Today, the U.S. Court of Appeals for the District of Columbia struck down EPA's requirement that oil refiners use 8.65 million gallons of cellulosic ethanol in 2012 or pay a fine. The reason was simple - there is no cellulosic ethanol.
EPA's authority to mandate ethanol use comes from the Renewable Fuel Standards (RFS), a product of 2005 and 2007 legislation passed by Congress to reduce greenhouse gas emissions and foreign oil dependency. The RFS contain a mandate that a certain amount of biofuels be mixed with petroleum. Refiners are subject to a fine if they do not meet the RFS mandate.
We are all familiar with the corn ethanol mandate, which requires refiners to use increasing amounts of corn-derived ethanol each year (12.45 billion gallons in 2013). The corn ethanol mandate has increased corn demand (40% of 2012's crop), but higher corn prices have squeezed margins for livestock producers.
The advanced biofuels standard has received less attention in the agricultural community. When the RFS was enacted, Congress wanted to encourage the development of "next generation" biofuels, which are essentially any type of biofuel not derived from corn. Congress envisioned cars running on cellulose-based fuels derived from switchgrass, Sudan grass, straw, and forest residue. However, there were no commercially-viable cellulosic facilities in operation when the RFS was enacted. Although optimistic that the RFS would drive innovation, Congress provided EPA with guidelines in case cellulosic ethanol capacity did not meet the RFS standards. EPA can estimate the amount of cellulosic ethanol that will be produced in a given year, and use that figure as the standard. Furthermore, EPA may make up the cellulosic ethanol deficit by substituting other advanced biofuels, namely Brazilian sugarcane ethanol.
It turns out science does not necessarily move at the pace Congress wishes it did. It's 2013 and there is still no commercial cellulosic ethanol production. Nonetheless, the RFS called for 500 million gallons of cellulosic ethanol in 2012. Recognizing that the cellulosic industry was nowhere near meeting this standard, EPA exercised its flexibility and set the cellulosic ethanol mandate at 8.65 million gallons for 2012. EPA also mandated that 490 million gallons of other advanced biofuels be used to make up the difference.
The American Petroleum Institute (API) took issue with the 8.65 million gallon mandate, because, and apologies for repeating myself - there is no commercially available cellulosic ethanol. The refiners faced monetary penalties for not purchasing a product that was not on the market. EPA defended its position with the argument that these fines would incentivize development of cellulosic technology. The court sided with API. It held that EPA's position was the equivalent of saying "Do a good job, cellulosic fuel producers. If you fail, we'll fine your customers." Thus, EPA's cellulosic mandate for 2012 was struck down.
API, however, did not come away with a clean victory. API also argued that EPA should have reduced or eliminated the amount of other advanced biofuels (Brazilian sugarcane ethanol) that was mandated. The court disagreed. It held that EPA has the discretion to mandate other advanced biofuels to make up for cellulosic ethanol shortfalls. Thus, refiners were held to the requirement to use 490 million gallons of imported sugarcane ethanol.
Cellulosic ethanol may ultimately prove to be a great benefit for farmers, ranchers, and rural America. However, federal courts are not going to allow EPA to fine petroleum refiners for the biofuel industry's failure to make aspirational policy a scientific reality.
John Dillard is an attorney with Olsson Frank Weeda Terman Matz P.C. (OFW Law), a Washington, DC-based firm that serves agricultural clients and clients with issues before federal and state courts, EPA, FDA, USDA, and OSHA. John focuses his practice on agricultural and environmental law. He occasionally tweets at @DCAgLawyer.