Best stock to invest in – Giant Appeals Court Victory For Biofuels

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Jim Lane

As DuPont’s (DD)
Jan Koninckx put it in his understated way, Friday was “a good day
for biofuels.”

But it was the biggest victory in the courts for biofuels, ever.

Specifically, the U.S. Court of Appeals for the District of
Columbia Circuit ruled in favor of Americans for Clean Energy and
other renewable fuels advocates, agreeing with the petitioners
that the Environmental Protection Agency erred in how it
interpreted and used the “inadequate domestic supply” waiver in
the Renewable Fuel Standard law in setting low renewable fuel
volumes for 2014-2016.

In Americans for Clean Energy et al v. Environmental Protection
Agency, the Court vacated EPA’s decision to reduce the total
renewable fuel volume requirement in 2016 and remanded the rule to
EPA for further consideration.

It’s
here.


The background

In late May 2015, the EPA weighed in with staggeringly weak RFS
volumetric proposals for 2014 through 2016, based on an arcane
theory of “supply” vs. “demand” that the Court of Appeals found
ridiculous. At the time, the industry was aghast, and responded
with more than 200,000 comments. Among them, dire remarks like
“POET expects to stop all future U.S. cellulosic investments if
EPA’s proposed base renewable fuel requirements are not
strengthened.”

And BIO’s Brent Erickson warned:

“EPA continues to assert authority
under the general waiver provision to reduce biofuel volumes
based on available infrastructure. This is a point that will
have to be litigated. It goes against Congressional intent. EPA
has proposed higher volumes for advanced biofuels, still below
the statutory volumes, but maintained a methodology that
discourages investment in the industry. That will likely
undercut future production, requiring additional cuts to volumes
in future.”

And so, industry sued. And now, as Judge Kavanaugh writes in his
unanimous opinion:

EPA noted that the Renewable Fuel
Program’s requirements were “readily achieved” in the few years
after Congress created the program in 2005 and amended it in
2007. Id. That was due in large part to the fact that the
industry had the capacity to produce – and the market had the
capacity to consume – increasing quantities of ethanol. Id. But
by 2014, ready compliance with the statutory volume requirements
was no longer possible. That is because the industry hit the
“E10 blendwall”: an “infrastructure and market-related
constraint on ethanol demand” that “arises because most U.S.
vehicle engines were not designed to handle gasoline consisting
of more than 10 percent ethanol.” Put differently, a few years
into the amended Renewable Fuel Program, the supply of ethanol
was much greater than the demand in the market.

Now, you may ask yourself, why would the distribution industry
(controlled by, ahem, you can guess who) ever embrace E15. E30, or
E85 if they could, by refusing to put in infrastructure, they
could get ethanol volumes waived down — volumes that would have to
be replaced by more gasoline (made by, ahem, you can guess who).

Think of it this way. All a petroleum marketer would have to do
to squash competition is to make sure that no pump in the United
States could handle E10 ethanol, or any ethanol content
whatsoever. Presto! The E0.00000001 blendwall, and we’re right
back to the gasoline dependency we started with.

Congress debated this very problem in the 2007 EISA Act. As Judge
Kavanaugh observed:

The drafting history of the
“inadequate domestic supply” provision, to the extent it is
relevant, counts as yet another strike against EPA’s
interpretation. The version of the Energy Policy Act passed by
the House would have allowed EPA to reduce the statutory volume
requirements “based on a determination by the Administrator,
after public notice and opportunity for comment, that there is
an inadequate domestic supply or distribution capacity to meet
the requirement.” The latter portion of the waiver provision –
which would have allowed EPA to consider “distribution capacity”
– was dropped in the version of the bill passed by the Senate.As
relevant here, the House agreed to the Senate’s amendment to the
bill. The “distribution capacity” language does not appear in
the final version of the Act. Congress’s decision to drop the
“distribution capacity” language counsels against EPA’s reading
in this case, which in effect would add that kind of language
back into the waiver.

Nevertheless, the EPA went ahead with its interpretation.
Industry headed for the courts for justice. And justice they won.

Why is this so big?

If you’ve been asking where all the cellulosic biofuels are, the
obvious answer is that very little has been made, but why? One
primary reason — not the only one, but a completely major factor —
has been the EPA’s insistence that the content standard for US
gasoline can be limited in terms of ethanol should anyone in the
oil or automobile industry decide not to build distribution
capacity.

It struck us as absurd from the get-go. We noted that, by he same
logic, that any obligated party could avoid mandates for safe
drinking water by not building any distribution for anything but
filthy water. Or a cruise ship could avoid rules for minimum
lifeboat count by simply not installing the davits to hold them.

Everyone knows that this is not so. A mandate to provide
something puts the responsibility on the obligated party to figure
out how to distribute it. And in the case of the Renewable Fuel
Standard, if parties feel they cannot afford the burden of
blending and distributing fuels, or the exercise in innovation of
figuring out how to lower the cost — they can simply purchase RIN
credits in the open market and they are done.

The problem is that common sense evaded the EPA in this case. Not
only did they release the 2014 Renewable Fuel Standard some 2
years late — in fact, after 2014 had expired — they got the math
very, very wrong.

So decided Circuit judges Brett Kavanaugh, Janice Rogers Brown
and Patricia Millett — the first two being Bush-era nominees — in
a stinging decision penned by Kavanaugh.

Highlights from the decision

Importantly, whether a thing is
“available” to someone has nothing to do with whether he or she
decides to use it.
(The fact that a person is on a
diet does not mean that there is an inadequate supply of food
in the refrigerator.)
So too here: Whether there is
an adequate amount of renewable fuel available to allow
refiners, blenders, and importers to meet the statutory volume
requirements has little to do with how much renewable fuel that
refiners, blenders, and importers – much less consumers at the
pump – ultimately decide to use.

The Renewable Fuel Program’s
increasing requirements are designed to force the market to
create ways to produce and use greater and greater volumes of
renewable fuel each year.
EPA’s interpretation of the
“inadequate domestic supply” provision flouts that statutory
design
: Instead of the statute’s volume
requirements forcing demand up, the lack of demand allows EPA to
bring the volume requirements down. “No argument” that EPA has
“offered here supports that goal- defying (much less that
text-defying) statutory construction.”

We reject EPA’s attempt to
bootstrap the definition
of “renewable fuel” into
a boundless general waiver authority. Contrary to EPA’s
contention, the phrase “that is used” in the definition of
“renewable fuel” does not mean that biofuel transforms into
renewable fuel only when it is actually pumped into gas tanks.

Second, EPA contends that
interpreting “supply” to refer to the amount of renewable fuel
available to refiners, blenders, and importers in effect reads
“supply” to mean “production.”
That interpretation is
not correct,
according to EPA, because “other fuel
related provisions of the Clean Air Act” distinguish between
“capacity to produce” and “capacity to supply” fuel.

EPA has not explained
why Congress would have established the severe-harm waiver
standard “only to allow waiver under the inadequate-supply”
provision based on “lesser degrees” of economic harm.

We are not convinced that EPA’s
strained interpretation of “inadequate domestic supply” is
necessary to avoid the parade of horribles that EPA
identifies.

Taking a step back, moreover, we
reject EPA’s purposive argument on its own terms
.
That is because EPA’s proposed interpretation of the “inadequate
domestic supply” waiver provision – in which the demand for
renewable fuel largely dictates the volume requirements – turns
the Renewable Fuel Program’s “market forcing” provisions on
their head. Final Rule, 80 Fed. Reg. at 77,423. To be sure, EPA
and obligated parties have raised serious concerns that the
Renewable Fuel Program is not actually functioning as intended
and that, as a result, the statute’s requirements will only
become more and more impractical to meet. But the fact that EPA
thinks a statute would work better if tweaked does not give EPA
the right to amend the statute. Cf. Utility Air Regulatory Group
v. EPA, 134 S. Ct. 2427, 2445, slip op. at 21 (2014) (“An agency
has no power to ‘tailor’ legislation to bureaucratic policy
goals by rewriting unambiguous statutory terms. Agencies
exercise discretion only in the interstices created by statutory
silence or ambiguity; they must always give effect to the
unambiguously expressed intent of Congress.”) (internal
quotation marks omitted).

Reaction from the stakeholders

Jan Koninckx, DuPont:

“We look forward to working with
EPA as the agency re-examines the renewable volume obligation
rules on biofuels and translates the Court’s decision into
regulatory action. Consistent and long-term biofuels policy is
critical to continued growth and investment in renewable fuels.

National Corn Growers Association

“Today’s Court decision is a win
for farmers, the biofuels industry, and consumers.
We
appreciate the Court honoring Congress’ intent. Congress created
the Renewable Fuel Standard to help increase American energy
independence and provide cleaner fuel choices for consumers by
opening a closed fuel market and forcing the oil industry to
allow competition in. Whether there is an adequate supply of
renewable fuel to meet volume standards is not the same as how
much fuel is used. Or, in the Court’s own words, ‘The fact that
a person is on a diet does not mean there is an inadequate
supply of food in the refrigerator.’

“Corn farmers have done our part
to help expand the supply of renewable fuel, as well as help
support use of renewable fuels with retailers and consumers. We
look forward to working with the EPA to ensure that going
forward, the Agency follows the law when implementing the RFS.”

POET CEO Jeff Broin

“Today’s decision is a victory
for U.S. drivers and everyone who supports clean, American-made
fuel. Congress clearly laid out its vision for increasing our
nation’s use of American-made biofuels, and the biofuels
industry has worked tirelessly to make that vision a reality. We
must use every available gallon of clean, domestic biofuels in
lieu of importing more oil. It’s environmentally responsible;
it’s economically responsible; it’s common sense; and it’s the
law. We hope this decision will help us move past the
unjustified resistance to year-round use of E15 by those
protecting oil markets and pave the way to the expansion of
higher biofuel blends across the United States.

Donnell Rehagen, CEO, National Biodiesel Board

“Today’s decision from the D.C.
Circuit is welcome reassurance that EPA has the authority to
increase volumes of biomass-based diesel. We must do so to
advance the goals of the law. And as co-petitioners to the
general waiver authority argument, we were pleased to see the
court agreeing with our arguments. Biofuels today replace toxic
chemicals linked to cancer, developmental disorders and other
health issues. Biofuels lower greenhouse gas emissions by at
least 43 percent. Today’s decision will help to increase those
benefits while lowering costs for consumers at the pump.”

BIO President & CEO Jim Greenwood

“BIO and its members are pleased
that the Court agreed with us that EPA’s flawed methodology
would have allowed the oil industry to control the volumes of
renewable fuels offered to consumers. BIO has consistently said
that the RFS statute does not allow EPA to rely on demand-side
factors under the oil industry’s control as a basis for setting
annual volumes.

“We are equally pleased that EPA
abandoned its legally flawed reliance on general waiver
authority in subsequent rules. We will continue to work with the
agency as it reconsiders the 2015 and 2016 RFS volumes. EPA can
send a strong signal that it will support the biofuels industry
and grow advanced and cellulosic biofuel production.

“BIO’s members rely on the RFS to
open the U.S. transportation fuel market to new, cleaner
technologies. Stability in this program enables our member
companies to secure investment for the development and
commercialization of new advanced biofuel technologies.”

The Bottom Line

This issue looks settled for all time — there’s just nothing for
the Supreme Court to look at here until President Trump gets five
justices on the bench from Oklahoma, and there’s nothing for the
Court of Appeals here to go for an en banc review of the
three-member panel. There no controversy between warring circuit
courts, and the decision is a model of judiciary knocking down
zealous Obama-era bureaucrats.

If there are issues with the RFS, the Circuit Court is very
clear:

If the regime is indeed flawed, it
is up to Congress and the President to “reenter the field” and
fix it.

ABFA president Mike McAdams recently penned this column on that
topic and we anticipate and encourage a healthy and vigorous
debate on the RFS’ legislative future. Now, let the noisy,
fractious, democratic debate begin.

Jim Lane is editor and publisher  of Biofuels Digest where this

article

was originally published.
Biofuels Digest is the most widely read  Biofuels daily
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