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March 11, 2016
Lawmakers United By Displeasure With EPA’s Recent Management Of The Renewable Fuel Standard Program Agree On Little Else
By Mercury Strategies

On February 24, 2016, the U.S. Senate Environment and Public Works Committee held its first hearing on the Renewable Fuel Standard (“RFS”) program since EPA issued its controversial final rule setting annual renewable fuel standards for the next several years. Senator’s on both sides of the political aisle expressed dissatisfaction with EPA’s recent administration of the program. Moreover, the hearing underscored differing perspectives concerning whether or not the existing statute can be loyally executed in light of shifting domestic energy markets. Notwithstanding the RFS program’s administrative challenges, disagreement over its policies and practical limitations make short-term legislative reform unlikely. For the time being, EPA will remain squeezed in the middle.

The RFS program is administered by EPA pursuant to Clean Air Act legislation originally passed as part of the Energy Policy Act of 2005 and subsequently amended under the Energy Independence and Security Act of 2007. The statute codifies annual volumetric standards for various categories of renewable fuels and requires EPA to set annual blending percentages for these fuels to ensure that they displace domestically used traditional transportation fuel (primarily gasoline and diesel). When the law was passed, Congress believed that by displacing traditional transportation fuel with renewable fuels, the United States could fight climate change, support innovation in renewable fuel production, bolster rural economies where plant based renewable fuels are produced, and decrease reliance on foreign imports.

In the ensuing years there has been a dramatic shift in the domestic energy economy. Pre-existing market predictions have not held up. Demand for transportation fuels has declined rather than increased, projections for domestic production of crude oil and natural gas have escalated, import/export dynamics in the petroleum industry have flipped, and the price of gasoline and diesel fuel has collapsed. These changes have made it increasingly difficult for EPA to administer the program as Congress anticipated.

EPA’s administrative challenge is on full display in its recently completed rulemaking setting blending requirements for the various statutory categories of renewable transportation fuel over the next several years. EPA issued the final rule in December 2015 following two years of rulemaking. The final rule sets the blending requirements for total renewable fuel for 2014, 2015, and 2016 and sets blending requirements for a subcategory of renewable fuel known as biomass based diesel for 2017 as well. Critically, the final rule marks the point at which EPA no longer believes that it can meet the volumetric standards set forth in the statute. As a result, for the first time in the RFS program’s history, EPA exercised its statutory waiver authority to lower the volumetric standards for renewable fuel as otherwise set by Congress. Accordingly, while EPA’s current blending standards still require the expanded use of renewable fuel over the next several years, the increase is not as large as it would be absent EPA waiver.

Predictably, legal challenges materialized soon after EPA issued the final rule. On January 8, 2016, various renewable fuel trade groups and ethanol manufacturers initiated a lawsuit in the D.C. Circuit seeking to vacate the rulemaking. These groups argue that EPA abused its waiver authority and did not exercise proper discretion when it decided to adjust the volumetric standards downward. Oil and gas interests quickly intervened. These interests believe that EPA properly exercised its waiver authority. They argue that higher percentages of renewable fuel, particularly corn-based ethanol, is not possible without broad modifications to the nation’s fuel supply infrastructure and could pose risks to vehicles. Still others believe that certain facets of the RFS program encouraging the use of corn-based ethanol are harmful to the environment and bad for the economy.

These varied positions are reflected in numerous competing pieces of legislation designed to either reform or repeal the RFS program. Over the past several years, no fewer than 16 separate pieces of legislation addressing the RFS have been introduced. Even as the Senate debates a comprehensive energy bill (S.2012), amendments addressing RFS have been unsuccessful. A bipartisan effort to repeal the corn ethanol mandate provisions of RFS introduced as an amendment by Sens. Dianne Feinstein (D-Cal.), Mike Toomey (R.-Pa.) and Jeff Flake (R-Az.) gained little traction. A more extreme amendment offered by Sen. Bill Cassidy (R-La) to repeal the entire program also quickly fizzled. As illustrated in separate comments made by the chair and ranking member of the Senate Environment and Public Works committee during the recent committee hearing, current policy perspectives on the RFS program are hard to reconcile. Chairman Inhofe (R-Okla.) is a vocal critic of the program and used the hearing to continue calls for its full repeal. In contrast, Ranking Member Boxer (D-Ca.) believes the law is sound and vowed to stop any efforts to modify or undermine the law.

EPA is under fire from stakeholders and lawmakers across the political spectrum for its management of the RFS program. However, notwithstanding the introduction of multiple bills, there is little to suggest the kind of broadly accepted statutory diagnosis necessary for a legislative fix. The existing legislation, as already once amended, crafted a delicate balance of interests between environmentalists, the agricultural sector, and the petroleum industry. Even though an evolving and dynamic domestic energy market is challenging EPA’s efforts to administer the program in a manner consistent with the law’s policy underpinnings, there are risks inherent in exposing the statute to a refreshed political debate. In the short term, it appears EPA will continue to grapple with its existing mandate while defending itself both in the courts and on the Hill.