the 2013 RVO would be unachievable because companies with excess 2013 RINs might opt to bank them for use in 2014 rather than sell them for 2013 compliance. Therefore, Monroe argued that EPA needed to consider the 2014 RVO when determining whether the 2013 rule would be achievable.  The Court expressed concern that any such harm was speculative because the compliance deadline for the 2013 rule is not until June 30, 2014. 

API used its time at oral argument to try to convince the Court that it has jurisdiction to hear its arguments in this case.  Recently, the Court issued a decision in Utility Air Regulatory Group v. EPA, No. 12-1166 (D.C. Cir. Mar. 11, 2014) that concluded that the Court lacked jurisdiction to hear arguments that were not raised during the public notice and comment period.  API argued that UARG is inapplicable here because EPA failed to raise this objection in its brief.  However, API committed to provide an update to the Court by April 11 regarding whether EPA and API could agree to hold the issue in abeyance pending reconsideration.

EPA defended its 2013 rule by arguing that using 2012 carryover RINs to meet the 2013 RVO is a valid compliance option and that EPA has broad discretion when setting the annual RVOs.  EPA also argued that concerns about the cost to comply with the RFS were not valid considerations because companies have multiple compliance options: 

  1. spot purchase RINs on the market,
  2. purchase ethanol and blend renewable fuels, or
  3. enter into contracts with blenders. 

The response from the bench did not provide a clear indication of the way the Court was leaning.  Judge Rogers seemed troubled that Monroe's argument might be speculative and expressed concern that it would be difficult for EPA to predict prior to the June 2014 compliance deadline whether 2013 RINs would be carried over to meet 2014 compliance obligations.  Monroe's arguments about the devastating and unequal impact of the RFS did not seem to find much traction with Judge Pillard, who stated that Monroe seemed to have made a business decision to be an independent refiner and that an outgrowth of that business decision is that compliance with the RFS may be more costly.  The judges were also skeptical of EPA's arguments, with Judges Rogers and Pillard each pressing EPA for an explanation of where the Clean Air Act expressly provides that EPA may consider 2012 carryover RINs when setting the 2013 RVO.  Judge Griffith expressed concern that EPA was not giving companies enough certainty to be able to comply because it missed the 2013 RVO deadline and used new information from the EIA when setting the standard.

Conclusion

For companies to benefit from any possible judicial relief from the lawsuit, in advance of the 2013 RVO compliance deadline, the Court will need to issue a decision in Monroe Energy that is favorable to industry before June 30, 2014.  

Even if some relief for industry is granted before June 30, it is unlikely that the rule will be vacated entirely.  Rather, it is more probable that the Court would opt to remand the rule for further consideration by EPA.  A remand might lead EPA to issue a combined 2013 and 2014 standard.  EPA took similar action when it issued a combined 2009 and 2010 biomass-based diesel volume requirement, which was upheld in NPRA v. EPA, 630 F.3d 145 (D.C. Cir. 2010).

For more information about the RFS, see our white paper regarding EPA's authority to fix the RFS program, published by the Bipartisan Policy Center.

Photo credit: James Jordan / Foter / Creative Commons Attribution-NoDerivs 2.0 Generic (CC BY-ND 2.0)