The U.S. EPA&rsquo;s decision to propose a 2014 renewable fuel standard (RFS) below the statutorily mandated volumes has generated vigorous debate. For those in the ethanol industry, it is important to understand the legal objections to EPA&rsquo;s proposal, not just the public policy objections, because the legal arguments may determine the outcome of the dispute and set the legal precedent that limits the agency&rsquo;s ability to adjust the RFS in the future.
Section 211(o)(2)(B) of the Clean Air Act expressly states the RFS mandated volume of renewable fuel to be included in gasoline: The total for 2014 is 18.15 billion gallons. However, section 211(o)(7)(A)(ii) provides a &ldquo;general waiver&rdquo; authority under which the EPA may modify these amounts if &ldquo;there is an inadequate domestic supply.&rdquo;
On Nov. 29, the EPA proposed reducing the total renewable fuel volume to 15.21 billion gallons. EPA specifically found that there was an &ldquo;inadequate domestic supply&rdquo; and asserted the phrase is ambiguous. According to EPA, this ambiguity empowers the agency to consider not only the production of renewable fuels, but also &ldquo;factors affecting the ability to distribute, blend, dispense and consume those renewable fuels&rdquo; when assessing supply. Relying on this broader interpretation, EPA contends that current limitations regarding the ability to incorporate ethanol fuels into gasoline for consumers (the ethanol blend wall) justify the proposed volumetric reductions.
Iowa Attorney General Thomas J. Miller submitted comments to the proposal outlining several objections to EPA&rsquo;s interpretation of the waiver authority, based on the well-known Chevron test used by the courts to assess a federal agency&rsquo;s interpretation of a statute: 1) If the statute is clear, the court must enforce the law&rsquo;s unambiguous language; and 2) If the statute is not clear, the agency&rsquo;s interpretation must be permissible.&nbsp;
Miller argues that the statute unambiguously prohibits EPA from considering the distribution capacity of blended fuel. Under section 211(o)(7)(A)(ii), the term &ldquo;supply&rdquo; unambiguously refers to the &ldquo;quantity of renewable fuel&rdquo; required under section 211(o)(2). Therefore, in order to reduce the RFS for total renewable fuel, EPA must find that there is an &ldquo;inadequate domestic supply&rdquo; of &ldquo;renewable fuel.&rdquo; The term &ldquo;renewable fuel&rdquo; means &ldquo;fuel that is produced from renewable biomass&rdquo; and &ldquo;used to replace or reduce the quantity of fossil fuel present in a transportation fuel.&rdquo; Because this definition does not include &ldquo;blended fuel,&rdquo; EPA cannot consider the distribution capacity of blended fuel when assessing the adequacy of the &ldquo;supply.&rdquo; This interpretation is buttressed by the fact that the term &ldquo;distribution capacity&rdquo; is expressly included in other parts of section 211, as well as legislative history demonstrating that the U.S. Senate removed the term &ldquo;distribution capacity&rdquo; from the legislation.
To the second point, Miller further argues EPA&rsquo;s interpretation is not permissible. The purpose of enacting the RFS is &ldquo;to move the United States towards greater energy independence and security&rdquo; and &ldquo;to increase the production of clean renewable fuels.&rdquo; The statutory RFS achieves these objectives by incrementally increasing renewable fuel volumes so that the fuel industry may adapt. By lowering the RFS due to distribution capacity rather than supply, EPA manipulates this framework and undermines the statutory objective of changing the country&rsquo;s fuel composition.
Anticipating the objections to its interpretation of the waiver authority, the EPA provided preemptive counterarguments. The agency disputes that &ldquo;supply&rdquo; modifies only the renewable fuel categories in section 211(o)(2), and asserts that the word &ldquo;is best understood in terms of the person or place using the product.&rdquo; Accordingly, EPA contends that it may consider factors that affect the &ldquo;supply&rdquo; of renewable fuel before it reaches &ldquo;consumers.&rdquo; EPA distinguishes other subsections of the statute that include a mandate to consider &ldquo;distribution capacity,&rdquo; and argues these provisions highlight the ambiguity in section 211(o)(7)(A)(ii). EPA also dismisses the legislative history of section 211(o)(7)(A)(ii) as having minimal &ldquo;interpretative value&rdquo; because there is no explanation accompanying the Senate&rsquo;s alteration of the operative provisions during the legislative process.
The 2014 RFS rule may bring disputes regarding EPA&rsquo;s authority to alter the statutorily mandated renewable fuel volumes to a head. Other aspects, such as the advanced biofuels mandate, are also generating serious legal and public policy pushback. Given that EPA&rsquo;s critics have solid legal arguments, the final rule may prompt a judicial response that impacts the agency&rsquo;s discretion when setting renewable fuel volumes in the future. Iowa&rsquo;s attorney general has left the door open to that possibility. Miller has had considerable success leading multistate litigation in his eight terms as a state attorney general.
Author: Alexander Logemann Associate, Faegre Baker Daniels LLP environmental group 303-607-3748 alexander.logemann@FaegreBD.com
Contributing Author: Andrew Ehrlich, principal, Faegre Baker Daniels Consulting&nbsp;
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Given the solid legal arguments of the EPA's critics, the final RVO rule may prompt a judicial response that impacts the agency's discretion when setting volumes in the future. Iowa's attorney general has left the door open to that possibility.

Legal Argument Challenges EPA Authority to Change RFS

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