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Federal Court Vacates Main Component of EPA Biofuels Requirement

In a significant win for reasonable and sensible energy regulation, the DC Circuit Court rejected the Environmental Protection Agency’s (EPA) 2012 cellulosic biofuels projection. It is sad that this is what passes as a “win” for the energy industry however, since the Court simply acknowledged that the EPA’s requirements are based on fiction and require supplies of materials that are not even available currently!

The case being decided involved a challenge by the American Petroleum Institute (API) to the EPA’s regulation. The regulation in question was adopted under the renewable fuel standard program, which requires refiners to blend 36 billion gallons of biofuel with traditional fossil fuels by 2022. That goal has incremental targets leading up to it, and by 2012 refiners were required to blend 10.45 million biofuel ethanol gallons with their gasoline– an impossibility considering that the entire industry only produced 22,000 gallons of biofuel last year. API argued that these rules forced refiners to buy “credits” for the cellulosic biofuel since this product does not not, and may never, get produced in sufficient quantities to comply with the EPA regulations. API fairly asserted that the EPA should base the biofuel requirement on a realistic assessment of current production levels.

The decision, written by Judge Stephen Williams, stated, “We agree with API that because EPA’s methodology for making its cellulosic biofuel projection did not take neutral aim at accuracy, it was an unreasonable exercise of agency discretion.”

The Court concluded that the EPA exceeded the agency’s statutory authority. Judge Williams noted that the Court had previously ruled that a federal agency is allowed to set a standard on future technology when there is a rational connection between the regulatory target and the potential innovation. However, in those previous cases, the federal government worked with the industry involved to arrive at realistic goals. In this case, what was really going on was that the EPA was giving the biofuels industry the opportunity to profiteer, while imposing a tax on the fossil fuel industry. Judge Williams highlighted this imbalance and commented that the refiners of gasoline cannot either insure or contribute to any biofuel technology success. They would be merely captive consumers of the biofuels industry (which as most of us know, is not doing too well even with lots of taxpayer handouts).

Judge Williams went on the say that “(g)iven this asymmetry in incentives, EPA’s projection is not ‘technology-forcing’ in the same sense as other innovation-minded regulations that we have upheld.” The decision did uphold the EPA’s allowance for importing other sources of biofuels to meet their requirements. Still, the Court explained that the EPA’s arguments did not include any specific information about how much imported biofuel was available, let alone information regarding whether these sources could meet the EPA’s requirements. The case was remanded to a lower court for proceedings consistent with this new decision.

Bob Greco, API’s downstream director, applauded the decision for getting rid of requirements to use a product that does not exist and for relieving refiners from following impossible regulations. He commented: “This absurd mandate acts as a stealth tax on gasoline with no environmental benefit that could have ultimately burdened consumers.” Mr. Greco went on to say, “The Court has provided yet another confirmation that EPA’s renewable fuels program is unworkable and must be scrapped.”

This case is yet another example of our federal government beating up on the energy industry, while subsidizing a “green” industry that has no economic value. The EPA regulation at issue in this case would have driven the price of gasoline up substantially, imposing hardship on all consumers and further crippling our economy. Those of us who follow this situation can only say, thank goodness sense and reason prevailed.

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