The United States Court of Appeals for the District of Columbia issued an opinion on August 30, 2019 resolving a series of challenges to the Environmental Protection Agency’s (EPA) administration of the Renewable Fuel Standards (RFS) program. The decision, titled Alon Refining Krotz Springs, Inc. v. Environmental Protection Agency, No. 16-1052, 2019 WL 4123519, (D.C. Cir. Aug. 30, 2019) addressed multiple complaints involving EPA’s implementation of the RFS program, but spent the most time resolving the challenge to EPA’s decision not to revise a regulation known as the 2010 point of obligation regulation. The 2010 rule requires refineries and importers, but not blenders of fuel, that introduce fuels into U.S. markets include the percentage of renewable fuels mandated by the RFS program.
The Renewable Fuel Standards Program
Under the RFS program, EPA is required to set the annual volumes of the four renewable fuels included in the program. The goal of the RFS program is to gradually increase the annual volume requirements for each category of renewable fuel, to increase the amount of renewable fuels blended into non-renewable fuels.
The RFS program directs EPA to require compliance with the annual volume requirements from refiners, blenders, and importers of fuel as EPA deems fit. The parties that EPA designates to meet the renewable fuel volume requirements are known as “obligated parties.” Each obligated party has the responsibility of demonstrating to EPA that it has introduced the required amount of renewable fuel into the market each year. These obligated parties demonstrate their compliance by turning into EPA a certain amount of renewable identification numbers (RINs). RINs are numbers that EPA assigns to each batch of renewable fuels used in the U.S. To show EPA that they are in compliance with the RFS program, obligated parties must acquire and then submit to EPA a certain amount of RINs each year. Once fuel with an RIN has been used, the RIN detaches from the fuel and can be sold separately. There is a market among obligated parties to buy and sell RINs in order to reach the amount of RINs needed to be in compliance with the RFS.
Challenge to the 2007, 2010, and 2017 Point of Obligation Proceedings
In its 2007 regulations, EPA identified refiners and importers, but not blenders, as obligated parties. EPA made the same decision in 2010 and 2017. Many refiners opposed this decision. They argued that by making refiners, but not blenders obligated parties, refiners incurred greater costs under the RFS program while blenders made a greater profit.
In Alon Refining Krotz Springs, Inc., the refiners argued that EPA’s decision not to make blenders obligated parties was an abuse of EPA’s power. The refiners argued that it was unfair to require refiners to pay to acquire RINs which ultimately had to be turned over to EPA to demonstrate compliance, while blenders were allowed to acquire renewable fuels with RINs attached without needed to demonstrate RFS compliance to EPA at the end of the year. The refiners argued that because blenders could detach the RINs from the renewable fuel after the fuel had been blended, and then sell those RINs to obligated parties seeking to be in compliance with the RFS program, blenders were allowed to unfairly profit under the program.
EPA argued that the refiners were mistaken in their belief that the RFS program was unfairly structured to give blenders an advantage. According to EPA, refiners made up for the cost of RINs by selling fuels with RINs attached for a higher price than fuels without RINs attached. EPA also contended that blenders were not receiving higher profits than refiners under the RFS program because any fuel that blenders sold without an RIN attached had to be sold for a lower price to be competitive in the market. While blenders have the option of detaching RINs from blended fuels and selling those RINs to obligated parties, any fuel that blenders sell without an RIN costs significantly less than fuel with the RIN still attached.
In reviewing agency decisions, courts are required to give the agency a certain amount of deference. If the agency can show that its decision was reasonable, then courts will usually uphold the agency’s decision. The D.C. Circuit court in Alon Refining Krotz Springs, Inc. found that EPA had made a reasonable decision in deciding to obligate refiners, but not blenders under the RFS program based on EPA’s understanding that refiners made up for the costs of RINs by selling fuels with RINs attached at greater prices, while blenders lost the cost of RINs by selling fuels without RINs attached at much lower prices.
To read the full opinion click here.
To view the text of the Renewable Fuel Standard program click here.
To learn more about renewable energy click here.