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February 04, 2013
Court vacates cellulosic biofuel requirement

The requirements the EPA imposes on refiners to introduce specific volumes of cellulosic biofuel into the transportation system have been questionable since the minimum volume of cellulosic biofuel needed to activate commercial activity has yet to be produced. Now, in response to a petition from the American Petroleum Institute (API), the U.S. Court of Appeals for the D.C. Circuit has vacated the Agency’s projection that 8.65 million gallons (gal) of cellulosic biofuel would be produced in 2012 and hence, be available for purchase by refiners.

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The D.C. Circuit remanded that specific action to the EPA for further proceedings, but upheld the Agency’s 2012 projection for the general category of advanced biofuels.

Renewable fuel standard

The cellulosic biofuel requirement is part of the federal renewable fuel standard (RFS), which Congress established through amendments to the Clean Air Act in 2005 and 2007.  Under the law, refiners must purchase “applicable volumes” of renewable transportation fuel, primarily ethanol.  The RFS also requires that the EPA set applicable volumes for advanced biofuels, including cellulosic biofuel.

The law mandates cellulosic biofuel sales in the United States of 100 million gal in 2010, 250 million gal in 2011, and 500 million gal in 2012.  However, recognizing the technological challenges facing producers of cellulosic biofuel, Congress allows the EPA to come up with its own projections and reduce the applicable volume accordingly.  This led to the Agency’s decision to project 8.65 million gal of cellulosic ethanol for 2012. 

But even with the 490 million gal shortfall in cellulosic biofuel, the Agency declined to reduce its 2 billion gal applicable volume for advanced biofuels for 2012, stating that other kinds of advanced biofuels could make up the shortfall.

The API challenged both EPA’s 2012 projection for cellulosic biofuel and the Agency’s refusal to reduce the applicable advanced biofuels volume for 2012.

Technology forcing?

Regarding the cellulosic biofuel challenge, the D.C. Circuit notes that the API based its petition on the “complete failure” of EPA’s prediction for 2011–6 million gal as against zero in reality.  “We agree with API that the 2011 failure colors the rationality of EPA’s decision to persist in 2012,” stated the court.

Also, the court rejected several arguments the EPA used to justify its 2012 applicable volume for cellulosic biofuel.  For example, the Agency stated that one intent was to promote growth in the industry.  The EPA argued that setting a low cellulosic biofuel volume would result in a depressed market for cellulosic biofuel.  The higher volume would therefore be “technology forcing” in that it would help promote development of cellulosic biofuel. 

But the D.C. Circuit did not find that authority in the law and contrasted EPA’s current action with past instances.  “In all these cases, government pressure joined forces with industry specialization and competence,” stated the court.  “Here, by contrast, EPA applies the pressure to one industry (the refiners); yet it is another (the producers of cellulosic biofuel) that enjoys the requisite expertise, plant, capital and ultimate opportunity for profit.

Apart from their roles as captive consumers, the refiners are in no position to ensure, or even contribute to, growth in the cellulosic biofuel industry.  ‘Do a good job, cellulosic fuel producers.  If you fail, we’ll fine your customers.’ Given this asymmetry in incentives, EPA’s projection is not ‘technology forcing’ in the same sense as other innovation-minded regulations that we have upheld.”

Advanced biofuel projection

The D.C. Circuit disagreed with API’s contention that the EPA violated the RFS by not providing numerical projections for the applicable advanced biofuel volume.  According to the court. there is nothing in the relevant RFS provisions that require the EPA to support its decision not to reduce the applicable volume of advanced biofuels with specific numerical projections.  “This stands in contrast to the Act’s explicit instruction that EPA make a numerical projection for cellulosic biofuel,” said the court.  The challenge to EPA’s refusal to lower the applicable volume of advanced biofuels for 2012 was therefore rejected.

Click here for the D.C. Circuit’s opinion in API v. EPA.

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