D.C. Circuit Reviews EPA’s 2012 Renewable Fuel Standard Rule

Thursday, February 21, 2013, by Drew Hargrove
EPA’s Renewable Fuel Standard Program (“RFS”) regulates the amount of renewable fuel contained in transportation fuel sold in the United States.  The Clean Air Act  (“Act”) requires EPA to set renewable fuel standards (“applicable volumes”) each year for specific classes of renewable fuels for the following calendar year.  Once the applicable volume is set, the fuel industry must meet that volume or purchase credits.
Recently, in American Petroleum Institute v. U.S. EPA, the D.C. Circuit ruled on EPA’s 2012 Renewable Fuel Standard.  In that case, the petroleum industry challenged EPA’s decision not to lower the applicable volume for “advanced biofuels,” which are a specific class of renewable fuel.  Also the petroleum industry challenged EPA’s projections for “cellulosic biofuels” (a sub-category of advanced biofuels).
The court held that EPA “articulated a satisfactory explanation” for refusing to lower the applicable volume for advanced biofuels.  However, the court also vacated EPA’s 2012 projection for cellulosic biofuels based on finding EPA’s projection to be beyond the agency’s statutory authority:
[N]either statutory text nor the general structure of the RFS program supported EPA’s decision to adopt a methodology in which the risk of overestimation was set deliberately to outweigh the risk of underestimation.
In rejecting the EPA’s cellulosic biofuel projection, the court stated that, “an agency may base a standard or mandate on future technology when there exists a rational connection between the regulatory target and the presumed innovation.”  The court claimed to extend Chevron deference but noted that, the “most natural reading” of the Act’s cellulosic biofuel provision was to “call for a projection that aims at accuracy, not at deliberately indulging a greater risk of overshooting than undershooting.”  The court based its interpretation upon Congress’s willingness to provide a safety valve that only pertains to cellulosic biofuels–the Act allows EPA to make yearly projections for cellulosic biofuels when the statutory volume could not be met.   In this light, the court found that the methodology employed by EPA failed to “take neutral aim at accuracy.”
The court’s decision illustrates the inherent difficulty in promulgating and enforcing technology-forcing standards.  Developing projections for unproven technologies is inherently difficult since it is hard to find relevant and reliable data.  Further complicating matters is the judicial review of agency decisions under the ever-malleable Chevron et al. analysis.  Here, the court purported to extend Chevron deference but appears to extend something less.  The court’s reticence to extend true Chevron deference did not appear to be based upon a concern for drastic regulatory changes in the  “Chevron  Step 0” sense.  Instead, the court expressed concern over the refinery industry as a “captive consumer,” which is not in a position “to ensure, or even contribute to, growth in the cellulosic biofuel industry.”