In a decision published on August 14, 2020, the United States Court of Appeals for the District of Columbia dismissed a lawsuit filed by an ethanol company challenging the federal standard for measuring a particular type of biofuel. The plaintiff in POET Biorefining, LLC v. Envtl. Prot. Agency, No. 19-1139 (D.C. Cir. Aug. 14, 2020) brought suit challenging the “Guidance on Qualifying an Analytical Method for Determining the Cellulosic Converted Fraction of Corn Kernel Fiber Co-Processed with Starch” (“Cellulosic Guidance”), a guidance document published by the Environmental Protection Agency (“EPA”) in 2019 to explain the agency’s interpretation of a regulation known as the Pathways II Rule. The plaintiff argued that the Guidance document was a legislative rule that conflicted with the Pathways II Rule, imposed arbitrary requirements, and was passed without the opportunity for public review. The court disagreed, finding in favor of EPA and dismissing the case.
RFS, RINs, & Pathways II
EPA finalized the Pathways II Rule in 2014 as part of the Clean Air Act’s Renewable Fuel Standard (“RFS”) program. The RFS program directs EPA to increase the domestic supply of four types of renewable fuels: cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel. Each year, EPA determines what percentage of the total amount of transportation fuel sold in the United States should consist of the four renewable fuel types. The agency then uses Renewable Identification Numbers (RINs) to track the renewable fuels introduced into the marketplace.
RINs turn the RFS into a credit-based program. Fossil fuel manufacturers and refiners can satisfy their annual obligations to the RFS program by purchasing RINs from renewable-fuel producers, such as the plaintiff in POET Biorefining, LLC v. Envtl. Prot. Agency. Because RINs play a key role in tracking renewable fuels in the marketplace, it is important that they accurately reflect the type and volume of the renewable fuels they are attached to. This can become difficult when processes partially cellulosic – meaning produced from cellulose – material into ethanol because there is no widely accepted test for determining how much of a finished fuel was derived from cellulosic versus non-cellulosic components.
EPA passed the Pathways II Rule in an effort to address the issue of assigning RINs to the portion of cellulosic biofuel produced together with conventional biofuel from partly cellulosic material such as corn kernels. The Pathways II Rule requires any producers who wish to generate RINs for cellulosic biofuel produced from partly cellulosic material to identify the portion of the material that will be converted into cellulosic biofuel during the fuel-making process. Because there is no universally accepted method for making this determination, the Pathways II Rule requires that when making the determination producers should use data that are “representative and obtained  using an analytical method certified by a voluntary consensus standards body (“VCSB”), or  using a method that would produce reasonably accurate results as demonstrated through peer-reviewed references.” 40 CFR § 80.1450(b)(1)(xiii)(B)(3). Whichever method a producer choses, it must demonstrate to EPA that the method is producing reasonably accurate results. 40 CFR § 80.1450(b).
POET Biorefining Decision
Five years after adopting the Pathways II Rule, EPA issued the Cellulosic Guidance, clarifying requirements for both the VCSB method and the peer-reviewed method of determining how much cellulosic biofuel was produced from partly cellulosic material. Not long after, POET Biorefining, LLC, a biofuels producer, filed suit against EPA challenging the Cellulosic Guidance. In POET Biorefining, LLC v. Envtl. Prot. Agency, the plaintiff argued first that the Cellulosic Guidance was a legislative rule that was unlawfully adopted by EPA without a period of public comment. Next, the plaintiff argued that even if the Cellulosic Guidance had been lawfully adopted as an interpretive rule, it conflicted with the Pathways II Rule by granting the power to decide what counts as a reasonably accurate method for measuring the production of cellulosic biofuel to EPA.
In its decision, the court started by dismissing a portion of the plaintiff’s argument as “unripe” for review. An issue is ripe for review by a court when the plaintiff can show that it has either suffered an injury or will suffer an imminent injury as a result of the defendant’s actions. Here, the court concluded that the plaintiff’s challenge to the Cellulosic Guidance’s interpretation of requirements for a VCSB-approved method is unripe because no method for measuring cellulosic biofuel has been approved by a VCSB. Therefore, the court concluded that the plaintiff could not be injured by the Cellulosic Guidance’s interpretation of that portion of the Pathways II Rule. However, the Cellulosic Guidance’s interpretation of requirements for peer-reviewed methods was ripe for review because EPA had already relied on the Cellulosic Guidance to deny the plaintiff’s application to register for cellulosic RINs using a peer-reviewed method of measuring cellulosic biofuel, causing the plaintiff to receive fewer RINs than if the method it chose had been approved. Therefore, the court would consider whether that portion of the Cellulosic Guidance had been lawfully adopted by EPA.
To start, the court determined that the Cellulosic Guidance was an interpretive, rather than a legislative rule. Agencies issue interpretive rules to make the public aware of the agency’s interpretation of a particular statute or the rules that administer a statute. Conversely, legislative rules alter existing law or policy, and must go through a period of public comment before becoming law. Here, the court concluded that the Cellulosic Guidance was an interpretive rule because the language of the document explains EPA’s interpretation of the Pathways II Rule without altering or creating new law. Therefore, the Cellulosic Guidance was lawfully issued because interpretive rules are not required to go through a period of public comment before taking effective.
Finally, the court considered whether the Cellulosic Guidance conflicted with the Pathways II Rule. The plaintiffs argued that the Cellulosic Guidance violated the Pathways II Rule by granting EPA the authority to decide what counts as a reasonably accurate method for measuring the production of cellulosic biofuel. According to the plaintiffs, the Pathways II Rule granted that authority to third-parties by requiring producers to use methods that were either approved by a VCSB or peer-reviewed. The court disagreed. Upon review, it found that the Pathways II Rule did not “unambiguously delegate” determination of reasonable accuracy to third parties. Instead, the Pathways II Rule requires producers to demonstrate to EPA that the method of measurement the producer has chosen yields accurate results. Therefore, the Cellulosic Guidance did not violate the Pathways II Rule by providing an additional explanation of what EPA sees as necessary to verify a method’s accuracy.
At the moment, it is not clear whether the plaintiffs will challenge the DC Circuit’s decision. The decision comes during a time of uncertainty over aspects of the RFS program. Over the past year, a lot of attention has been paid to the requests of exemption from the RFS program that have been made by small oil refiners. Following a court decision issued in January 2020 which overturned the exemptions to the RFS that EPA had improperly granted to three small oil refineries, there has been pressure for similar exemptions to be overturned as well. While the small oil refiners themselves are opposed to such action, farmers and producers of biofuels support overturning the exemptions because doing so would increase the demand for biofuels. EPA is due to release a final rule deciding how much ethanol oil refiners must blend into the nation’s fuel supply during 2021 in late November. However, the proposal for the rule has yet to be issued, causing speculation as to whether a final rule will be available by the end of November.
Although POET Biorefining, LLC v. Envtl. Prot. Agency does not concern RFS exemptions, it does affect the generation of RINs. Producers who, like POET Biorefining, view the Cellulosic Guidance as restricting the ability to generate RINs will likely be interested to see what happens next in this litigation.
To read the court’s decision in POET Biorefining, LLC v. Envtl. Prot. Agency, click here.
To read the Pathways II Rule, click here.
To read the Cellulosic Guidance, click here.
For more National Agricultural Law Center resources on the Clean Air Act, click here.
For more National Agricultural Law Center resources on the RFS program, click here.