United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 24, 2017 Decided July 28, 2017
No. 16-1005
AMERICANS FOR CLEAN ENERGY, ET AL.,
PETITIONERS
v.
ENVIRONMENTAL PROTECTION AGENCY AND E. SCOTT
PRUITT, ADMINISTRATOR,
RESPONDENTS
E.I. DU PONT DE NEMOURS AND COMPANY, ET AL.,
INTERVENORS
Consolidated with 16-1044, 16-1047, 16-1049, 16-1050,
16-1053, 16-1054, 16-1056
On Petitions for Review of Final Action of the
United States Environmental Protection Agency
Seth P. Waxman argued the cause for petitioners
Americans for Clean Energy, et al. With him on the briefs were
Edward N. Siskel, David M. Lehn, Saurabh Sanghvi, Andrew
R. Varcoe, Gary H. Baise, and Matthew W. Morrison. Mark C.
Kalpin and Robert J. McKeehan entered appearances.
2
David B. Salmons argued the cause for petitioner National
Biodiesel Board. With him on the briefs were Bryan M. Killian
and Sandra P. Franco.
Jerome C. Muys, Jr. was on the brief for amici curiae
American Soybean Association, et al., in support of petitioners
Americans for Clean Energy, et al., and National Biodiesel
Board.
Robert A. Long, Jr. argued the cause for Obligated Party
Petitioners on the cellulosic biofuel and biomass-based diesel
issues. With him on the briefs were Kevin F. King, Stacy R.
Linden, Thomas A. Lorenzen, Robert J. Meyers, David Y.
Chung, Richard S. Moskowitz, Thomas J. Perrelli, David W.
DeBruin, and Matthew E. Price.
Samara L. Kline argued the cause for Obligated Party
Petitioners on the point of obligation issue. With her on the
briefs were Evan A. Young, Shane Pennington, Lisa M. Jaeger,
Richard Alonso, LeAnn M. Johnson, Albert Ferlo, Thomas J.
Perrelli, David W. DeBruin, Matthew E. Price, Richard S.
Moskowitz, and Thomas A. Lorenzen. Krista Hughes and
Clara G. Poffenberger entered appearances.
Suzanne Murray, Jeremy Kernodle, and Alec Zacaroli
were on the brief for amicus curiae Small Retailers Coalition
in support of Obligated Party Petitioners on the point of
obligation issue.
Lee M. Smithyman was on the brief for amicus curiae CVR
Energy, Inc., in support of Obligated Party Petitioners on the
point of obligation issue.
Samara M. Spence, Attorney, U.S. Department of Justice,
argued the cause for respondent. With her on the brief were
3
John C. Cruden, Assistant Attorney General at the time the
brief was filed, and Lisa M. Bell, Attorney.
Thomas A. Lorenzen argued the cause for Obligated Party
Respondent-Intervenors. With him on the brief were Robert J.
Meyers, David Y. Chung, Richard S. Moskowitz, Robert A.
Long, Jr., Kevin F. King, Stacy R. Linden, Samara L. Kline,
Evan A. Young, Shane Pennington, Lisa M. Jaeger, Richard
Alonso, David W. DeBruin, Thomas J. Perrelli, and Matthew
E. Price.
Seth P. Waxman argued the cause for Respondent-
Intervenors Americans for Clean Energy, et al. With him on
the brief were Edward N. Siskel, David M. Lehn, Saurabh
Sanghvi, Andrew R. Varcoe, Gary H. Baise, and Matthew W.
Morrison.
Bryan M. Killian, Sandra P. Franco, and Daniel C. Taylor
were on the brief for intervenors E.I. du Pont de Nemours and
Company and National Biodiesel Board in support of
respondent. David B. Salmons entered an appearance.
Before: BROWN, KAVANAUGH, and MILLETT, Circuit
Judges.
Opinion for the Court filed by Circuit Judge
KAVANAUGH.
KAVANAUGH, Circuit Judge: The Clean Air Act’s
Renewable Fuel Program requires an increasing amount of
renewable fuel to be introduced into the Nation’s transportation
fuel supply each year. See 42 U.S.C. § 7545(o). By mandating
the replacement – at least to a certain degree – of fossil fuel
with renewable fuel, Congress intended the Renewable Fuel
4
Program to move the United States toward greater energy
independence and to reduce greenhouse gas emissions.
EPA is the federal agency primarily responsible for
implementing the Renewable Fuel Program’s requirements.
Congress has directed EPA to annually publish renewable fuel
requirements that apply to certain participants in the
transportation fuel market. In 2015, EPA promulgated a Final
Rule setting several renewable fuel requirements for the years
2014 through 2017. In this set of consolidated petitions,
various organizations, companies, and interest groups
challenge that EPA Final Rule on a number of grounds. Some
argue that EPA set the renewable fuel requirements too high.
Others argue that EPA set the renewable fuel requirements too
low.
We reject all of those challenges, except for one: We agree
with Americans for Clean Energy and its aligned petitioners
(collectively referred to as “Americans for Clean Energy”) that
EPA erred in how it interpreted the “inadequate domestic
supply” waiver provision. We hold that the “inadequate
domestic supply” provision authorizes EPA to consider supply-
side factors affecting the volume of renewable fuel that is
available to refiners, blenders, and importers to meet the
statutory volume requirements. It does not allow EPA to
consider the volume of renewable fuel that is available to
ultimate consumers or the demand-side constraints that affect
the consumption of renewable fuel by consumers. We
therefore grant Americans for Clean Energy’s petition for
review of the 2015 Final Rule, vacate EPA’s decision to reduce
the total renewable fuel volume requirements for 2016 through
use of its “inadequate domestic supply” waiver authority, and
remand the rule to EPA for further consideration in light of our
decision. We otherwise deny the petitions for review.
5
I
A
In 2005, Congress passed and President George W. Bush
signed the Energy Policy Act. Pub. L. No. 109-58, 119 Stat.
594 (2005). Among other things, that Act established the Clean
Air Act’s Renewable Fuel Program. Id. § 1501, 119 Stat. at
1067-76 (codified as amended at 42 U.S.C. § 7545(o)). In
2007, Congress and President Bush amended the Renewable
Fuel Program as part of the Energy Independence and Security
Act. See Pub. L. No. 110-140, §§ 201-202, 121 Stat. 1492,
1519-28 (2007) (codified at 42 U.S.C. § 7545(o)). As
amended, the Renewable Fuel Program requires that increasing
volumes of renewable fuel be introduced into the Nation’s
supply of transportation fuel each year. Congress enacted those
requirements in order to “move the United States toward
greater energy independence and security” and “increase the
production of clean renewable fuels.” Id. preamble, 121 Stat.
at 1492. Congress has vested EPA with primary responsibility
for administering the Renewable Fuel Program.
As relevant here (and at the risk of oversimplification),
there are six categories of actors in the renewable fuel market:
(i) refiners, who manufacture conventional gasoline and diesel;
(ii) renewable fuel producers, who produce fuels generated
from renewable biomass; (iii) importers, who import
conventional gasoline, diesel, and renewable fuels;
(iv) blenders, who mix renewable fuels with conventional
gasoline and diesel to create blends of more energy-efficient
transportation fuel for use in vehicles; (v) retailers, who
purchase the blended transportation fuel and sell it to
consumers at gas stations; and (vi) consumers, who purchase
transportation fuel for their vehicles at gas stations. Some
actors in the market are vertically integrated, meaning that a
6
refiner, for example, may also operate blending facilities or
fueling stations. Many market actors are not vertically
integrated, however.
The Renewable Fuel Program statute contemplates that
certain participants in the transportation fuel market – namely,
“refineries,” “blenders,” and “importers” – will be required to
satisfy annual “renewable fuel obligation[s].” 42 U.S.C.
§ 7545(o)(3)(B)(ii). To date, however, EPA has applied the
renewable fuel obligations only to refiners and importers – not
to blenders. See 40 C.F.R. § 80.1406(a)(1). When we refer to
“obligated parties” in this opinion, we are referring to refiners
and importers. To satisfy the renewable fuel obligations, each
refiner and importer must ensure that a certain amount of
renewable fuel is introduced into the Nation’s transportation
fuel supply. Each refiner and importer’s renewable fuel
obligation varies depending on how much fossil-based gasoline
or diesel fuel it produces or imports.
The renewable fuel obligations applicable to refiners and
importers mandate the introduction of four categories of
renewable fuel into the transportation fuel supply. Those
categories are: (i) cellulosic biofuel; (ii) biomass-based diesel;
(iii) advanced biofuel; and (iv) total renewable fuel. 42 U.S.C.
§ 7545(o)(2)(B)(i)(I)-(IV). Those four fuel categories vary
with respect to the renewable biomass sources from which they
are derived and their greenhouse gas emissions. See id.
§ 7545(o)(1)(B), (D), (E), (J) (defining “advanced biofuel,”
“biomass-based diesel,” “cellulosic biofuel,” and “renewable
fuel”). The statutory categories of fuel types are “nested,”
meaning that cellulosic biofuel and biomass-based diesel are
kinds of advanced biofuel, and advanced biofuel in turn is a
kind of renewable fuel that may be credited toward the total
renewable fuel obligation. For example, if one million gallons
of cellulosic biofuel are blended into the fuel supply, the statute
7
allows those one million gallons to be credited toward the
advanced biofuel and total renewable fuel obligations in
addition to the cellulosic biofuel obligation. See Monroe
Energy, LLC v. EPA, 750 F.3d 909, 912 (D.C. Cir. 2014).
EPA has the responsibility to promulgate rules informing
obligated parties (refiners and importers) of their annual
renewable fuel obligations. See 42 U.S.C. § 7545(o)(3)(B)(i)-
(ii). To do so, EPA first determines the annual volume
requirement – also known as the “applicable volume” – for
each category of renewable fuel. Id. § 7545(o)(2)(B). The
annual volume requirement represents the total volume of
renewable fuel that must be sold or introduced into the Nation’s
transportation fuel supply in a given year. See Monroe Energy,
750 F.3d at 912.
The statute contains tables that set forth the annual volume
requirements for each category of renewable fuel. See 42
U.S.C. § 7545(o)(2)(B)(i). The ranges of years covered by the
tables differ depending on the fuel type. For those years not
covered by the statutory tables, EPA must calculate the annual
volume requirements in the first instance. See id.
§ 7545(o)(2)(B)(ii). The statute requires EPA to determine
those volume requirements, “in coordination with the Secretary
of Energy and the Secretary of Agriculture, based on a review
of the implementation of the program” as well as an analysis of
several factors identified by statute. Id. EPA must promulgate
the volume requirements it establishes for years not covered by
the statutory tables “no later than 14 months before the first
year” in which the volume requirements will apply. Id.
Several statutory provisions guide EPA’s determination of
the annual renewable fuel volume requirements. Some
provisions either require or allow EPA to lower the statutory
8
volume requirements in specified circumstances. Three of
those provisions are relevant to this case.
First, the “general waiver provision” allows EPA to reduce
the statutory volume requirements in two circumstances. EPA
may invoke the general waiver provision (i) if EPA determines
that “implementation of the requirement would severely harm
the economy or environment of a State, a region, or the United
States” or (ii) if EPA determines that “there is an inadequate
domestic supply.” Id. § 7545(o)(7)(A).
Second, another provision sets forth procedures EPA must
follow when setting the cellulosic biofuel volume requirement.
EPA must determine the “projected volume” of cellulosic
biofuel that will be produced in a given compliance year. Id.
§ 7545(o)(7)(D)(i). If EPA’s projection falls short of the
statutory volume requirement for cellulosic biofuel, EPA has
no choice: It “shall reduce” the cellulosic biofuel statutory
volume requirement to EPA’s volume projection. Id.
Third, a reduction to the cellulosic biofuel volume
requirement triggers the “cellulosic waiver provision.” Under
that provision, when EPA must reduce the cellulosic biofuel
volume requirement due to its volume projections for cellulosic
biofuel, the agency “may also reduce” the advanced biofuel and
total renewable fuel volume requirements “by the same or a
lesser volume” as the cellulosic biofuel reduction. Id.
After EPA determines the volume requirements for the
various categories of renewable fuel, it has a “statutory
mandate” to “ensure[]” that those requirements are met. Id.
§ 7545(o)(3)(B)(i); Monroe Energy, 750 F.3d at 920. EPA
fulfills that mandate by translating the annual volume
requirements into “percentage standards.” The percentage
standards inform each obligated party of how much renewable
9
fuel it must introduce into U.S. commerce based on the
volumes of fossil-based gasoline or diesel it imports or
produces. See Monroe Energy, 750 F.3d at 912. The
percentage standards represent the percentage of transportation
fuel introduced into commerce that must consist of renewable
fuel. Id. If each obligated party meets the required percentage
standards, then the Nation’s overall supply of cellulosic
biofuel, biomass-based diesel, advanced biofuel, and total
renewable fuel will meet the total volume requirements set by
EPA.
For present purposes, it is sufficient to understand that the
percentage standards are used by obligated parties (refiners and
importers) to calculate their individual compliance obligations
under the Renewable Fuel Program. By statute, EPA is
required to promulgate the percentage standards for a given
year no later than November 30 of the preceding calendar year.
See 42 U.S.C. § 7545(o)(3)(B)(i).
Once EPA issues a rule informing obligated parties
(refiners and importers) of their renewable fuel obligations, it
is up to the obligated parties to comply with the statute. But
obligated parties need not themselves introduce renewable fuel
into transportation fuel to comply with their renewable fuel
obligations. Rather, to facilitate flexible and cost-effective
compliance with the Renewable Fuel Program’s requirements,
Congress directed EPA to establish a “credit program” through
which obligated parties can acquire and trade credits and
thereby comply with the statute. Id. § 7545(o)(5)
(capitalization altered); see also Monroe Energy, 750 F.3d at
912.
The credits in the trading program established by EPA are
known as “RINs” – short for “Renewable Identification
Numbers.” Monroe Energy, 750 F.3d at 913; see also 40
10
C.F.R. § 80.1401. To simplify for present purposes, each batch
of renewable fuel that is produced or imported for use in the
United States is assigned a unique set of RINs “that correspond
to the volume of ethanol-equivalent fuel gallons in that batch.”
Monroe Energy, 750 F.3d at 913. As relevant here, RINs
ordinarily remain attached to the fuel until the fuel is purchased
by an obligated party – that is, by a refiner or importer –
or blended into a transportation fuel. See 40 C.F.R.
§ 80.1429(b)(1)-(2). At that point, the RINs become
“separated” from the associated volumes of renewable fuel. Id.
§ 80.1429(b). Once separated, RINs may be retained by the
party who possesses them or sold or traded on the open RIN
market.
Obligated parties (refiners and importers) comply with
their renewable fuel obligations by accumulating or purchasing
the requisite number of RINs and then “retiring” the RINs in
an annual compliance demonstration with EPA. Monroe
Energy, 750 F.3d at 913 (citing 40 C.F.R. § 80.1427(a)). If an
obligated party has more RINs than it needs to meet its
renewable fuel obligation, the obligated party may sell or trade
the extra RINs or instead choose to “bank” the RINs for use in
the next compliance year. Id.; see also 42 U.S.C.
§ 7545(o)(5)(B); 40 C.F.R. §§ 80.1425-29. RINs “banked” by
an obligated party for use in the subsequent compliance year
are known in the industry as “carryover” RINs. If, by contrast,
an obligated party does not have enough RINs to meet its
renewable fuel obligation, it may: (i) attempt to purchase any
RINs it needs on the open RIN market; (ii) use carryover RINs
it has from the prior year to meet some portion of its obligation;
or (iii) carry a renewable fuel deficit forward into the next
compliance year, provided that some conditions are met. See
42 U.S.C. § 7545(o)(5)(D); 40 C.F.R. § 80.1427(b); see also
Monroe Energy, 750 F.3d at 913.
11
B
In December 2015, EPA promulgated the Final Rule that
is under review in this case. See Renewable Fuel Standard
Program: Standards for 2014, 2015, and 2016 and Biomass-
Based Diesel Volume for 2017, 80 Fed. Reg. 77,420 (Dec. 14,
2015) (hereinafter Final Rule). The Final Rule, which followed
a proposed rule issued by EPA in June 2015, established
volume requirements and the resulting percentage standards for
the years 2014, 2015, and 2016 for all four categories of
renewable fuel. See id. at 77,422 tbl.I-1, 77,512 tbl.V.B.3-2.
The Final Rule also set the biomass-based diesel volume
requirement for the year 2017. See id. at 77,422 tbl.I-1.
EPA began its analysis in the Final Rule by explaining the
competing concerns implicated by the Renewable Fuel
Program’s requirements. EPA noted that the “fundamental
objective” of the Renewable Fuel Program “is clear: To
increase the use of renewable fuels in the U.S. transportation
system every year through at least 2022.” Id. at 77,421.
According to EPA, Congress’s decision in the statute “to
mandate increasing and substantial amounts of renewable fuel”
use “clearly signals” that Congress intended “to create
incentives to increase renewable fuel supplies and overcome
constraints in the market.” Id. at 77,423.
EPA noted that the Renewable Fuel Program’s
requirements were “readily achieved” in the few years after
Congress created the program in 2005 and amended it in 2007.
Id. That was due in large part to the fact that the industry had
the capacity to produce – and the market had the capacity to
consume – increasing quantities of ethanol. Id. But by 2014,
ready compliance with the statutory volume requirements was
no longer possible. That is because the industry hit the “E10
blendwall”: an “infrastructure and market-related constraint on
12
ethanol demand” that “arises because most U.S. vehicle
engines were not designed to handle gasoline consisting of
more than 10 percent ethanol.” Monroe Energy, 750 F.3d at
913-14. Put differently, a few years into the amended
Renewable Fuel Program, the supply of ethanol was much
greater than the demand in the market.
Citing the E10 blendwall problem, EPA explained that
obligated parties must increasingly rely on “sustained growth
in the development and use of advanced, non-ethanol
renewable fuels” (referred to as advanced biofuels) to meet
their renewable fuel obligations. Final Rule, 80 Fed. Reg. at
77,423. However, EPA further noted that there were
significant “real-world constraints” on the market’s ability to
consume increasing volumes of advanced biofuel. Id. at
77,422. Those constraints, according to EPA, meant that “the
amount of renewable fuel that can be produced and imported is
larger than the volume that can be consumed.” Id. at 77,423.
EPA cited those demand-side constraints as evidence that
“[t]rying to force growth” at the rates set by the statutory
volume requirements would “prove infeasible.” Id.
In the Final Rule, EPA therefore adopted an approach that
it believed properly balanced its statutory duty to “drive
growth” in the supply of renewable fuels with the “real-world
constraints” on the market’s ability to produce and consume
renewable fuels. Id. at 77,422-23.
To start, EPA acknowledged that its Final Rule was late
given EPA’s statutory deadlines. As relevant here, EPA did
not meet the statutory deadlines for issuing the 2014 or the
2015 percentage standards or for issuing any of the biomass-
based diesel volume requirements. Id. at 77,430. EPA argued
that, despite its delay, it could permissibly promulgate all of the
standards and requirements in the Final Rule. See id.
13
As support for that conclusion, EPA cited this Court’s
decisions in National Petrochemical & Refiners Association v.
EPA, 630 F.3d 145 (D.C. Cir. 2010), and Monroe Energy, LLC
v. EPA, 750 F.3d 909 (D.C. Cir. 2014). EPA asserted that,
under those decisions, it had statutory authority to issue the late
requirements. EPA also asserted that it had exercised its
statutory authority reasonably by mitigating any unfair or
retroactive effects of the late rule. EPA claimed that it had done
so in part by: (i) setting the 2014 and 2015 volume
requirements based on the actual volumes of renewable fuel
that were introduced and available for compliance with the
renewable fuel volume obligations during those years and
(ii) extending the 2014 and 2015 compliance deadlines. See
Final Rule, 80 Fed. Reg. at 77,430-31, 77,491-92.
Because EPA concluded that its lateness did not deprive it
of authority to act, EPA proceeded with the task of setting the
annual volume requirements. With respect to cellulosic
biofuel, EPA projected that the volume of cellulosic biofuel
produced in the year 2016 would fall short of the statutory
volume requirement. See id. at 77,508 tbl.IV.F-4. As required
by the statute, EPA reduced the cellulosic biofuel volume
requirement to match its projection. See id. at 77,499 tbl.IV-1.
EPA also promulgated biomass-based diesel volume
requirements for 2014 through 2017. Id. at 77,422 tbl.I-1; see
also id. at 77,496 tbl.III-D.5-1.
EPA also set volume requirements for advanced biofuel
and total renewable fuel. In approaching that task, EPA
explained its view that the volume requirements should reflect
the amount of total renewable fuel and advanced biofuel that
could be incorporated into the market given the “real-world
constraints” on both the supply of and demand for renewable
fuel. Id. at 77,422; see also id. at 77,426, 77,431-39. For
14
purposes of determining the available supply of renewable fuel,
EPA considered only the actual volumes of renewable fuel both
introduced and available for compliance with the statutory
requirements in a given year. It did not consider the availability
of carryover RINs from prior years. See id. at 77,482-87.
Applying that approach, EPA concluded that “the volumes
for advanced biofuel and total renewable fuel specified in the
statute cannot be achieved in 2014, 2015, or 2016.” Id. at
77,431. EPA therefore relied upon its (i) cellulosic waiver
authority and (ii) general waiver authority to reduce the volume
requirements for total renewable fuel and advanced biofuel.
First, EPA used its cellulosic waiver authority to
significantly reduce the statutory volume requirements for
advanced biofuel and total renewable fuel. EPA noted that the
cellulosic waiver provision grants the agency “broad
discretion” to decide “when and under what circumstances to
reduce the advanced and total renewable fuel” volume
requirements when it reduces the cellulosic biofuel volume
requirement. Id. at 77,434. EPA determined that, due to
various constraints on the ability of the market to produce and
consume non-cellulosic advanced biofuels, non-cellulosic
advanced biofuels could not entirely make up for the shortfall
created by EPA’s reduction of the cellulosic biofuel volume
requirement. See id. at 77,426, 77,434. EPA therefore relied
on its cellulosic waiver authority to lower the advanced biofuel
and total renewable fuel volume requirements for the years
2014, 2015, and 2016. Id. at 77,434, 77,439.
Second, EPA made additional reductions to the total
renewable fuel volume requirements using the “inadequate
domestic supply” prong of its general waiver authority. See id.
at 77,434-39. EPA noted that it had “never before” interpreted
the “inadequate domestic supply” provision for purposes of
15
deciding whether to reduce a total renewable fuel volume
requirement. Id. at 77,435. Proceeding with its first-ever
interpretation, EPA concluded that the phrase “inadequate
domestic supply” is ambiguous because it “does not specify
what the general term ‘supply’ refers to.” Id.
Exercising its authority to resolve that purported
ambiguity, EPA concluded that the phrase “inadequate
domestic supply” is best read to refer to “the adequacy of
supply of renewable fuel” available to “the ultimate
consumer[s]” of renewable fuel blended into transportation
fuel. Id. at 77,436. EPA also concluded that its authority to
determine the adequacy of the renewable fuel “supply” allowed
the agency to look not only to supply-side factors in the market
for renewable fuel – such as constraints on the production or
import of renewable fuel – but also at factors affecting demand
for renewable fuel by consumers – such as vehicle engine
warranties and the effectiveness of those businesses marketing
renewable fuel products. See id. at 77,435, 77,452 tbl.II.E.1-1.
Analyzing those factors, EPA concluded that the available
supply of total renewable fuel still fell short of the statutory
volume requirements, even after those requirements were
reduced through use of the cellulosic waiver authority. Id. at
77,439. EPA therefore relied on the “inadequate domestic
supply” waiver provision to further reduce the 2014, 2015, and
2016 total renewable fuel volume requirements. Id.
Below is a table summarizing the total renewable fuel
volume requirements (in billions of gallons) issued by EPA in
the Final Rule. For each year, the table lists the statutory
volume requirements; the reduction to those statutory
requirements attributable to EPA’s use of the cellulosic waiver
provision and the general waiver provision; the final volume
requirements set by EPA; and the total reduction to the
16
statutory volume requirements made by EPA through use of its
waiver authorities.
Table 1.1 – Total Renewable Fuel Volume Requirements
(in billions of gallons)
Total Renewable Fuel Volume Requirements
Total
Cellulosic General
EPA Reduction
Year Statute Waiver Waiver
Rule from
Reduction Reduction
Waivers
2014 18.15 1.08 .79 16.28 1.87
2015 20.5 2.62 .95 16.93 3.57
2016 22.25 3.64 .5 18.11 4.14
Finally, although EPA in the Final Rule focused most of
its discussion on the volume requirements and percentage
standards, EPA did note that it had received comments
regarding the current “point of obligation” – that is, EPA’s
decision to place the compliance burden on refiners and
importers, but not blenders. EPA stated its view that those
comments were “beyond the scope” of the rulemaking because
EPA “did not propose any changes to the definition of an
obligated party” nor “seek comment on this issue.” Id. at
77,431; EPA Response to Comments on Final Rule, at 883
(Nov. 2015), J.A. 1027. EPA therefore declined to address
comments related to the point of obligation. See Final Rule, 80
Fed. Reg. at 77,431.
17
C
Following EPA’s issuance of the Final Rule in December
2015, a number of parties filed petitions for review in this
Court. Two petitions – one filed by National Biodiesel Board
and the other filed by a group of petitioners including
Americans for Clean Energy – challenge EPA’s Final Rule for
setting the renewable fuel volume requirements at too low a
level. From the other direction, a number of petitions – filed
by a group of obligated parties and industry associations that
we will call the “Obligated Party Petitioners” – challenge
EPA’s Final Rule for setting the renewable fuel volume
requirements at too high a level and for refusing to address the
proper point of obligation.
We now consider those petitions and the issues they
present. The opinion proceeds as follows.
In Part II, we address Americans for Clean Energy’s
challenge to EPA’s interpretation of the “inadequate domestic
supply” waiver provision. We agree with Americans for Clean
Energy that the term “inadequate domestic supply” refers to the
supply of renewable fuel available to refiners, blenders, and
importers to meet the statutory volume requirements. We hold
that EPA exceeded its authority under the “inadequate
domestic supply” provision when it interpreted the term
“supply” to allow it to consider demand-side constraints in the
market for renewable fuel. We therefore vacate EPA’s
decision to reduce the total renewable fuel volume
requirements for 2016 through use of the “inadequate domestic
supply” waiver authority and remand the rule to the agency for
further consideration in light of our decision.
We also consider Americans for Clean Energy’s argument
that EPA was required to consider “carryover RINs” for
18
purposes of determining whether there is an “inadequate
domestic supply” of renewable fuel. We reject that challenge,
as we conclude that the statute does not require EPA to consider
carryover RINs for purposes of the “inadequate domestic
supply” provision.
In Part III, we consider the issues arising from EPA’s delay
in promulgating the Final Rule. First, EPA used actual
renewable fuel volumes to set the 2014 and 2015 volume
requirements in order to minimize the hardship to obligated
parties caused by the late issuance of the Final Rule. In doing
so, EPA acted reasonably under the circumstances. We
therefore reject National Biodiesel Board’s and Americans for
Clean Energy’s arguments to the contrary. Second, EPA’s late
issuance of the biomass-based diesel volume requirements was
permissible. Contrary to the arguments of the Obligated Party
Petitioners, we conclude that EPA had statutory authority to
issue the late biomass-based diesel volume requirements and
exercised that authority reasonably.
In Part IV, we consider and reject the Obligated Party
Petitioners’ arbitrary and capricious challenges to the 2016
cellulosic biofuel projections. We conclude that EPA’s
cellulosic biofuel projection methodology was permissible
under our precedents and otherwise reasonable and reasonably
explained.
In Part V, we consider and reject National Biodiesel
Board’s contention that EPA violated its statutory authority
when interpreting and applying the cellulosic waiver provision.
Based on this Court’s analysis in Monroe Energy, we conclude
that the text of the cellulosic waiver provision affords EPA
“broad discretion” to consider a variety of factors – including
demand-side constraints in the market for advanced biofuel –
when determining “whether and in what circumstances to
19
reduce” volume requirements through use of the cellulosic
waiver authority. 750 F.3d at 915. We also deny National
Biodiesel Board’s related arbitrary and capricious challenges
to EPA’s projection of the volume of advanced biofuel
“reasonably attainable” in the market in the year 2016. Final
Rule, 80 Fed. Reg. at 77,427.
In Part VI, we conclude that we need not resolve whether
EPA’s failure to address the proper point of obligation in the
Final Rule necessitates a remand of the rule to the agency.
II
We first address whether EPA permissibly interpreted the
“inadequate domestic supply” prong of its general waiver
authority when lowering total renewable fuel volume
requirements for the years 2014, 2015, and 2016. Americans
for Clean Energy argues that EPA’s interpretation of the phrase
“inadequate domestic supply,” under which EPA considered
demand-side factors affecting the amount of renewable fuel
available to consumers, is inconsistent with the statute. We
agree with Americans for Clean Energy.
Americans for Clean Energy also contends that EPA is
required to consider carryover RINs for purposes of
determining whether there is an “inadequate domestic supply”
of renewable fuel during a given year. On that point, we side
with EPA and conclude that the agency permissibly declined to
consider carryover RINs for purposes of determining the
available supply of total renewable fuel for the years 2014,
2015, and 2016.
20
A
1
The Renewable Fuel Program requires increasing volumes
of renewable fuel to be introduced into the Nation’s
transportation fuel market. That market consists of a number
of actors that play a part in delivering transportation fuel to
consumers for use in their vehicles. There are refiners and
importers, who manufacture and import conventional fossil-
based gasoline and diesel fuels. In addition, there are biofuel
producers, who manufacture the various categories of
renewable fuel mandated by the Renewable Fuel Program.
There are fuel blenders, who purchase fossil-based fuels and
renewable fuels and mix the two together to create blended
transportation fuels. There are retail fueling stations, who
purchase blended transportation fuels and sell those fuels to
consumers. And there are the consumers, who purchase
transportation fuels for use in their vehicles. Although some
market participants are vertically integrated – a refining
company may also operate blending facilities or fueling
stations, for example – many are not.
In enacting the Renewable Fuel Program, Congress chose
not to place any compliance burdens on the fueling stations or
consumers of transportation fuel. Instead, the statute allows
EPA to designate three categories of upstream market
participants – “refineries,” “blenders,” and “importers” – as
“obligated parties” responsible for ensuring that the renewable
fuel volume requirements are met. 42 U.S.C.
§ 7545(o)(3)(B)(ii)(I). To date, EPA has applied the renewable
fuel obligations only to refiners and importers of fuel – not to
blenders. See 40 C.F.R. § 80.1406(a)(1). By requiring
upstream market participants such as refiners and importers to
introduce increasing volumes of renewable fuel into the
21
transportation fuel supply, Congress intended the Renewable
Fuel Program to be a “market forcing policy” that would create
“‘demand pressure’ to increase consumption” of renewable
fuel. Final Rule, 80 Fed. Reg. at 77,423; Monroe Energy, LLC
v. EPA, 750 F.3d 909, 917 (D.C. Cir. 2014) (quoting
Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel
Standards, 78 Fed. Reg. 49,794, 49,821 (Aug. 15, 2013)).
Refiners and importers demonstrate their compliance with
the statute by accumulating the requisite number of renewable
fuel credits, known as RINs. Each set of RINs corresponds to
a batch of renewable fuel produced or imported for use in the
United States. As relevant here, RINs generally remain
attached to a volume of fuel until the fuel is: (i) purchased by
an obligated party – that is, by a refiner or importer – or
(ii) blended into a transportation fuel by a blender. 40 C.F.R.
§ 80.1429(b)(1)-(2). When either of those two things occurs,
RINs become “separated” from the associated volume of
renewable fuel. Id. § 80.1429(b). Those separated RINs, in
turn, are accumulated by refiners and importers in order to
demonstrate compliance with the Renewable Fuel Program’s
requirements. See id. § 80.1427(a)(1).
Therefore, individual refiners and importers have options
when it comes to demonstrating compliance with their statutory
obligations. Some may choose to comply with the statute by
purchasing or blending renewable fuel themselves. Other
parties may comply with the statute by purchasing the
separated RINs generated, among other ways, when blenders
mix renewable and fossil-based fuels to create blended
transportation fuels. No matter how individual obligated
parties choose to comply with the statute, however, the key
point for present purposes is this: Refiners and importers are
able to meet the Renewable Fuel Program’s industry-wide
22
statutory volume requirements only if an adequate volume of
renewable fuel is available to refiners, importers, and blenders.
2
Although the Renewable Fuel Program statute establishes
the annual volume requirements for the different categories of
renewable fuel, Congress also granted EPA “waiver” power to
reduce the statutory volume requirements in certain
circumstances. Here, we consider the statute’s “inadequate
domestic supply” waiver provision. That provision is located
within a section establishing EPA’s general waiver authority.
The provision gives EPA discretion to “waive” the statutory
requirements applicable to obligated parties “in whole or in
part” by “reducing the national quantity of renewable fuel
required under paragraph (2) . . . based on a determination by
the Administrator, after public notice and opportunity for
comment, that there is an inadequate domestic supply.” 42
U.S.C. § 7545(o)(7)(A) (emphasis added).1
1
The general waiver provision reads in full:
The Administrator, in consultation with the Secretary of
Agriculture and the Secretary of Energy, may waive the
requirements of paragraph (2) in whole or in part on petition by
one or more States, by any person subject to the requirements of
this subsection, or by the Administrator on his own motion by
reducing the national quantity of renewable fuel required under
paragraph (2) –
(i) based on a determination by the Administrator, after public
notice and opportunity for comment, that implementation of
the requirement would severely harm the economy or
environment of a State, a region, or the United States; or
23
Before the 2015 Final Rule, EPA had never relied upon the
“inadequate domestic supply” waiver provision to reduce a
statutory volume requirement. See Final Rule, 80 Fed. Reg. at
77,435. In the 2015 Final Rule, EPA relied on that provision
to reduce the total renewable fuel volume requirements for the
years 2014, 2015, and 2016. See id. at 77,439. In so doing,
EPA issued its first-ever interpretation of the term “inadequate
domestic supply” for the purposes of establishing a renewable
fuel volume requirement. Id. at 77,435.
EPA began by noting its view that the statutory phrase
“inadequate domestic supply” is ambiguous. Id. That is so,
according to EPA, because the text “does not specify” what
“product” or “person” the “general term ‘supply’ refers to.” Id.
Having concluded that the phrase “inadequate domestic
supply” is ambiguous, EPA stated that it had interpretive
authority to adopt a reading of the waiver provision that would
best align with “the overall policy goals” of the Renewable
Fuel Program. Id. at 77,436. That “best” reading has two
important elements that we consider here. Id. at 77,435.
First, EPA concluded that the best reading of the
“inadequate domestic supply” provision is that it refers to the
supply of renewable fuel available to consumers for use in their
vehicles – not to the supply of renewable fuel available to
refiners, blenders, and importers for use in meeting the
statutory volume requirements. See id. at 77,435-36. Under
that interpretation, EPA considered all factors that would affect
the amount of renewable fuel available for sale to consumers
(ii) based on a determination by the Administrator, after public
notice and opportunity for comment, that there is an
inadequate domestic supply.
42 U.S.C. § 7545(o)(7)(A).
24
including, among other things, the capacity and incentives of
transportation fuel distributors and retail gas stations to
distribute and sell blended transportation fuel. See id. at 77,452
tbl.II.E.1-1.
Second, EPA concluded that the “inadequate domestic
supply” waiver provision grants it authority not only to
consider supply-side constraints affecting the availability of
renewable fuel – such as renewable fuel production or import
capacity – but also to consider demand-side factors affecting
consumers’ desire or ability to consume renewable fuels. Id. at
77,435-36. Those demand-side factors included, among other
things, the “existence of and expansion of” vehicles and
engines “capable of using” renewable fuel; the number of
“retail outlets that offer renewable fuels blends”; “the
attractiveness” of renewable fuel blends “to consumers”; and
the “marketing effectiveness” of those promoting renewable
fuel products. Id. at 77,452 tbl.II.E.1-1, 77,460 (capitalization
altered).
An example helps crystallize the effects of EPA’s
interpretation. Suppose four things for a given year: (i) the
statutory volume requirement is 10 million gallons; (ii) a
supply of 10 million gallons of renewable fuel is available for
use by refiners, blenders, and importers to meet the statutory
volume requirement; (iii) due to distribution constraints, fuel
retailers can make nine million gallons of renewable fuel
available to consumers; and (iv) consumers can use – and
therefore demand – eight million gallons of renewable fuel.
Under EPA’s interpretation of the “inadequate domestic
supply” provision, EPA would be authorized: (i) to reduce the
statutory volume requirement by one million gallons based on
the distribution constraints that limit the amount of fuel offered
by fuel retailers to consumers and (ii) to further reduce the
volume requirement by an additional one million gallons to
25
reflect consumer demand for renewable fuel. Those reductions
could be made, according to EPA, notwithstanding the fact that
the renewable fuel supply of 10 million gallons would be
adequate to allow refiners, blenders, and importers to introduce
enough renewable fuel into the Nation’s fuel supply to meet the
statutory volume requirement.
3
Americans for Clean Energy argues that EPA’s
interpretation of the phrase “inadequate domestic supply” is
inconsistent with the text, structure, and purpose of the
Renewable Fuel Program. According to Americans for Clean
Energy, the scope of EPA’s “inadequate domestic supply”
waiver authority is clear: It authorizes EPA to consider supply-
side factors affecting the volume of renewable fuel that is
available to refiners, blenders, and importers to meet the
statutory volume requirements. It does not, according to
Americans for Clean Energy, allow EPA to consider factors,
such as distribution capacity, affecting the supply of renewable
fuel available to ultimate consumers for use in their vehicles.
Nor does it allow EPA to consider demand-side constraints on
the consumption of renewable fuel when determining the
available renewable fuel supply.
We agree with Americans for Clean Energy that EPA’s
interpretation of the “inadequate domestic supply” waiver
provision is inconsistent with the statute. See Chevron U.S.A.
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837,
843 & n.9 (1984).
To begin, EPA was wrong when it concluded that
“inadequate domestic supply” may be read to refer to the
supply of renewable fuel available to consumers for use in their
vehicles rather than to the supply of renewable fuel available
26
to refiners, blenders, and importers to meet the statutory
volume requirements. EPA’s interpretation rests on the
premise that the “inadequate domestic supply” waiver
provision is ambiguous with respect to the “product” and
“person” at issue. Final Rule, 80 Fed. Reg. at 77,435. That is
not the case.
The “inadequate domestic supply” provision authorizes
EPA to “reduc[e] the national quantity of renewable fuel
required” by the statute “based on a determination by” EPA
“that there is an inadequate domestic supply.” 42 U.S.C.
§ 7545(o)(7)(A) (emphasis added). Reading the “inadequate
domestic supply” provision together with the section it
modifies, the only reasonable interpretation is that the
“product” at issue is the only product referenced in the
provision: “renewable fuel.”
Nor is the “inadequate domestic supply” waiver provision
ambiguous with respect to the “person” at issue. Recall that
the statute allows EPA to apply the annual renewable fuel
obligations to three kinds of entities – refiners, blenders, and
importers. See id. § 7545(o)(3)(B)(ii)(I). As discussed, EPA
has chosen to obligate only refiners and importers. But all three
entities – refiners, blenders, and importers – play a part in
ensuring that statutory volume requirements are met: refiners
and importers by purchasing or importing sufficient volumes
of renewable fuel, and blenders by blending sufficient volumes
of renewable fuel with fossil-based fuel to produce
transportation fuels. See 40 C.F.R. § 80.1429(b)(1)-(2). Thus,
it is the refiners, blenders, and importers – not consumers –
who must “use” the statutorily required volumes of renewable
fuel by incorporating that fuel into the Nation’s supply of
transportation fuel. It follows that it is the refiners, blenders,
and importers – not consumers – who must have access to an
adequate “supply” of renewable fuel in order to meet the
27
Renewable Fuel Program’s statutory volume requirements.
When the supply of renewable fuel is “inadequate” to allow
refiners, blenders, and importers to introduce enough
renewable fuel to meet the statutory volume requirements, the
“inadequate domestic supply” waiver provision allows EPA to
reduce those requirements to reflect that fact. That reduction,
in turn, benefits obligated parties – not consumers.
In other words, the “inadequate domestic supply” waiver
provision is just that: a waiver provision. It authorizes EPA to
ease the Renewable Fuel Program’s requirements when
complying with those requirements would be infeasible. With
that understanding of how the “inadequate domestic supply”
provision operates in the statutory scheme, EPA’s reading of
the provision makes little sense: Whether consumers have an
adequate supply of renewable fuel to fill their cars is not
relevant to whether refiners, blenders, and importers have an
adequate supply of renewable fuel to meet the statutory volume
requirements. For purposes of measuring available “supply,”
the “persons” at issue are refiners, blenders, and importers.
A comparison of the “inadequate domestic supply”
provision with other statutory provisions related to renewable
fuel supports that conclusion. As discussed, under EPA’s
interpretation of the “inadequate domestic supply” provision,
the agency may consider factors relating to the ability of
distributors and fuel retailers to distribute and sell renewable
fuel to downstream consumers. But in a number of nearby
provisions, Congress explicitly authorized EPA to consider
constraints on both the supply and distribution of a material.
See, e.g., 42 U.S.C. § 7545(o)(8)(B) (directing Secretary of
Energy to evaluate the “supply and distribution system
capabilities” to help assist EPA in making a waiver
determination for the first year of the Renewable Fuel
Program) (emphasis added); id. § 7545(m)(3)(C) (authorizing
28
EPA to delay oxygenated fuel requirements if “there is, or is
likely to be, for any area, an inadequate domestic supply of, or
distribution capacity for, oxygenated gasoline meeting the
requirements” and requiring EPA to “consider distribution
capacity separately from the adequacy of domestic supply”)
(emphasis added). Those examples reveal that when Congress
intended to allow EPA to consider downstream distribution
capacity in addition to supply, it “left little doubt in the matter.”
Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718,
1723, slip op. at 6 (2017).
The drafting history of the “inadequate domestic supply”
provision, to the extent it is relevant, counts as yet another
strike against EPA’s interpretation. The version of the Energy
Policy Act passed by the House would have allowed EPA to
reduce the statutory volume requirements “based on a
determination by the Administrator, after public notice and
opportunity for comment, that there is an inadequate domestic
supply or distribution capacity to meet the requirement.” H.R.
6, 109th Cong. sec. 1501(a)(2), § 7545(o)(8)(A)(ii) (as
calendared in Senate, June 9, 2005) (emphasis added). The
latter portion of the waiver provision – which would have
allowed EPA to consider “distribution capacity” – was dropped
in the version of the bill passed by the Senate. See H.R. 6,
109th Cong. sec. 211(a)(2), § 7545(o)(7)(A)(ii) (as passed by
Senate, June 28, 2005). As relevant here, the House agreed to
the Senate’s amendment to the bill. See H.R. Rep. No. 109-
190, at 1, 486 (2005) (Conf. Rep.). The “distribution capacity”
language does not appear in the final version of the Act. See
Energy Policy Act of 2005, Pub. L. No. 109-58, sec.
1501(a)(2), § 7545(o)(7)(A)(ii), 119 Stat. 594, 1072.
Congress’s decision to drop the “distribution capacity”
language counsels against EPA’s reading in this case, which in
effect would add that kind of language back into the waiver
29
provision by allowing EPA to consider factors affecting the
distribution of renewable fuel to retailers and consumers.
Therefore, it is evident that the “inadequate domestic
supply” waiver provision refers to the supply of renewable fuel
available to refiners, blenders, and importers to meet the
statutory volume requirements. Under that reading, EPA may
consider factors affecting the availability of renewable fuel to
refiners, blenders, and importers. Those factors may include,
for example, the availability of feedstocks used to make
renewable fuel, the production capacity of renewable fuel
producers, the amount of renewable fuel available for import
from foreign producers, or the infrastructure capacity needed
to get renewable fuel from producers to refiners, importers, and
blenders. See Final Rule, 80 Fed. Reg. at 77,451-52 tbl.II.E.1-
1. EPA may not consider, however, those factors affecting the
availability of renewable fuel to market actors downstream
from refiners, importers, and blenders, such as fuel retailers or
consumers. Those prohibited factors include, for example,
constraints on the infrastructure needed to distribute fuel from
blenders to gas stations or the number of retail outlets that offer
renewable fuel blends.
The problems with EPA’s interpretation do not end there.
In the Final Rule, EPA concluded that the “inadequate
domestic supply” waiver provision gives it authority not only
to evaluate those factors affecting the supply of renewable
fuel – such as feedstock availability, renewable fuel production
capacity, and renewable fuel import capacity – but also to
consider factors affecting the demand for renewable fuel – such
as pricing of renewable fuel, prevalence of vehicle engines that
can use renewable fuel, and marketing efforts of those
promoting renewable fuel products. See id. at 77,435-36,
77,451-52 tbl.II.E.1-1. That interpretation, which in effect
amends “inadequate domestic supply” to read “inadequate
30
domestic supply and demand,” also exceeds EPA’s statutory
authority.
The text of the “inadequate domestic supply” waiver
provision all but resolves this issue. As even EPA concedes,
the “common understanding” of the term “supply” is “an
amount of a resource or product that is available for use by the
person or place at issue.” Id. at 77,435; see also id. at 77,435
n.32 (collecting dictionary definitions); THE AMERICAN
HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE (5th ed.
2017 online) (an “amount available or sufficient for a given
use”). When it comes to the “inadequate domestic supply”
provision, we have already established: (i) that the “resource or
product” is renewable fuel; (ii) that the “use” is compliance
with the statute; and (iii) that the “persons” “at issue” are
refiners, blenders, and importers. Putting that together,
“supply” as used in the “inadequate domestic supply” provision
refers to the “amount” of renewable fuel that is “available for
use” by refiners, blenders, and importers in meeting the
statutory volume requirements.
Importantly, whether a thing is “available” to someone has
nothing to do with whether he or she decides to use it. (The
fact that a person is on a diet does not mean that there is an
inadequate supply of food in the refrigerator.) So too here:
Whether there is an adequate amount of renewable fuel
available to allow refiners, blenders, and importers to meet the
statutory volume requirements has little to do with how much
renewable fuel that refiners, blenders, and importers – much
less consumers at the pump – ultimately decide to use.
EPA counters that, as a practical matter, it is unrealistic to
delink “supply” and “demand.” EPA argues that the “supply”
of a product is a function of the “demand” for that product, and
that it may therefore consider demand-side factors when
31
deriving the available supply of renewable fuel. EPA’s
argument falls apart in view of the operation and structure of
this statute’s renewable fuel requirements.
The central problem with EPA’s “supply equals demand”
argument (in addition to the text of the statute, of course) is that
it runs contrary to how the Renewable Fuel Program is
supposed to work. By setting annual renewable fuel volume
requirements that increase progressively each year, Congress
adopted a “market forcing policy” intended to “overcome
constraints in the market” by creating “demand pressure to
increase consumption” of renewable fuels. Final Rule, 80 Fed.
Reg. at 77,423; Monroe Energy, 750 F.3d at 917 (internal
quotation marks omitted). Therefore, as EPA recognized in a
previous rulemaking, demand for renewable fuel “will be a
function of the” renewable fuel standards “set” by EPA.
Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel
Standards, 75 Fed. Reg. 76,790, 76,803 (Dec. 9, 2010). In
other words, the Renewable Fuel Program’s increasing
requirements are designed to force the market to create ways to
produce and use greater and greater volumes of renewable fuel
each year. EPA’s interpretation of the “inadequate domestic
supply” provision flouts that statutory design: Instead of the
statute’s volume requirements forcing demand up, the lack of
demand allows EPA to bring the volume requirements down.
“No argument” that EPA has “offered here supports that goal-
defying (much less that text-defying) statutory construction.”
Advocate Health Care Network v. Stapleton, 137 S. Ct. 1652,
1662, slip op. at 14 (2017).
In short, applying the “traditional tools” of statutory
interpretation, we conclude that the “inadequate domestic
supply” waiver provision refers to the supply of renewable fuel
available to refiners, blenders, and importers to meet the
statutory volume requirements. Chevron, 467 U.S. at 843 n.9.
32
We also conclude that, for purposes of examining whether the
supply of renewable fuel is adequate, the “inadequate domestic
supply” provision authorizes EPA to consider only supply-side
factors – such as production and import capacity – affecting the
available supply of renewable fuel. The “inadequate domestic
supply” provision does not authorize EPA to consider demand-
side factors affecting the demand for renewable fuel.
4
EPA presses three primary arguments in an attempt to
counter the conclusion dictated by the text and structure of the
Renewable Fuel Program statute. None is convincing.
First, EPA argues that the statutory definition of
“renewable fuel” supports its position. The statute defines
“renewable fuel” as “fuel that is produced from renewable
biomass and that is used to replace or reduce the quantity of
fossil fuel present in a transportation fuel.” 42 U.S.C.
§ 7545(o)(1)(J) (emphasis added). Latching on to the words
“that is used,” EPA argues that biofuel qualifies as “renewable
fuel” only if it is “actually used to replace fossil-based
transportation fuels.” Final Rule, 80 Fed. Reg. at 77,435. From
that premise, EPA argues that its interpretation of “inadequate
domestic supply” is permissible because it focuses on the point
at which renewable fuel is “actually used” to replace fossil-
based transportation fuels – namely, when “ultimate
consumers” fuel their cars at the gas pump. Id.; see also id. at
77,435 n.33.
We reject EPA’s attempt to bootstrap the definition of
“renewable fuel” into a boundless general waiver authority.
Contrary to EPA’s contention, the phrase “that is used” in the
definition of “renewable fuel” does not mean that biofuel
transforms into renewable fuel only when it is actually pumped
33
into gas tanks. Rather, as Americans for Clean Energy
explains, the “term ‘used’ merely defines the qualifying uses to
which the biofuel may be put.” Americans for Clean Energy
Br. 15. The definition clarifies, for instance, that “renewable
fuel” is biofuel used in “transportation fuel,” whereas
“additional renewable fuel” is biofuel used in “home heating
oil or jet fuel.” Compare 42 U.S.C. § 7545(o)(1)(J), with id.
§ 7545(o)(1)(A). Notably, it is EPA’s reading of the
“renewable fuel” definition that glosses over the statutory text:
For the most part, biofuel “is used to replace or reduce the
quantity of fossil fuel present in a transportation fuel” when
blenders mix biofuel with fossil-based fuel to create a blended
transportation fuel – not, as EPA claims, when consumers
pump transportation fuels into their cars. Id. § 7545(o)(1)(J)
(emphasis added).
Second, EPA contends that interpreting “supply” to refer
to the amount of renewable fuel available to refiners, blenders,
and importers in effect reads “supply” to mean “production.”
That interpretation is not correct, according to EPA, because
“other fuel related provisions of the Clean Air Act” distinguish
between “capacity to produce” and “capacity to supply” fuel.
Final Rule, 80 Fed. Reg. at 77,436 (comparing 42 U.S.C.
§ 7545(k)(6)(A)(ii) with id. § 7545(k)(6)(B)(iii)(I)). EPA is
correct that, in practice, the supply of renewable fuel available
to refiners, blenders, and importers will be dictated to a large
extent by the production capacity of the producers who make
renewable fuel. But that does not mean that “supply” includes
only production capacity. On the contrary, our interpretation
of supply allows EPA to consider the amount of renewable fuel
available through import, for example. In addition, as
Americans for Clean Energy explains, the correct interpretation
of “supply” leaves EPA room to consider “non-production
factors” – such as a natural disaster – that would affect “a
biofuel-fuel producer’s ability to deliver its product” to
34
refiners, blenders, and importers. Americans for Clean Energy
Reply 9; see also Tr. of Oral Arg. at 5-6. The correct reading
of “supply,” therefore, does not conflate “supply” with
“production.”
Third, EPA contends that its interpretation better aligns
with the “overall policy goals” of the Renewable Fuel Program.
Final Rule, 80 Fed. Reg. at 77,436. EPA argues that reading
“inadequate domestic supply” to refer only to the available
supply of biofuel – without consideration of whether that fuel
can be consumed – could “impose large compliance costs on
obligated parties with no corresponding increase in the use of
renewable fuels, contrary to the purposes of the Act.” EPA Br.
52. According to EPA, its interpretation of “inadequate
domestic supply” is therefore necessary to avoid causing
harmful effects in the renewable fuel market such as “a
significant increase in renewable fuel and RIN prices,” “RIN
deficits,” or “non-compliance” by obligated parties. Final
Rule, 80 Fed. Reg. at 77,453.
To the extent that application of the statutory volume
requirements may lead to negative economic effects, we note
that such effects could be addressed through other provisions
of the statute. In particular, Congress authorized EPA to reduce
the statutory renewable fuel volume requirements upon a
determination that implementation of those requirements
“would severely harm the economy or environment of a State,
a region, or the United States.” 42 U.S.C. § 7545(o)(7)(A)(i).
EPA has not explained why Congress would have established
the severe-harm waiver standard “only to allow waiver under
the inadequate-supply” provision based on “lesser degrees” of
economic harm. Americans for Clean Energy Reply 6. The
statute provides other protections against economic harm, too.
In the years following 2016, if EPA concludes that the statutory
volume requirements for a category of renewable fuel need to
35
be reduced by more than 20 percent for two consecutive years
or by 50 percent in any one year, the statute allows EPA to reset
the volume requirements. See 42 U.S.C. § 7545(o)(7)(F). The
statute also provides a safe harbor for individual obligated
parties struggling to comply with a year’s requirements. The
statute mandates that EPA allow those parties to carry a
renewable fuel deficit forward into the next compliance year,
so long as certain conditions are satisfied. See id.
§ 7545(o)(5)(D); 40 C.F.R. § 80.1427(b). In light of those
provisions, we are not convinced that EPA’s strained
interpretation of “inadequate domestic supply” is necessary to
avoid the parade of horribles that EPA identifies.
Taking a step back, moreover, we reject EPA’s purposive
argument on its own terms. That is because EPA’s proposed
interpretation of the “inadequate domestic supply” waiver
provision – in which the demand for renewable fuel largely
dictates the volume requirements – turns the Renewable Fuel
Program’s “market forcing” provisions on their head. Final
Rule, 80 Fed. Reg. at 77,423. To be sure, EPA and obligated
parties have raised serious concerns that the Renewable Fuel
Program is not actually functioning as intended and that, as a
result, the statute’s requirements will only become more and
more impractical to meet. But the fact that EPA thinks a statute
would work better if tweaked does not give EPA the right to
amend the statute. Cf. Utility Air Regulatory Group v. EPA,
134 S. Ct. 2427, 2445, slip op. at 21 (2014) (“An agency has
no power to ‘tailor’ legislation to bureaucratic policy goals by
rewriting unambiguous statutory terms. Agencies exercise
discretion only in the interstices created by statutory silence or
ambiguity; they must always give effect to the unambiguously
expressed intent of Congress.”) (internal quotation marks
omitted).
36
Some – including the Obligated Party Petitioners – say that
the statute sets up a crazy regime that requires production of a
product that few people want and that therefore will never be
consumed. “Even if we were persuaded” by those “policy
arguments, those arguments could not overcome the statute’s
plain language, which is our primary guide to Congress’
preferred policy.” Sandoz Inc. v. Amgen Inc., 137 S. Ct. 1664,
1678, slip op. at 18 (2017) (internal quotation marks omitted).
If the regime is indeed flawed, it is up to Congress and the
President to “reenter the field” and fix it. Henson, 137 S. Ct.
at 1725, slip op. at 10; see U.S. CONST. art. I, § 7, cl. 2.
In conclusion, we hold that the statute forecloses EPA’s
interpretation of the “inadequate domestic supply” waiver
provision. We therefore vacate EPA’s decision to reduce the
total renewable fuel volume requirements for 2016 through use
of the “inadequate domestic supply” waiver provision and
remand the Final Rule to the agency for further consideration
in light of our decision.2
B
We now turn to Americans for Clean Energy’s argument
that EPA was required to consider carryover RINs as a supply
source of renewable fuel for purposes of exercising its
“inadequate domestic supply” waiver authority. EPA’s failure
to consider carryover RINs as a source of supply, according to
2
Having reached that conclusion, we need not consider
Americans for Clean Energy’s alternative arbitrary and capricious
challenge to the 2016 total renewable fuel requirement. That
challenge was based on EPA’s allegedly incorrect calculation of the
demand for E85 fuel. Because we conclude that EPA does not have
statutory authority to consider demand under the “inadequate
domestic supply” waiver provision, the issue of how EPA calculated
demand is a moot point.
37
Americans for Clean Energy, led EPA to set the total renewable
fuel volume requirements at too low a level. We reject that
argument.
To review: The Renewable Fuel Program requires refiners
and importers of gasoline and diesel fuel to satisfy an annual
“renewable fuel obligation” issued by EPA. 42 U.S.C.
§ 7545(o)(3)(B)(ii). In the course of setting the annual
renewable fuel obligation, EPA must establish the volume
requirements for each category of renewable fuel. Those
volume requirements represent the total volumes of renewable
fuel that must be sold or introduced into United States
commerce in a given year. See Monroe Energy, 750 F.3d at
912. Although the statute sets forth annual volume
requirements for certain years, EPA may reduce those statutory
volume requirements in specified circumstances. As just
discussed, one component of the statute’s general waiver
provision allows EPA to reduce the statutory volume
requirements when it concludes that there is an “inadequate
domestic supply” of renewable fuel. 42 U.S.C.
§ 7545(o)(7)(A)(ii).
Once EPA issues the annual renewable fuel obligations,
the obligated parties must satisfy those obligations. To
facilitate the compliance process, Congress directed EPA to
establish a credit program through which obligated parties may
satisfy their renewable fuel obligations by accumulating
renewable fuel credits. Id. § 7545(o)(5). Of importance here,
Congress specified that any credits generated for use in the
credit trading program “shall be valid to show compliance for
the 12 months as of the date of generation.” Id.
§ 7545(o)(5)(C).
Under the credit program established by EPA, obligated
parties comply with their renewable fuel obligations by
38
acquiring permits known as RINs. Each set of RINs
corresponds to a batch of renewable fuel that is produced or
imported for use in the United States. Monroe Energy, 750
F.3d at 913. To fulfill their statutory requirements, obligated
parties accumulate the number of RINs needed to comply with
their annual renewable fuel obligations and then retire the RINs
in an annual compliance demonstration with EPA. 40 C.F.R.
§ 80.1427(a). If an obligated party has more RINs than it needs
to meet its renewable fuel obligation, the obligated party may
sell or trade the extra RINs or instead choose to “bank” the
RINs for use in the next compliance year. Monroe Energy, 750
F.3d at 913; see also 42 U.S.C. § 7545(o)(5)(B); 40 C.F.R.
§§ 80.1425-29. The industry refers to those saved RINs as
“carryover” RINs.
The key question for present purposes is this: When
evaluating the available “supply” of renewable fuel for
purposes of the “inadequate domestic supply” waiver
provision, must EPA consider carryover RINs as a supply
source of renewable fuel? Americans for Clean Energy argues
yes. EPA says no. We agree with EPA that the statute is better
read not to require EPA to consider carryover RINs.
We look first to the text of the statute. The Renewable
Fuel Program allows EPA to reduce the total renewable fuel
volume requirement upon a finding that there is an “inadequate
domestic supply” of renewable fuel. 42 U.S.C.
§ 7545(o)(7)(A)(ii). In a separate provision, Congress required
EPA to create a “credit program.” Id. § 7545(o)(5)
(capitalization altered). Congress contemplated that an
obligated party would be allowed to carry over credits from one
year into the next: One of the credit program’s provisions
states that credits generated in the credit program “shall be
valid to show compliance for the 12 months as of the date of
generation.” Id. § 7545(o)(5)(C). But nothing in the text of
39
either provision indicates that the “supply” of renewable fuel
available in a year must include any available “carryover”
credits from the prior year. See Final Rule, 80 Fed. Reg. at
77,484 (statute gives “no guidance in the text” regarding
“whether or not carryover RINs should be deemed part of the
‘supply’ referenced” in the general waiver provision).
Americans for Clean Energy counters that a different
provision of the statute – EPA’s statutory duty to “ensure[]”
that the mandated volume requirements are met – requires EPA
to consider carryover RINs as a supply source of renewable
fuel. 42 U.S.C. § 7545(o)(3)(B)(i). It argues that considering
carryover RINs as a source of supply in a given year will lead
EPA to make a lesser reduction to the statutory volume
requirement for total renewable fuel. Congress, however, did
not “pursue[] its purposes” of increased renewable fuel
generation “at all costs.” American Express Co. v. Italian
Colors Restaurant, 133 S. Ct. 2304, 2309, slip op. at 4 (2013)
(quoting Rodriguez v. United States, 480 U.S. 522, 525-26
(1987) (per curiam)). It included waiver provisions that allow
EPA to lessen the Renewable Fuel Program’s requirements in
specified circumstances, including when EPA concludes that
there is an “inadequate domestic supply” of renewable fuel to
meet those requirements. It is therefore the text of the
“inadequate domestic supply” waiver provision that controls
our analysis here. And that text does not reference carryover
RINs as a source of supply of renewable fuel.
EPA’s proposed interpretation reads “inadequate domestic
supply” of renewable fuel to refer only to the “actual renewable
fuel” available in a given year and not to carryover RIN credits
representing renewable fuel generated the prior year. Final
Rule, 80 Fed. Reg. at 77,484. Put differently, EPA’s
interpretation reads “supply” of renewable fuel to mean just
that – “supply of renewable fuel” – rather than “supply of
40
renewable fuel and supply of carryover credits.” EPA’s
interpretation is consistent with the statutory text, not contrary
to it.
EPA’s interpretation makes eminent sense, moreover,
when considered in light of the purposes of the Renewable Fuel
Program statute. In promulgating its interpretation, EPA
explained the critical importance of carryover RINs to the
functioning of the renewable fuel market and to the ability of
obligated parties to comply with their obligations. Id. at
77,483-84. EPA pointed out that the “bank of carryover RINs”
at the time of the Final Rule’s issuance was “substantially less,
both in absolute numbers and as a percentage of the applicable
standards, than was the case in prior actions.” Id. at 77,486.
EPA further noted that, were it to consider carryover RINs as a
supply source of renewable fuel for purposes of the
“inadequate domestic supply” provision, the number of
carryover RINs in the market would be reduced to almost zero.
See id. at 77,484. Without the flexibility and liquidity provided
by carryover RINs, EPA reasoned that obligated parties facing
unexpected shortfalls or increased demand for transportation
fuel may be left with no way to comply with the statute. Id. at
77,483. That situation, in turn, could “lead to the need for a
new waiver of the standards” and thereby undermine “the
market certainty so critical to the long term success” of the
Renewable Fuel Program. Id. According to EPA, those
concerns counseled in favor of interpreting the phrase
“inadequate domestic supply” to refer only to the actual
volumes of renewable fuel available in the relevant compliance
year. Id. at 77,484-85.3
3
Americans for Clean Energy sprinkles a few arbitrary and
capricious challenges into its argument regarding EPA’s
interpretation. Even assuming that those arguments are not
foreclosed by the text of the statute, they still lack merit. First,
Americans for Clean Energy argues that EPA “did not explain why”
41
EPA’s interpretation also reasonably balances the need to
drive growth in the renewable fuel industry with the need to
ensure that obligated parties have sufficient flexibility to
comply with the statute. EPA stresses that, under its
interpretation, EPA may still consider carryover RINs when
determining whether it should exercise its “inadequate
domestic supply” waiver authority to reduce statutory volume
requirements. Id. According to EPA, the presence of a large
amount of carryover RINs in the market will make EPA less
likely to reduce the statutory volume requirements. Id. at
77,485; cf. Monroe Energy, 750 F.3d at 917 (EPA may
consider “availability of carryover RINs” when determining
whether to exercise waiver authority to reduce total renewable
the carryover RIN bank “must have at least 1.74 billion RINs” or
explain why EPA could not “safely” reduce the bank to a lesser
amount. Americans for Clean Energy Br. 31. EPA explained,
however, that “the result” of interpreting “supply” in the manner
proposed by Americans for Clean Energy “would be a complete
drawdown in the collective bank of carryover RINs in a relatively
short time period.” Final Rule, 80 Fed. Reg. at 77,484. That is,
Americans for Clean Energy’s interpretation of “supply” as
including carryover RINs would leave EPA no choice but to reduce
the carryover RIN bank to almost zero. EPA concluded that such a
result threatened the interests of the Renewable Fuel Program.
Second, contrary to Americans for Clean Energy’s contentions, EPA
adequately explained why its interpretation will not discourage
obligated parties from investing in new generation of renewable fuel.
EPA noted, for example, that the statute’s increasing volume
requirements have made it “increasingly difficult” for obligated
parties to “over-comply and create carryover RINs” – meaning that
obligated parties will need to invest in new renewable fuel sources to
generate sufficient RINs for compliance. Id. at 77,485. EPA also
cited evidence from 2013 showing that parties generated new RINs,
rather than relying exclusively on carryover RINs, to meet their
compliance burdens. Id. at 77,486.
42
fuel volume requirement). EPA also pointed out that its
regulations specify “that obligated parties may only satisfy 20
percent” of their annual renewable fuel obligations with
carryover RINs. Final Rule, 80 Fed. Reg. at 77,485. EPA
reasonably concluded that those considerations will mitigate
the possibility that obligated parties will comply with their
obligations through large amounts of carryover RINs rather
than through investment in increased renewable fuel
generation. See id. at 77,484-86.4
Given all of the above, we uphold EPA’s interpretation of
the “inadequate domestic supply” waiver provision. EPA need
not consider carryover RINs as a supply source of renewable
fuel for purposes of determining the supply of renewable fuel
available in a given year.5
III
In this section, we address two challenges arising from
EPA’s lateness in issuing the Final Rule. First, EPA cited its
own lateness – and the need to avoid imposing retroactive
burdens on obligated parties – as a reason to set the 2014 and
2015 volume requirements based on the volume of renewable
4
Because EPA sufficiently explained the practical and policy-
based reasons for its decision to maintain the carryover RIN bank,
we also reject National Biodiesel Board’s argument that EPA’s
carryover RIN analysis was irrational. See National Biodiesel Board
Br. 18-19.
5
Because we agree with EPA that its reading of this provision
is the better reading, we need not consider whether it is
unambiguously the better reading for Chevron purposes such that
EPA could not alter its interpretation in the future. Cf. Coventry
Health Care of Missouri, Inc. v. Nevils, 137 S. Ct. 1190, 1198 n.3,
slip op. at 9 n.3 (2017); Action Alliance of Senior Citizens v. Sebelius,
607 F.3d 860, 863 n.2 (D.C. Cir. 2010).
43
fuel actually supplied in those years. National Biodiesel Board
and Americans for Clean Energy argue that this was error.
Second, EPA missed the relevant statutory deadlines to issue
biomass-based diesel volume requirements for the years 2014
through 2017. The Obligated Party Petitioners argue that this
was error. We reject both of those challenges.
A
As explained above, the Renewable Fuel Program requires
obligated parties – namely, refiners and importers of gasoline
or diesel fuel – to meet an annual renewable fuel obligation for
four categories of renewable fuel. Obligated parties calculate
their annual compliance obligations using percentage standards
set by EPA. The percentage standards, in turn, are based on
volume requirements, also set by EPA. The volume
requirements represent the total volume of renewable fuel that
must be introduced into the Nation’s transportation fuel supply
in a given year.
In the Renewable Fuel Program, Congress provided
statutory tables setting annual volume requirements for four
categories of renewable fuel. The statutory tables for three
categories – cellulosic biofuel, advanced biofuel, and total
renewable fuel – provide volume requirements through the year
2022. See 42 U.S.C. § 7545(o)(2)(B)(i)(I)-(III). The statutory
table for biomass-based diesel, in contrast, provides volume
requirements only through the year 2012. Id.
§ 7545(o)(2)(B)(i)(IV). For subsequent years, the statute sets
a baseline volume requirement at one billion gallons. See id.
§ 7545(o)(2)(B)(v). The statute vests EPA with the
responsibility to promulgate an annual volume requirement
over and above that baseline. In making that determination,
EPA must consider a number of statutory factors. See id.
§ 7545(o)(2)(B)(ii).
44
EPA must meet two different statutory deadlines when
promulgating volume requirements and percentage standards.
First, EPA must promulgate all renewable fuel percentage
standards for a given year by November 30 of the preceding
year. Id. § 7545(o)(3)(B)(i). Second, EPA must promulgate
the volume requirements for those years not covered by the
statutory tables “no later than 14 months before the first year”
for which such volume requirements will apply. Id.
§ 7545(o)(2)(B)(ii).
As it relates to the challenges in this section, EPA therefore
faced the following deadlines for the volume requirements and
percentage standards set in the Final Rule: (i) EPA was
required to promulgate the percentage standards (and
associated volume requirements) for cellulosic biofuel,
advanced biofuel, and total renewable fuel for the year 2014 by
November 30, 2013, and for the year 2015 by November 30,
2014; and (ii) EPA was required to promulgate the volume
requirements for biomass-based diesel by October 2012 for
year 2014; October 2013 for year 2015; and so on.
EPA issued the Final Rule in December 2015. Therefore,
as relevant here, EPA failed to meet the statutory deadlines for
all of the 2014 and 2015 percentage standards and also missed
the statutory deadlines for the biomass-based diesel volume
requirements for the years 2014 through 2017. See Final Rule,
80 Fed. Reg. at 77,430.
Despite its delay, EPA stated that it was issuing percentage
standards for the years 2014 and 2015 and biomass-based
diesel volume requirements for the years 2014 through 2017.
EPA stated that it had authority to issue the late standards and
requirements under this Court’s precedents in National
Petrochemical & Refiners Association v. EPA, 630 F.3d 145
45
(D.C. Cir. 2010), and Monroe Energy, LLC v. EPA, 750 F.3d
909 (D.C. Cir. 2014). According to EPA, those decisions
authorize EPA to issue late renewable fuel standards with
retroactive effect so long as EPA reasonably mitigates any
burdens that its lateness imposes on obligated parties. See
Final Rule, 80 Fed. Reg. at 77,430.
In the Final Rule, EPA explained the steps it had taken to
mitigate any burdens imposed by the late issuance of the Final
Rule. See id. at 77,430-31, 77,491-92. In particular, EPA set
the volume requirements (and associated percentage standards)
for all fuel types for the years 2014 and 2015 based on the
volumes of renewable fuel that were actually introduced and
available for compliance during those years. See id. at 77,440.6
EPA asserted that its approach meant that there would be “an
adequate quantity of RINs available to satisfy” the 2014 and
2015 requirements and thus would prevent the Final Rule from
imposing an “unreasonable burden” on obligated parties. Id. at
77,430, 77,431; see also id. at 77,446-47. With respect to the
late biomass-based diesel requirements, EPA concluded that
obligated parties had adequate notice of their obligations and
would have sufficient time to acquire the necessary RINs to
comply with their obligations. See id. at 77,491; see also EPA
Br. 103.
Two sets of parties now challenge EPA’s analysis. First,
National Biodiesel Board and Americans for Clean Energy
6
To determine the actual volumes of renewable fuel that were
introduced and available for compliance during 2014 and the
relevant months of 2015, EPA looked to the “net” number of
renewable fuel RINs generated during those years. The “net”
number of renewable fuel RINs equals the total number of renewable
fuel RINs generated “minus RINs retired for non-compliance reasons
such as exports of renewable fuel or spills.” Final Rule, 80 Fed. Reg.
at 77,440; see also id. at 77,447-48.
46
argue that EPA erred by citing its delay as a reason to set the
2014 and 2015 volume requirements lower than the statutory
volume requirements. Second, the Obligated Party Petitioners
argue that EPA lacked authority to issue the late biomass-based
diesel volume requirements for the years 2014 through 2017.
We now address, and ultimately reject, each of those
arguments.
B
EPA relied on its lateness in issuing the 2014 and 2015
renewable fuel requirements as a reason to set those
requirements based on the actual volumes of renewable fuel
that were introduced and available for compliance during those
years. National Biodiesel Board and Americans for Clean
Energy say that was impermissible. Based on our precedents,
we reject their challenge.
In National Petrochemical & Refiners Association v. EPA,
630 F.3d 145 (D.C. Cir. 2010), this Court held that EPA has
statutory authority to issue late renewable fuel requirements,
even when they have retroactive effects. See id. at 154-58.
EPA’s authority to issue late renewable fuel requirements is not
unlimited, however. Rather, we specified in National
Petrochemical that EPA must exercise its authority reasonably
by considering the “benefits and the burdens attendant to its
approach” of issuing late renewable fuel requirements. Id. at
166. Applying that standard, we concluded that EPA’s
issuance of a late volume requirement with retroactive effects
was reasonable. That was so because EPA considered, among
other things, whether obligated parties had adequate lead time
and access to a sufficient number of RINs to comply with the
delayed requirement. Id. at 165.
47
We followed the same approach a few years later in
Monroe Energy, LLC v. EPA, 750 F.3d 909 (D.C. Cir. 2014).
In that case, we concluded that EPA’s decision to issue late
renewable fuel standards was reasonable because EPA
“considered various ways to minimize the hardship caused to
obligated parties” by its delay and chose to extend the
compliance deadline. Id. at 920.
National Petrochemical and Monroe Energy together
establish that EPA may promulgate late renewable fuel
requirements – and even apply those standards retroactively –
so long as EPA reasonably considers and mitigates any
hardship caused to obligated parties by reason of the lateness.
According to National Biodiesel Board and Americans for
Clean Energy, EPA erred by treating its lateness “as license” to
reduce the 2014 and 2015 statutory volume requirements to
reflect the actual volumes of renewable fuel that were
introduced and available for compliance during those years.
Americans for Clean Energy Br. 25; see also National
Biodiesel Board Br. 16. That argument, however, overlooks
the fact that 2014 and most of 2015 had already passed by the
time EPA issued the Final Rule. Although EPA determined
that it was duty-bound to issue volume requirements and
percentage standards for those years – even though they were
late – EPA also recognized its duty to consider and mitigate
any hardships caused to obligated parties by reason of its
lateness.
EPA took a number of steps to minimize the harm and
retroactive effects caused by its late issuance of the 2014 and
2015 standards. The most important of those steps was EPA’s
choice to set the volume requirements for the years 2014 and
2015 based on the actual volumes of renewable fuel that were
introduced and available for compliance. By setting the 2014
48
and 2015 standards based on actual renewable fuel volumes –
as measured by the number of RINs that were both generated
and available for compliance during those years – EPA ensured
that there would be a sufficient supply of RINs available to
allow obligated parties to satisfy the requirements. Final Rule,
80 Fed. Reg. at 77,430; see also id. at 77,439-40. EPA
explained that setting the standards based on the statutory
volume requirements would be an “unreasonable approach”
because it would “require either noncompliance” on the part of
obligated parties or create dysfunction in the renewable fuel
market. See id. at 77,439.
Therefore, contrary to the contention advanced by
National Biodiesel Board and Americans for Clean Energy,
this is not a simple case of EPA using its delay as an excuse to
shirk its statutory duties. EPA’s decision regarding the 2014
and 2015 volume requirements instead reflects the fact that
EPA was bound by our precedents (not to mention basic
principles of due process) to mitigate the hardships to obligated
parties caused by late promulgation and retroactive application
of the 2014 and 2015 standards. In a perfect world, agencies
such as EPA would never miss their deadlines. But once they
have, our precedents in this area require that EPA reasonably
balance its statutory duties with the rights of the entities it
regulates.7
7
National Biodiesel Board counters that, even if EPA were
authorized to set the 2014 and 2015 volume requirements based on
actual fuel volumes generated during those years, EPA improperly
focused on the volumes of fuel that were “available for compliance.”
National Biodiesel Board Br. 18. National Biodiesel Board argues
that EPA should have set the volume requirements based on “gross”
RIN generation – that is, the total number of renewable fuel RINs
generated without subtracting any RINs that were exported or put to
non-qualifying uses. Id. We do not agree. As EPA explained, its
approach to setting the late 2014 and 2015 volume requirements
49
In conclusion, EPA’s decision to set the late 2014 and
2015 volume requirements based on the actual volumes of fuel
introduced and available for compliance during those years was
reasonable in light of EPA’s duty to mitigate any effects of its
delay on obligated parties.
C
We next consider whether EPA permissibly issued the
biomass-based diesel volume requirements for the years 2014
through 2017. Answering that question requires us to
determine (i) whether EPA had statutory authority to issue late
biomass-based diesel volume requirements and (ii) if so,
whether EPA exercised that authority reasonably. Contrary to
the arguments of the Obligated Party Petitioners, the answer to
both of those questions is yes.
1
In the December 2015 Final Rule, EPA promulgated the
biomass-based diesel volume requirements for the years 2014
through 2017. The statutory volume tables do not contain
volume requirements for biomass-based diesel after the year
2012. Rather, the biomass-based diesel table sets a minimum
ensures that obligated parties will be able to meet those requirements
by buying and selling RINs. That method of compliance would not
be available under National Biodiesel Board’s proposed approach,
which would set the volume requirements at levels higher than the
number of RINs available in the market. National Biodiesel Board’s
approach of using gross RIN generation to set the 2014 and 2015
volume requirements therefore suffers from the same problem as
using the statutory volume requirements – it would require
noncompliance or create dysfunction in the renewable fuel market.
See Final Rule, 80 Fed. Reg. at 77,439-40, 77,445.
50
volume requirement at one billion gallons. See 42 U.S.C.
§ 7545(o)(2)(B)(v). For each year following 2012, EPA must
determine the biomass-based diesel volume requirement in the
first instance after considering a number of statutory factors.
See id. § 7545(o)(2)(B)(ii). EPA promulgated the following
biomass-based diesel requirements in the Final Rule: 1.63
billion gallons (year 2014); 1.73 billion gallons (year 2015);
1.90 billion gallons (year 2016); and 2.0 billion gallons (year
2017). See Final Rule, 80 Fed. Reg. at 77,422 tbl.I-1.
By statute, EPA must promulgate volume requirements for
years not covered by the statutory volume tables “no later than
14 months before the first year” for which the volume
requirement will apply. 42 U.S.C. § 7545(o)(2)(B)(ii). EPA
did not promulgate the Final Rule until December 2015. It
therefore missed the statutory deadlines for promulgating the
biomass-based diesel volume requirements.
Notwithstanding those missed deadlines, EPA argues that
it had authority to promulgate the biomass-based diesel
requirements under this Court’s decisions in National
Petrochemical and Monroe Energy. We agree with EPA.
As discussed in the previous section, this Court held in
National Petrochemical and again in Monroe Energy that
Congress authorized EPA to issue late renewable fuel volume
requirements under the Renewable Fuel Program. In reaching
that outcome, we looked first to the text of the statute. We
noted that Congress “did not state” in the statutory text “what
would happen if EPA failed to meet the statutory deadline for
promulgating” renewable fuel regulations. National
Petrochemical, 630 F.3d at 154. We explained that “where
there are less drastic remedies available for an agency’s failure
to meet a statutory deadline, courts should not assume
51
Congress intended for the agency to lose its power to act.” Id.
(citing Brock v. Pierce County, 476 U.S. 253, 260 (1986)).
Applying that principle, we concluded that it was “highly
unlikely” that Congress intended EPA’s delay to prevent EPA
from fulfilling its statutory mandate to “promulgate regulations
to ensure” that transportation fuel contains “at least the
applicable volume of renewable fuel, advanced biofuel,
cellulosic biofuel, and biomass-based diesel, determined in
accordance with subparagraph (B).” Id. at 153, 156 (emphasis
omitted) (quoting 42 U.S.C. § 7545(o)(2)(A)(i)). Declining to
endorse such a “drastic” and “incongruous result,” we instead
held that EPA may issue late volume requirements so long as
it acts reasonably in doing so. Id. at 157 (quoting Brock, 476
U.S. at 258); see also Monroe Energy, 750 F.3d at 920. Here
we confront that “same issue” – EPA’s authority to issue late
volume requirements under the Renewable Fuel Program.
LaShawn A. v. Barry, 87 F.3d 1389, 1393 (D.C. Cir. 1996) (en
banc) (emphasis omitted). Therefore, we are bound by stare
decisis to reach the “same result” – EPA may issue delayed
volume requirements so long as it acts reasonably in doing so.
Id. (emphasis omitted).
The Obligated Party Petitioners counter that National
Petrochemical and Monroe Energy do not control our analysis
of EPA’s authority to issue the delayed biomass-based diesel
volume requirements. They say that the industry parties in
those cases were on notice of their potential statutory
obligations before EPA issued the delayed volume
requirements. The Obligated Party Petitioners claim that the
notice provided by the statutory volume tables in National
Petrochemical and Monroe Energy was a pre-condition to the
Court’s conclusion that EPA had statutory authority to issue the
delayed volume requirements at issue in those cases. Because
such notice is lacking in this case, the Obligated Party
52
Petitioners contend that EPA had no authority to set the
biomass-based diesel requirements at levels above the statutory
floor of one billion gallons or, in the alternative, above the 2013
biomass-based diesel volume requirement of 1.28 billion
gallons.
That argument is not persuasive. The general rule that
National Petrochemical and Monroe Energy establish – that
EPA has authority to issue late renewable fuel volume
requirements – was based on the Court’s reading of the statute
and on congressional intent. Specifically, the Court pointed to:
(i) Congress’s failure to specify the consequences of EPA’s
failure to meet a statutory deadline; (ii) the principle that
“where there are less drastic remedies available for an agency’s
failure to meet a statutory deadline, courts should not assume
Congress intended for the agency to lose its power to act”;
(iii) EPA’s “statutory mandate” to “ensure” that the annual
volume requirements are met; and (iv) the notion that it would
be “drastic” and “incongruous” to preclude EPA from fulfilling
that “statutory mandate” based on its delay. National
Petrochemical, 630 F.3d at 154, 157; Monroe Energy, 750 F.3d
at 920. Each of those rationales applies when it comes to
EPA’s duty to promulgate biomass-based diesel volume
requirements.
Applying the analysis set forth in National Petrochemical
and Monroe Energy, we therefore conclude that EPA had
statutory authority to issue the late biomass-based diesel
volume requirements for the years 2014 through 2017.
2
Having determined that EPA had statutory authority to
issue the delayed biomass-based diesel volume requirements,
we must also examine whether EPA exercised its authority “in
53
a reasonable manner.” Monroe Energy, 750 F.3d at 920.
Answering that question requires us to decide whether EPA
adequately “considered various ways to minimize the hardship
caused to obligated parties” by virtue of EPA’s delay. Id.; see
also National Petrochemical, 630 F.3d at 166 (EPA must
consider and balance any “burdens attendant to its approach”
of issuing delayed renewable fuel requirements). We conclude
that EPA passed that test when promulgating the biomass-
based diesel volume requirements.
EPA’s approach – and therefore our analysis of the
question – differs with respect to the 2016 and 2017 volume
requirements, which applied only prospectively, and the 2014
and 2015 requirements, which did have retroactive effects. We
address each set of requirements in turn.
First, we consider EPA’s decision to promulgate late
biomass-based diesel requirements for the years 2016 and
2017. Because those requirements were issued before the start
of 2016, they did not impose any retroactive compliance
burdens on obligated parties. Although conceding that point,
the Obligated Party Petitioners nonetheless argue that EPA’s
delay burdened obligated parties by leaving them without
sufficient notice to plan for and meet the 2016 and 2017 volume
requirements. Given that hardship, the Obligated Party
Petitioners contend that EPA must set the 2016 and 2017
volume requirements at the one billion gallon statutory
minimum or, alternatively, the 1.28 billion gallon volume
requirement applicable to 2013.
We do not agree. EPA’s June 2015 proposed rule would
have set the 2016 and 2017 biomass-based diesel volume
requirements at 1.8 billion and 1.9 billion gallons, respectively.
See Renewable Fuel Standard Program: Standards for 2014,
2015, and 2016 and Biomass-Based Diesel Volume for 2017,
54
80 Fed. Reg. 33,100, 33,105 tbl.I.A-3 & n.13 (June 10, 2015).
Therefore, contrary to the Obligated Party Petitioners’
contentions, obligated parties had many months’ notice of
EPA’s intent to issue volume requirements much higher than
either the statute’s one billion gallon minimum volume
requirement or the 1.28 billion gallon volume requirement
applicable in 2013. See Final Rule, 80 Fed. Reg. at 77,491.
True, the proposed volume requirements were each 100 million
gallons less than the final 2016 and 2017 biomass-based diesel
volume requirements. But as EPA explained, even the late
Final Rule left obligated parties with 15 months to acquire the
necessary RINs to comply with the 2016 requirements. See id.
In 2017, the delay had even less effect: The Final Rule was
issued more than 13 months before the 2017 compliance year
even began. Given the industry’s notice of EPA’s intent to
issue volume requirements greater than the statutory minimum
and the significant amount of time obligated parties had to
comply with the 2016 and 2017 requirements, the Obligated
Party Petitioners have failed to demonstrate how EPA’s delay
meaningfully affected their ability to satisfy the biomass-based
diesel obligations. We therefore conclude that EPA reasonably
exercised its authority when issuing the delayed biomass-based
diesel volume requirements for 2016 and 2017.
Second, we consider EPA’s decision to promulgate late
biomass-based diesel requirements for the years 2014 and
2015. Those requirements, unlike the 2016 and 2017
requirements, do have retroactive effects. But in the Final
Rule, EPA “acknowledged” that fact and reasonably
considered “ways to minimize the hardship” associated with
the delayed and retroactive standards. Monroe Energy, 750
F.3d at 920. Most importantly for present purposes, EPA
avoided placing an unreasonable burden on obligated parties
by setting the 2014 and 2015 requirements based on the actual
volumes of biomass-based diesel available in those years. EPA
55
noted that setting the volume requirements at higher volumes
than those actually available would be an “unreasonable
approach” in part because it might require “noncompliance” on
the part of obligated parties. Final Rule, 80 Fed. Reg. at
77,439. By contrast, EPA’s choice to use actual fuel volumes
to set the 2014 and 2015 volume requirements ensured that
there would “be an adequate quantity of RINs available to
satisfy those portions of the final requirements.” Id. at 77,430;
see also id. at 77,446-47. Indeed, given that obligated parties
had been “acquiring RINs since the beginning of 2014 in
anticipation of the final volume requirements and standards,”
EPA noted that some obligated parties likely were already in
compliance with the 2014 and 2015 biomass-based diesel
standards. Id. at 77,430.
The Obligated Party Petitioners counter that the fact that
some obligated parties may find themselves already in
compliance with the 2014 and 2015 biomass-based diesel
standards does not mean that all obligated parties would be in
compliance. Applying the requirements to the parties who had
not acquired enough RINs to meet the 2014 and 2015
requirements, according to the Obligated Party Petitioners,
results in impermissibly retroactive compliance burdens.
In the Final Rule, EPA gave a number of responses to that
objection, however. First, EPA stated that parties who need to
“adjust the types” of RINs they own will be able to do so. Id.
at 77,491; see also id. at 77,446-47. Those parties “will be able
to sell” their non-biomass-based diesel advanced biofuel RINs
“for a nearly identical price” as the biomass-based diesel RINs
that they will need to purchase. Id. at 77,491. Second, to allow
obligated parties “additional time” to acquire the biomass-
based diesel RINs needed for compliance, EPA provided “very
extensive extensions of the normal compliance demonstration
deadlines.” Id. at 77,447, 77,491; cf. Monroe Energy, 750 F.3d
56
at 920-21. Third, to the extent that any obligated party could
not acquire a sufficient number of biomass-based diesel RINs
to comply with the requirements, EPA noted that the obligated
party had “two additional compliance flexibility options.”
Final Rule, 80 Fed. Reg. at 77,491. Specifically, EPA pointed
out that those parties could (i) utilize carryover biomass-based
diesel RINs to meet their compliance obligation or (ii) take
advantage of the “carry-forward deficit provision” of the
Renewable Fuel Program “to carry forward the deficit for one
year on the condition that it be met the following year.” Id. at
77,492; see also id. at 77,447, 77,491.
EPA’s analysis in the Final Rule reveals that EPA
“considered various ways to minimize the hardship caused to
obligated parties” by the delayed issuance of the 2014 and 2015
biomass-based diesel volume requirements. Monroe Energy,
750 F.3d at 920. Under our precedents, the Final Rule reflects
EPA’s reasonable use of its authority to issue delayed
Renewable Fuel Program volume requirements.
In short, based on our precedents, we conclude that EPA
had statutory authority to issue the late biomass-based diesel
standards and exercised that authority reasonably.
IV
We now address the Obligated Party Petitioners’ challenge
to EPA’s projection of cellulosic biofuel production for the
year 2016. The Obligated Party Petitioners assert that EPA’s
projection methodology is arbitrary and capricious in a variety
of ways. We reject those arguments.
57
A
Before examining the merits of the Obligated Party
Petitioners’ challenge, it is helpful to have a bit of background
on: the cellulosic biofuel market; the statutory provisions and
precedents governing EPA’s duties when making cellulosic
biofuel projections; and the projection methodology that EPA
employed in the Final Rule.
1
In 2007, Congress amended the Renewable Fuel Program
to include volume requirements for cellulosic biofuel.
Cellulosic biofuel is a kind of advanced biofuel. It is derived
from sources of cellulose, such as switchgrass and agricultural
wastes, as well as from biogas from landfills, municipal waste-
water treatment facilities, agricultural digesters, and separated
municipal solid waste digesters. Cellulosic biofuel is the
“greenest” form of renewable fuel mandated by the Renewable
Fuel Program: It must have greenhouse gas emissions that “are
at least 60 percent less than” the greenhouse gas emissions of
conventional gasoline or diesel fuel, as determined by EPA. 42
U.S.C. § 7545(o)(1)(E); see also id. § 7545(o)(1)(C); 40 C.F.R.
§ 80.1426 tbl.1. At the time the cellulosic biofuel requirements
were introduced by Congress in 2007, “there was no
commercial-scale production” of cellulosic biofuel “at all.”
American Petroleum Institute v. EPA, 706 F.3d 474, 476 (D.C.
Cir. 2013). In light of the “technological challenges”
associated with the generation of cellulosic biofuel, the statute
directs EPA to follow distinct procedures when setting
cellulosic biofuel standards. Id.
When setting the annual percentage standards for
cellulosic biofuel, EPA must first calculate a “projected
volume of cellulosic biofuel production” for the relevant
58
calendar year. 42 U.S.C. § 7545(o)(7)(D)(i). Those
projections must be “based on” the Energy Information
Administration’s estimate of the volume of “cellulosic biofuel
projected to be sold or introduced into commerce in the United
States.” Id. § 7545(o)(7)(D)(i), (3)(A). If EPA’s projected
volume of cellulosic biofuel falls short of the statutory volume
requirement, then EPA “shall reduce the applicable volume of
cellulosic biofuel required . . . to the projected volume
available during that calendar year.” Id. § 7545(o)(7)(D)(i).
2
In the Final Rule, EPA projected the amount of cellulosic
biofuel likely to be produced in 2016. (EPA did not need to
make projections for 2014 and 2015 because EPA set volume
requirements for those years based on the actual volumes of
renewable fuel that were introduced during those years.) In
making projections for 2016, EPA factored in significant
changes that had occurred in the development and EPA’s
regulation of the cellulosic biofuel market in 2014.
Until 2014, there was only one type of biofuel that
qualified as “cellulosic biofuel” under the Renewable Fuel
Program: liquid cellulosic biofuel, “an advanced biofuel
derived from sources of lignocellulose such as switchgrass and
agricultural wastes” such as corn stalks. American Petroleum
Institute, 706 F.3d at 476. As previously discussed, when
Congress amended the Renewable Fuel Program to include a
cellulosic biofuel requirement, no company had the
technological capacity to produce liquid cellulosic biofuel on a
commercial scale. Indeed, as of late 2013, there were few
companies in the country that had the potential to consistently
produce any volumes of cellulosic biofuel.
59
In 2014, however, EPA promulgated a rule under which
certain types of liquefied and compressed natural gas – we will
refer to both types as “biogas” for simplicity’s sake – could
qualify as cellulosic biofuels for purposes of the Renewable
Fuel Program’s requirements. See Regulation of Fuels and
Fuel Additives: RFS Pathways II, and Technical Amendments
to the RFS Standards and E15 Misfueling Mitigation
Requirements, 79 Fed. Reg. 42,128, 42,137 (July 18, 2014);
see also Final Rule, 80 Fed. Reg. at 77,499. The technology
for producing biogas was, and remains, much more widespread
than the technology for producing liquid cellulosic biofuel. See
Final Rule, 80 Fed. Reg. at 77,505-06. Indeed, in the Final
Rule, EPA projected that biogas would make up around 90
percent of the cellulosic biofuel market in 2016. See id. at
77,501. In addition, the production of liquid cellulosic biofuel
increased substantially in 2014 with the opening of new
commercial-scale liquid cellulosic biofuel production
facilities. For those reasons, the amount of cellulosic biofuel
available to meet the Renewable Fuel Program standards has
substantially increased since late 2014.
EPA’s approach to projecting the 2016 cellulosic biofuel
production levels reflects those recent changes to the cellulosic
biofuel market. As required by statute, EPA first looked to the
Energy Information Administration’s 2016 cellulosic biofuel
estimates. But for two reasons, EPA concluded that those
estimates were incomplete. First, although the estimates
included projections for liquid cellulosic biofuel, they did not
include any projections for biogas. See id. at 77,501. That was
a problem because, as just noted, biogas would make up the
dominant percentage of the cellulosic biofuel market in 2016.
Second, the Energy Information Administration’s estimates did
not include data from certain cellulosic biofuel production
plants that EPA independently determined to be potential
sources of cellulosic biofuels in 2016. Compare id. at 77,501
60
tbl.IV.B.3, with id. at 77,501 tbl.IV.C-1. Given those
omissions, EPA was largely on its own when projecting the
amount of cellulosic biofuel likely to be produced in 2016.
EPA’s 2016 projection methodology followed a number of
steps, as described below. At the end of those steps, EPA had
calculated a total volume projection for each of the two main
categories of cellulosic biofuel: liquid cellulosic biofuel and
biogas. EPA then added those two volume amounts together
to generate a single cellulosic biofuel volume projection for the
year 2016.
First, EPA determined which renewable fuel production
plants had the potential to produce “commercial scale
volumes” of cellulosic biofuel in 2016. Id. at 77,499; see also
id. at 77,501 tbl.IV.B.3 (listing projected producers of
cellulosic biofuel). EPA considered both domestic and foreign
producers of cellulosic biofuel. See id. at 77,500; see also
Cellulosic Biofuel Producer Company Descriptions,
Memorandum from Dallas Burkholder to EPA Air and
Radiation Docket EPA-HQ-OAR-2015-0111 (Nov. 2015), J.A.
814.
Second, EPA divided those producers into four groups:
(i) liquid cellulosic biofuel producers that have not achieved
consistent commercial production; (ii) liquid cellulosic biofuel
producers that have achieved consistent commercial
production; (iii) biogas producers that have not achieved
consistent commercial production; and (iv) biogas producers
that have achieved consistent commercial production. See
Final Rule, 80 Fed. Reg. at 77,505; id. at 77,508 tbl.IV.F-4.
Third, EPA calculated a range of likely production from
each individual cellulosic biofuel producer. See id. at 77,503.
EPA set the low end of each producer’s range “based on the
61
volume of RIN-generating cellulosic biofuel the company has
produced in the most recent 12 months for which data is
available.” Id. To arrive at the high end of each producer’s
range, EPA “considered a variety of factors,” including “the
expected start-up date and ramp-up period” as well as “facility
capacity.” Id. EPA used those factors to calculate a high-end
production volume based on an “optimistic ramp-up scenario”
of six months. Id. EPA then compared its high-end volume
estimates to any volume projections provided by the producers
or industry associations. If the high-end volume projections
were different, EPA used the lesser of the two volume
projections. Id. at 77,504.
Fourth, after EPA had individual ranges for each producer,
it then aggregated the ranges of the producers by category.
That is, for each of the four categories of producers, EPA
generated a single range of likely cellulosic biofuel production.
See id. at 77,508 tbl.IV.F-1 to tbl.IV.F-4. EPA stated that its
approach of generating a range for each category helped
minimize any potential skewing effect caused by an over- or
under-estimation of a single company’s range. Id. at 77,505-
06.
Fifth and finally, EPA chose a specific volume projection
from within each aggregated production range. EPA did so
through use of what it called a “percentile” method.8 Under
that approach, EPA chose a number from within each
production range that reflected the fact that less-proven
producers were less likely to produce cellulosic biofuel at the
high end of their ranges, while the more proven producers were
8
Although EPA refers to its approach as the “percentile”
method, EPA did not utilize “percentiles” as that term is typically
understood. We nonetheless retain EPA’s terminology for ease of
reference.
62
more likely to do so. Id. at 77,506 & tbl.IV.E-5. In particular,
EPA chose specific volumes from within each volume range as
follows: (i) for liquid cellulosic biofuel producers without
consistent commercial production, EPA chose the value that
was the one-quarter point between the low end and high end of
the range; (ii) for liquid cellulosic biofuel producers with
consistent commercial production, EPA chose the value that
was the midpoint between the low end and high end of the
range; (iii) for biogas producers without consistent commercial
production, EPA also chose the value that was the midpoint
between the low end and high end of the range; and (iv) for
biogas producers with consistent commercial production, EPA
chose the value that was the three-quarter point between the
low end and high end of the range. Id.
An example helps illustrate EPA’s approach. Suppose that
for all four groups of producers, the aggregated ranges of
projected cellulosic biofuel production are zero to 10 million
gallons. Under EPA’s approach, the final projected volume
from each group would be: (i) 2.5 million gallons (25 percent
of 10 million) for liquid cellulosic biofuel producers without
consistent commercial production; (ii) five million gallons (50
percent of 10 million) for liquid cellulosic biofuel producers
with consistent commercial production; (iii) five million
gallons (again, 50 percent of 10 million) for biogas producers
without consistent commercial production; and (iv) 7.5 million
gallons (75 percent of 10 million) for biogas producers with
consistent commercial production. Adding those amounts
together, EPA’s final cellulosic biofuel projection in this
example would be 20 million gallons.
Using that methodology, EPA calculated projected
volumes for each group of producers for the year 2016: (i) 19
million gallons of liquid cellulosic biofuel from liquid
cellulosic biofuel producers that have not achieved consistent
63
commercial production; (ii) four million gallons of liquid
cellulosic biofuel from liquid cellulosic biofuel producers that
have achieved consistent commercial production; (iii) 32
million gallons of biogas from biogas producers that have not
achieved consistent commercial production; and (iv) 175
million gallons of biogas from biogas producers that have
achieved consistent commercial production. See id. at 77,508
tbl.IV.F-4. Adding those numbers together, EPA projected a
final total cellulosic biofuel volume of 230 million gallons – a
figure 4.02 billion gallons less than the statutory volume
requirement for 2016. Compare id., with id. at 77,499
tbl.IV.A-1. The statute was a bit optimistic, to put it
generously.
B
The Obligated Party Petitioners challenge EPA’s 2016
projections of both liquid cellulosic biofuel and biogas. They
argue that EPA’s projection methodology failed to take a
“neutral aim at accuracy” as required by this Court’s decision
in American Petroleum Institute, 706 F.3d at 476. They also
argue that certain aspects of EPA’s decisionmaking were
arbitrary and capricious.
We employ the deferential State Farm standard of review
when reviewing arguments based on allegedly arbitrary or
unreasoned agency action. See Motor Vehicle Manufacturers
Association of United States, Inc. v. State Farm Mutual
Automobile Insurance Co., 463 U.S. 29, 43 (1983). Under that
standard, EPA “must examine the relevant data and articulate
a satisfactory explanation for its action including a rational
connection between the facts found and the choice made.” Id.
(internal quotation marks omitted). In other words, the
“question is not what we would have done, nor whether we
agree with the agency action. Rather, the question is whether
64
the agency action was reasonable and reasonably explained.”
Jackson v. Mabus, 808 F.3d 933, 936 (D.C. Cir. 2015).
Applying that standard of review, we reject the Obligated Party
Petitioners’ challenges.
1
We first address the Obligated Party Petitioners’ challenge
to EPA’s liquid cellulosic biofuel projection for 2016. On that
score, the Obligated Party Petitioners’ central contention is that
EPA’s 2016 projection methodology fails to take a “neutral aim
at accuracy” as required by American Petroleum Institute, 706
F.3d at 476. The Obligated Party Petitioners also raise several
arbitrary and capricious challenges to EPA’s decisionmaking.
None of their arguments has merit.
First, the Obligated Party Petitioners advance an
overarching argument that EPA’s methodology fails to take a
“neutral aim at accuracy” as required by this Court’s decision
in American Petroleum Institute. See id. We do not agree. In
American Petroleum Institute, the Court evaluated an EPA
cellulosic biofuel projection methodology that erred on the side
of overestimation in order to “provide the appropriate
economic conditions for the cellulosic biofuel industry to
grow.” Id. at 478. The Court concluded that EPA’s projection
methodology was improper because it failed to take a “neutral
aim at accuracy.” Id. at 476. Instead, EPA issued projections
with a “special tilt” toward promoting cellulosic biofuel
growth. Id. at 478. Therefore, American Petroleum Institute’s
requirement that EPA take “neutral aim at accuracy” has a
distinct meaning: It prevents EPA from using a projection
methodology with a “special tilt” – that is, a methodology that
errs on the side of “overestimation” – in order to promote
growth in the cellulosic biofuel industry. Id. at 476, 478, 479.
65
Here, by contrast to American Petroleum Institute, EPA’s
methodology does not reflect a “non-neutral purpose” to favor
(or disfavor) growth in the cellulosic biofuel industry. Id. at
478. Instead, the Obligated Party Petitioners argue that
particular components of EPA’s methodology, and thus EPA’s
final projections, are flawed. But those arguments are garden-
variety arbitrary and capricious challenges directed at EPA’s
“technocratic exercise of agency discretion.” Id. at 477. They
do not demonstrate that EPA has violated its duty to take a
“neutral aim at accuracy,” at least as that duty was articulated
by this Court in American Petroleum Institute. Id. at 476.
Second, the Obligated Party Petitioners argue that EPA’s
decision to use the 2016 liquid cellulosic biofuel projection
methodology was arbitrary and capricious because EPA’s prior
projections significantly overestimated the production of liquid
cellulosic biofuel. Citing American Petroleum Institute, the
Obligated Party Petitioners contend that EPA’s continued use
of a methodology that has failed to produce accurate
projections was arbitrary and capricious. See id. at 477 (“a
methodology used for prediction” can “look more arbitrary the
longer it is applied” unsuccessfully) (emphasis omitted). That
argument, however, is grounded on an incorrect premise:
EPA’s 2016 projection methodology has not been applied in
the past. Rather, the majority of EPA’s prior overestimations
occurred following EPA’s use of the methodology rejected in
American Petroleum Institute – that is, one that systematically
erred on the side of overestimation. See id. at 478. Nor does
EPA’s methodology track the 2014 cellulosic biofuel
projection methodology originally proposed in the withdrawn
2014 rule (a methodology that the Obligated Party Petitioners
contend resulted in overestimation of cellulosic biofuel
production for the year 2014). Compare Final Rule, 80 Fed.
Reg. at 77,499-508, with 2014 Standards for the Renewable
Fuel Standard Program, 78 Fed. Reg. 71,732, 71,746 (Nov. 29,
66
2013); see also Tr. of Oral Arg. at 115. Therefore, contrary to
the Obligated Party Petitioners’ contention, this is not a
situation in which EPA has arbitrarily refused to reconsider a
projection methodology that has proven unsuccessful in the
past.
Third, the Obligated Party Petitioners argue that EPA erred
by relying on liquid cellulosic biofuel producers’ own forecasts
of their start-up dates. The Obligated Party Petitioners note
that such facility-provided data has proved unreliable in the
past. Perhaps so. But EPA took that into account. Rather than
just blindly adopting the facilities’ own forecasts, EPA
performed its own investigation of each plant’s ability to
produce liquid cellulosic biofuel during the year 2016. See
Final Rule, 80 Fed. Reg. at 77,500-01; Cellulosic Biofuel
Producer Company Descriptions, Memorandum from Dallas
Burkholder to EPA Air and Radiation Docket EPA-HQ-OAR-
2015-0111 (Nov. 2015), J.A. 814; see also Final Rule, 80 Fed.
Reg. at 77,504 (past experience “strongly suggests that we
should view the individual company projections as something
other than the most likely outcomes”). Then, in recognition of
the challenges in the liquid cellulosic biofuel industry, EPA set
the volume requirement for new liquid cellulosic biofuel
producers with the assumption that the producers would
produce at the lower end of their aggregate volume range. See
Final Rule, 80 Fed. Reg. at 77,506 tbl.IV.E-5. In doing so, EPA
reasonably accounted for the uncertainty and unreliability
identified by the Obligated Party Petitioners.
Fourth, the Obligated Party Petitioners contend that EPA
erred by utilizing a six-month “ramp-up” period when
determining the companies’ production ranges. But EPA
supported its decision to use a six-month ramp-up period by
citing the example of a company that had recently “achieved
levels of production that met and in some cases exceeded the
67
nameplate capacity” for liquid cellulosic biofuels “within the
expected six month ramp-up period.” EPA Response to
Comments on Final Rule, at 557 (Nov. 2015), J.A. 1005. EPA
did not impose a six-month ramp-up period across the board,
moreover. EPA instead set that six-month ramp-up period as
an “optimistic” scenario that would determine the high end of
a producer’s volume range. Final Rule, 80 Fed. Reg. at 77,503.
More importantly, if a company gave a volume projection
lower than EPA’s high-end volume projection, EPA chose to
use the company’s projection as the high end of the range. Id.
at 77,504. Conversely, if the company’s volume projection
was higher than EPA’s high-end volume projection, EPA stuck
with its own projection as the high end of the range. Id. EPA’s
individualized approach to setting the “optimistic” production
volume scenarios was reasonable.
Fifth, the Obligated Party Petitioners assert that EPA
overstated the low end of the established liquid cellulosic
producers’ volume ranges by relying on data from the most
recent 12 months of those facilities’ operation. But EPA
explained that relying on prior data would provide EPA with
an “objective methodology for calculating the low end of the
potential production range for each company.” Id. at 77,503.
Although EPA acknowledged that an unforeseen technical
problem could prevent a producer from meeting the volume of
liquid cellulosic biofuel it produced in the prior year, EPA
concluded that it was reasonable to assume that a company’s
output would grow year-over-year as the company gained
experience. See id. Moreover, EPA left room for “exceptions”
to its reliance on prior years’ data for those cases in which
“available information indicates” that reliance on that data
would be improper. Id. EPA therefore fulfilled its duty to
articulate a “reasonable and reasonably explained” approach to
setting the low end of the production ranges. Communities for
68
a Better Environment v. EPA, 748 F.3d 333, 335 (D.C. Cir.
2014).
Sixth, the Obligated Party Petitioners argue that EPA failed
to provide a reasoned explanation for its “percentile”
methodology. That claim is off base. EPA explained the
details of its percentile approach, including its decision to
generate total volume ranges for each of the four groups of
cellulosic biofuel producers. See Final Rule, 80 Fed. Reg. at
77,502-07. EPA stated that its approach was appropriate in
light of the “uncertain and variable nature” of cellulosic biofuel
production. Id. at 77,503. In addition, EPA explained how it
chose the final volumes for each group of cellulosic biofuel
producers: It selected volumes based on the differing
“technology risk” and “challenges” faced by the types of
companies within each group. Id. at 77,506. EPA’s
explanation therefore articulates a “rational connection
between the facts found and the choice made” and is sufficient
for purposes of our deferential arbitrary and capricious review.
State Farm, 463 U.S. at 43.
Seventh, the Obligated Party Petitioners protest that EPA
failed to generate a projection “based on” the cellulosic biofuel
estimates provided by the Energy Information Administration.
42 U.S.C. § 7545(o)(3)(B)(i); see also American Petroleum
Institute, 706 F.3d at 478 (EPA must give sufficient “respect”
to Energy Information Administration estimates). As EPA
noted, however, its cellulosic biofuel projections were “very
similar” to those that were provided by the Energy Information
Administration when the scope of EPA’s projection was
limited to the companies assessed by the Energy Information
Administration. Final Rule, 80 Fed. Reg. at 77,501. EPA
explained that the majority of the difference between EPA’s
projections and the Energy Information Administration’s
estimates was attributable to the fact that EPA examined a
69
larger number of cellulosic biofuel producers. Id. Indeed, the
Energy Information Administration’s estimates did not contain
figures for compressed and liquefied natural gas production –
production that accounts for the vast majority of cellulosic
biofuel. Id. Given those considerations, we do not agree that
EPA failed to generate projections “based on” the Energy
Information Administration’s estimates.
To sum up, we conclude that EPA’s 2016 liquid cellulosic
biofuel projection took a “neutral aim at accuracy” and was
otherwise reasonable and reasonably explained for purposes of
arbitrary and capricious review. We therefore reject the
Obligated Party Petitioners’ challenges to EPA’s 2016 liquid
cellulosic biofuel projection.
2
The Obligated Party Petitioners also argue that EPA’s
2016 projection of biogas production was arbitrary and
capricious for three reasons. We again disagree.
First, the Obligated Party Petitioners claim that EPA’s
“percentile” methodology is inadequately explained. That
argument fails for the same reasons given in the previous
section. EPA adequately explained its methodology,
including: (i) EPA’s decision to divide cellulosic biofuel
producers into four groups; (ii) the way in which EPA
calculated total volume ranges for each group; and (iii) EPA’s
use of the mid-point and three-quarter-point approach when
calculating the volume requirement for each group of biogas
producers. See Final Rule, 80 Fed. Reg. at 77,504-06. In
addition, EPA reasonably explained that it chose to set the
volumes at the mid-point and three-quarter-point for each set
of producers based on data and comments it received as well as
the fact that many of the biogas producers had commercial
70
experience generating biogas and employed well-tested
technology. Id. EPA’s explanation is reasonable for purposes
of arbitrary and capricious review.
Second, the Obligated Party Petitioners argue that EPA’s
projections overlook the fact that many biogas producers are
incapable of producing the type of transportation-grade
cellulosic biofuel that is required to generate RINs and satisfy
the Renewable Fuel Program’s requirements. However, EPA
limited its analysis of biogas producers to those producers that
had the capacity to generate cellulosic biofuel RINs. See
November 2015 Assessment of Cellulosic Biofuel Production
from Biogas (2015-2016), Memorandum from Dallas
Burkholder to Air and Radiation Docket EPA-HQ-OAR-2015-
0111 (Nov. 2015), J.A. 821; see also Final Rule, 80 Fed. Reg.
at 77,501 n.205. So that challenge fails.
Third, the Obligated Party Petitioners take issue with
EPA’s reliance on a biogas estimate provided by the Coalition
for Renewable Natural Gas. But EPA noted that it did “not
think it would be appropriate to simply adopt” the Coalition’s
projections. EPA Response to Comments on Final Rule, at 569
(Nov. 2015), J.A. 1017. EPA instead reached its own
projections applying the reasonable projection methodology
discussed above. So that claim is likewise without merit.9
9
The Obligated Party Petitioners also ask this Court to remand
the cellulosic biofuel projections to EPA because EPA failed to
disclose critical information – namely, 2014 and 2015 production
data for the separate categories of liquid cellulosic biofuel and
biogas – when EPA promulgated the Final Rule. By statute, to
prevail on that type of a procedural argument, the Obligated Party
Petitioners must show that EPA’s alleged failure to disclose that data
was “so serious” that there is a “substantial likelihood that the rule
would have been significantly changed if” EPA had disclosed the
data. 42 U.S.C. § 7607(d)(8); see id. § 7607(d)(9)(D)(iii). The
71
We conclude that EPA’s biogas projection for 2016 was
reasonable and adequately explained. We therefore reject the
Obligated Party Petitioners’ arbitrary and capricious
challenges to that projection.
V
In this section, we consider National Biodiesel Board’s
challenge to EPA’s interpretation and use of its cellulosic
waiver authority to lower the advanced biofuel volume
requirements for the years 2014, 2015, and 2016. EPA
interpreted the cellulosic waiver provision as granting the
agency broad discretion to consider a variety of factors –
including demand-side constraints in the advanced biofuels
market – when determining whether to exercise its cellulosic
waiver authority. National Biodiesel Board argues that EPA’s
interpretation is contrary to the statute. National Biodiesel
Board also asserts that EPA’s calculation of the volume of
advanced biofuel likely to be available in 2016 was arbitrary
and capricious. Both arguments are without merit.
A
As explained in the previous section, Congress enacted a
number of provisions that EPA must follow when setting
cellulosic biofuel volume requirements under the Renewable
Fuel Program. EPA must first project the amount of cellulosic
biofuel likely to be produced in the relevant calendar year. See
42 U.S.C. § 7545(o)(7)(D)(i). If that EPA projection falls short
of the statutory volume requirement for cellulosic biofuel, then
Obligated Party Petitioners have failed to articulate how EPA’s
alleged error in omitting the 2014 and 2015 data satisfies that
heightened standard.
72
EPA “shall reduce” the cellulosic biofuel volume requirement
“to the projected volume available during that calendar year.”
Id.
EPA’s reduction of the cellulosic biofuel volume
requirement triggers its authority under the “cellulosic waiver
provision.” That provision states: “For any calendar year in
which” EPA reduces the cellulosic biofuel volume
requirement, EPA “may also reduce” the total renewable fuel
and advanced biofuel volume requirements “by the same or a
lesser volume.” Id. The cellulosic waiver provision reflects
the nested nature of the renewable fuel categories: Because
cellulosic biofuel is a subcategory of advanced biofuel, a
reduction to the cellulosic biofuel volume requirement leaves a
gap in the supply of advanced biofuel available to satisfy the
advanced biofuel volume requirement. See id.
§ 7545(o)(1)(B)(ii).
In the Final Rule, EPA determined that the cellulosic
biofuel levels would fall short of the statutory requirements for
the years 2014, 2015, and 2016. See Final Rule, 80 Fed. Reg.
at 77,422; see also Part IV, supra.10 As required by statute,
EPA reduced the cellulosic biofuel volume requirements for
those years. See Final Rule, 80 Fed. Reg. at 77,499.
Specifically, EPA reduced the statutory volume requirements
by 1.72 billion gallons for 2014; by 2.88 billion gallons for
2015; and by 4.02 billion gallons for 2016. See id. By statute,
EPA’s reduction of the cellulosic biofuel volume requirements
meant that the agency had discretion to reduce the volume
10
By the time EPA issued the Final Rule in December 2015, all
of 2014 and most of 2015 had passed. For that reason, EPA chose to
base its cellulosic biofuel “projections” for those years on the actual
number of cellulosic biofuel RINs generated. See Final Rule, 80 Fed.
Reg. at 77,439. We considered issues relating to EPA’s late issuance
of the Final Rule above in Part III.
73
requirements for advanced biofuel and total renewable fuel
using its cellulosic waiver authority.
EPA noted that it had “broad discretion” to determine
“when and under what circumstances” to use its cellulosic
waiver authority. Id. at 77,434 (citing Monroe Energy, LLC v.
EPA, 750 F.3d 909, 915 (D.C. Cir. 2014)). EPA stated,
however, that it would reduce the advanced and total renewable
fuel volume requirements through use of the cellulosic waiver
authority only if it had a “substantial justification” to do so. Id.
A “substantial justification” would exist, according to EPA, if
EPA determined that the reduction in cellulosic biofuel would
create a gap in the Nation’s supply of renewable fuel that could
not be filled with other (non-cellulosic) types of advanced
biofuel. Id. To make that determination, EPA stated that it
would consider a variety of factors, including supply-side
constraints on the production and import of advanced biofuels
as well as demand-side limitations on the ability of the market
to use advanced biofuel. See id.
In the Final Rule, EPA considered those supply-side and
demand-side factors. After doing so, EPA determined that
“constraints (including distribution and infrastructure
constraints) that limit the use of non-cellulosic advanced
biofuels” would prevent those fuels from completely filling the
gap created by the reduction in cellulosic biofuel. Id.
According to EPA, because the market could not support
consumption of the advanced biofuel volumes required by the
statute, setting the volumes at the statutory targets would only
lead to “noncompliance and/or additional petitions for a waiver
of the standards.” Id. at 77,442. EPA therefore decided to use
its cellulosic waiver authority “to reduce the advanced biofuel
applicable volume to a level” that the agency determined “to
be reasonably attainable” in the renewable fuel market. Id. at
77,434. Specifically, EPA reduced the statutory volume of
74
advanced biofuel by 1.08 billion gallons for 2014; by 2.62
billion gallons for 2015; and by 3.64 billion gallons for 2016.
Compare id. at 77,424 tbl.I.A-1, with id. at 77,432 tbl.II-1.
National Biodiesel Board challenges EPA’s interpretation
and use of its cellulosic waiver authority to reduce the
advanced biofuel requirements. National Biodiesel Board also
contends that EPA’s calculations of the supply of advanced
biofuel likely to be available in 2016 were arbitrary and
capricious. We now address, and reject, those arguments in
turn.11
B
We first consider National Biodiesel Board’s challenge to
EPA’s interpretation and use of its cellulosic waiver authority.
National Biodiesel Board argues that EPA’s interpretation –
under which EPA considered demand-side constraints in the
market for advanced biofuels when considering whether to
make reductions under the cellulosic waiver provision –
exceeds EPA’s statutory authority. We do not agree.
This Court previously considered the scope of the
cellulosic waiver provision in Monroe Energy, LLC v. EPA,
11
In “prior actions,” EPA interpreted the cellulosic waiver
provision “as authorizing EPA to reduce both total renewable fuel
and advanced biofuel, by the same amount, if EPA reduces the
volume of cellulosic biofuel.” Final Rule, 80 Fed. Reg. at 77,433.
EPA therefore reduced the volume requirements for total renewable
fuel by the same amounts as it reduced the volume requirements for
advanced biofuel. Id. at 77,434. National Biodiesel Board does not
challenge that facet of EPA’s interpretation of the cellulosic waiver
provision nor EPA’s reduction of the total renewable fuel volume
requirements. We therefore focus on EPA’s reduction of the
advanced biofuel statutory volume requirements.
75
750 F.3d 909 (D.C. Cir. 2014). The Court noted that, in
contrast to other EPA waiver authorities, the text of the
cellulosic waiver provision does not “prescribe any factors that
EPA must consider in making its decision” about whether to
use its cellulosic waiver authority. Id. at 915. Given “the
absence of any express or implied statutory directive to
consider particular factors,” the Monroe Energy Court said that
EPA “reasonably concluded that it enjoys broad discretion
regarding whether and in what circumstances to reduce the
advanced biofuel and total renewable fuel volumes under the
cellulosic biofuel waiver provision.” Id. Applying that
principle, the Court approved EPA’s decision to consider the
“ability of” advanced biofuels “to be consumed” in the market
when determining whether to exercise its cellulosic waiver
authority. Id. at 916.
Citing Monroe Energy, EPA asserts that its interpretation
of the cellulosic waiver provision – including EPA’s reading of
the provision as granting it authority to consider demand-side
constraints on the market for advanced biofuels – is permissible
under the statute.
National Biodiesel Board disagrees. It states that EPA’s
interpretation of the cellulosic waiver provision circumvents
the limits that Congress placed on EPA’s authority. According
to National Biodiesel Board, EPA’s discretion under the
cellulosic waiver provision is limited by the other waiver
provisions in the statute – including, as relevant here, the
“inadequate domestic supply” prong of EPA’s general waiver
provision. See 42 U.S.C. § 7545(o)(7)(A)(ii). Under National
Biodiesel Board’s reading of the cellulosic waiver provision,
EPA has the authority to reduce the advanced biofuel volume
requirements if – and only if – there is an inadequate supply of
advanced biofuel in the market to meet those statutory
volumes. National Biodiesel Board argues that EPA cannot
76
consider demand-side constraints on the ability of the market
to consume advanced biofuel because doing so would
contravene the limitations in EPA’s general waiver provision.
In our view, EPA has the better of the argument. The text
of the cellulosic waiver provision, the structure of the
Renewable Fuel Program, and this Court’s decision in Monroe
Energy all point in the same direction: The cellulosic waiver
provision grants EPA “broad discretion” to consider a variety
of factors – including constraints on the demand for advanced
biofuel – when determining “whether and in what
circumstances” to reduce the advanced biofuel volume
requirement. Monroe Energy, 750 F.3d at 915.
We start with the text of the cellulosic waiver provision.
That text places only one limitation on EPA’s cellulosic waiver
authority: Any reduction EPA makes to the advanced biofuel
or total renewable fuel volume requirements may not exceed
the amount of EPA’s reduction to the cellulosic biofuel volume
requirement. See 42 U.S.C. § 7545(o)(7)(D)(i). Beyond that,
the provision does not “prescribe any factors that EPA must
consider in making its decision” to lower the advanced biofuel
or total renewable fuel volume requirements. Monroe Energy,
750 F.3d at 915. Where, as here, “a statute is silent with respect
to all potentially relevant factors, it is eminently reasonable to
conclude that the silence is meant to convey nothing more than
a refusal to tie the agency’s hands.” Id. (quoting Catawba
County v. EPA, 571 F.3d 20, 37 (D.C. Cir. 2009)).
Structural considerations also support EPA’s reading of
the cellulosic waiver provision. As just discussed, the
cellulosic waiver provision does not contain “any express or
implied statutory directive to consider particular factors.” Id.
By contrast, other waiver provisions in nearby subsections of
the statute detail the considerations and procedural steps that
77
EPA must take before waiving fuel requirements. See, e.g., 42
U.S.C. § 7545(o)(7)(A) (EPA may lower total renewable fuel
volumes based on determination “after public notice and
opportunity for comment” (i) that requirements would
“severely harm the economy or environment of a State, a
region, or the United States” or (ii) that there is “inadequate
domestic supply” of renewable fuel); id. § 7545(o)(7)(E)(ii)
(EPA may lower biomass-based diesel requirements upon
determination “that there is a significant renewable feedstock
disruption or other market circumstances that would make the
price of biomass-based diesel fuel increase significantly”). In
addition, even though the cellulosic waiver provision cross-
references two other statutory provisions, it does not cross-
reference or otherwise incorporate by reference any limitations
on EPA’s waiver authority. See id. § 7545(o)(7)(D)(i). The
fact that Congress knew how to cabin EPA’s discretion or
reference other statutory provisions when it wanted to do so –
and did not pursue either of those “ready alternative[s]” in the
cellulosic waiver provision – further confirms that the
cellulosic waiver provision means what it says. Advocate
Health Care Network v. Stapleton, 137 S. Ct. 1652, 1659, slip
op. at 8 (2017).12
12
National Biodiesel Board counters with a structural argument
of its own. Positing that “Congress presumably intended” the
general waiver provision and cellulosic waiver provision “to
harmonize without specifically cross-referencing the two,” National
Biodiesel Board contends that EPA’s interpretation must be wrong
because it renders the “inadequate domestic supply” prong of the
general waiver provision superfluous. National Biodiesel Board
Reply 4. National Biodiesel Board is correct that our reading of the
cellulosic waiver provision allows EPA to reduce the advanced
biofuel or total renewable fuel volume requirements based on factors
it cannot consider for purposes of the “inadequate domestic supply”
provision. But that result follows from the fact that Congress chose
78
Our precedents accord with the text and structure of the
statute. Observing that the text of the cellulosic waiver
provision does not direct EPA to “consider particular factors,”
the Monroe Energy Court held that EPA enjoys broad
discretion regarding “whether and in what circumstances to
reduce the advanced biofuel and total renewable fuel volumes”
under the cellulosic waiver provision. 750 F.3d at 915.
Applying that interpretation, the Court approved EPA’s
decision to consider “the ability of” advanced biofuels “to be
consumed” for purposes of determining whether to exercise the
cellulosic waiver authority. Id. at 916; see also id. (EPA
permissibly considered “the constraints imposed by the E10
blendwall” when deciding whether to use cellulosic waiver
authority). That same reasoning controls here: EPA had
discretion to consider “a range of factors” in determining
whether to exercise its cellulosic waiver authority, including
demand-side constraints that affect “the ability” of advanced
biofuels “to be consumed.” Id.
National Biodiesel Board attempts to distinguish Monroe
Energy on the basis that EPA in that case declined to use its
cellulosic waiver authority. National Biodiesel Board points
out that courts generally give more deference to an agency’s
failure to act than to an agency’s decision to act, and that
Monroe Energy should be read in light of that principle. See
Tr. of Oral Arg. at 31 (citing Heckler v. Chaney, 470 U.S. 821
(1985)). According to National Biodiesel Board, this Court
should adopt a different rule for cases in which EPA chooses
to make reductions under the cellulosic waiver provision.
to grant EPA two textually distinct waiver authorities that operate in
different scenarios pursuant to different limitations.
79
We are not persuaded. Nothing in the Monroe Energy
Court’s discussion of the cellulosic waiver provision turned on
the fact that EPA was declining to exercise its authority in that
case. Rather, the Court relied on the text of the cellulosic
waiver provision itself, which grants EPA “broad discretion
regarding whether and in what circumstances to reduce the
advanced biofuel and total renewable fuel volumes under the
cellulosic biofuel waiver provision.” Monroe Energy, 750 F.3d
at 915 (emphasis added). Neither the text of the cellulosic
waiver provision – nor the Monroe Energy Court’s
interpretation of that text – supports the position that EPA’s
cellulosic waiver authority is narrower when EPA actually
wants to use it.
National Biodiesel Board’s argument boils down to the
contention that “any result consistent with” its “account of the
statute’s overarching goal must be the law.” Henson v.
Santander Consumer USA Inc., 137 S. Ct. 1718, 1725, slip op.
at 9 (2017). We take a different approach, instead presuming
that “the legislature says what it means and means what it
says.” Id., slip op. at 10 (internal quotation mark and
alterations omitted). Applying the cellulosic waiver provision
that Congress chose to enact, we conclude that EPA’s decision
to lower the advanced biofuel volumes for the years 2014,
2015, and 2016 was within the agency’s discretion and
otherwise lawful.13
13
National Biodiesel Board also contends that EPA erred
because it determined the amount of advanced biofuel available in
the market only after determining the appropriate requirements for
total renewable fuel. That is not accurate. EPA explained that its
“assessment of the use of the cellulosic waiver authority alone
focused on a case in which advanced biofuel and total renewable fuel
are both reduced only to the degree necessary to yield an appropriate
volume of advanced biofuel.” Final Rule, 80 Fed. Reg. at 77,443.
Based on an analysis of the projected production and import of
80
C
On the way to determining whether to use its cellulosic
waiver authority, EPA calculated the volume of advanced
biofuel that was “reasonably attainable” in the market in 2016.
Final Rule, 80 Fed. Reg. at 77,476. EPA did so by taking into
account supply-side and demand-side constraints in the
markets for different types of advanced biofuel, including
(i) advanced ethanol, the largest source of which is sugarcane
ethanol from Brazil, and (ii) advanced biodiesel and renewable
diesel. National Biodiesel Board raises three arbitrary and
capricious challenges to EPA’s calculation of the volume of
advanced biofuel “reasonably attainable” in the market in
2016. National Biodiesel Board argues that: (i) EPA failed to
articulate a clear standard for setting advanced biofuel
volumes; (ii) EPA provided no support for its assessment of
projected imports of sugarcane ethanol from Brazil; and
(iii) EPA did not address data showing that biomass-based
diesel was available in greater volumes than EPA estimated.
To survive arbitrary and capricious review, as we have
said, an agency decision must be “reasonable and reasonably
advanced biofuel, as well as market constraints on the ability of
advanced biofuel to be used, EPA determined that the “reasonably
attainable” supply of advanced biofuel in 2016 was 3.61 billion
gallons – an amount that was 3.64 billion gallons short of the
statutory volume of advanced biofuel. See id. at 77,443-44. Only
after deriving the advanced biofuel projection did EPA reduce the
advanced biofuel statutory volume amount to match that projection.
EPA then explained that it was making the same 3.64 billion gallon
reduction to the total renewable fuel volume requirement. See id. at
77,444 & tbl.II.B.6-1. It was therefore the available volumes of
advanced biofuel – not total renewable fuel – that drove EPA’s
cellulosic waiver decision. Id. at 77,443.
81
explained.” Communities for a Better Environment v. EPA,
748 F.3d 333, 335 (D.C. Cir. 2014); see also Motor Vehicle
Manufacturers Association of United States, Inc. v. State Farm
Mutual Automobile Insurance Co., 463 U.S. 29, 43 (1983) (An
agency “must examine the relevant data and articulate a
satisfactory explanation for its action.”). Applying that
deferential standard, we reject National Biodiesel Board’s
arguments.
First, we disagree with National Biodiesel Board that EPA
failed to reasonably explain its standard for setting advanced
biofuel volumes. National Biodiesel Board focuses on EPA’s
statement that it was setting the advanced biofuel volume
requirement at a “reasonably attainable” level, as if that were
the only explanation given by EPA in the Final Rule. But EPA
explained at length the various factors it considered when
calculating the “reasonably attainable” volume of advanced
biofuel, including, among other things: (i) the quantity of
feedstock available to produce advanced biofuel, see Final
Rule, 80 Fed. Reg. at 77,466; (ii) production capacity of the
facilities capable of producing advanced biofuel, see id. at
77,467; (iii) advanced biofuel import capacity, see id. at
77,467-69; and (iv) the market’s capacity to produce,
distribute, and consume biomass-based diesel, see id. at
77,470-75. EPA’s detailed explanation of its method for
determining the “reasonably attainable” volume of advanced
biofuel was “satisfactory,” to say the least. State Farm, 463
U.S. at 43.
Second, we reject National Biodiesel Board’s argument
that EPA acted unreasonably by failing to explain its projection
of the amount of sugarcane ethanol that was likely to be
imported from Brazil in 2016. According to National Biodiesel
Board, EPA erred when it concluded that only 200 million
gallons of sugarcane ethanol would be imported from Brazil.
82
National Biodiesel Board argues that EPA’s projection placed
too much emphasis on the “low levels of imports seen in 2014
and 2015” because no advanced biofuel standards were in place
for those years – a fact that drove down advanced biofuel
imports. Final Rule, 80 Fed. Reg. at 77,478. EPA did point to
data showing that imports of sugarcane ethanol from Brazil
were on the decline, having reached only 64 million gallons in
2014 and approximately 55 million gallons in 2015. But EPA
did not rely solely on that historical data to reach its
projections. Rather, EPA examined a number of factors
affecting Brazil’s exports of sugarcane ethanol into the United
States. Those factors included “total gasoline consumption in
Brazil,” which EPA explained was outpacing the growth rate
of sugarcane ethanol production, as well as the “worldwide
demand for sugar.” Id. at 77,477, 77,478. Citing all of those
considerations, EPA concluded that “a somewhat lower level
of imports will occur than the historic average” of 300 million,
and EPA opted to set the projection at 200 million instead. Id.
at 77,478. That conclusion was “reasonable and reasonably
explained” for purposes of arbitrary and capricious review.
Communities for a Better Environment, 748 F.3d at 335.
Third, we disagree with National Biodiesel Board that
EPA’s projection of the available amounts of biomass-based
diesel was arbitrary and capricious. National Biodiesel
Board’s basic contention on this point is that EPA ignored
factors showing that the market could supply a higher volume
of biomass-based diesel than the volume determined by EPA.
In particular, EPA allegedly overlooked factors related to
biomass-based diesel production capacity, import capacity,
distribution capacity, and consumption capacity.
On the contrary, however, EPA did discuss “the many
different factors that may constrain the supply of biodiesel and
renewable diesel in 2016.” Final Rule, 80 Fed. Reg. at 77,466.
83
EPA explained that production capacity was constrained by the
limited availability of biomass-based diesel feedstock and by
the middling utilization rates of biomass-based diesel
production facilities. See id. at 77,466-67. EPA also explained
its considerations regarding import capacity. Although EPA
conceded that the amount of biodiesel imports “is difficult to
predict,” EPA walked through a number of factors to support
its projection of biomass-based diesel imports. Id. at 77,468.
Those factors included, among other things: historical data on
imports; the considerations that would lead other countries to
export their fuel to the United States; and whether the imports
from foreign countries would qualify as biomass-based diesel.
See id. at 77,468-70. EPA also discussed the assorted
constraints on distribution capacity – such as limitations on
transporting biodiesel through existing pipelines, the need for
specialized storage facilities to preserve biodiesel in winter
months, and the minimal number of retailers that sell biodiesel
– that prevent biomass-based diesel from getting to consumers.
See id. at 77,470-71. Finally, EPA noted that many engine
manufacturers do not warrant the use of certain biomass-based
diesel fuels, a fact that further constrains the consumption of
biomass-based diesel by consumers. Id. at 77,471-72.
EPA’s analysis, more of which appears in the Final Rule,
demonstrates that EPA fulfilled its duty to “examine the
relevant data and articulate a satisfactory explanation for” its
biomass-based diesel projections, “including a rational
connection between the facts found and the choice made.”
State Farm, 463 U.S. at 43 (internal quotation marks omitted).
In such a situation, this Court “is not to substitute its judgment”
(nor National Biodiesel Board’s) “for that of the agency.” Id.
We conclude that EPA’s calculation of the volume of
advanced biofuel “reasonably attainable” in the market in 2016
was not arbitrary or capricious. Final Rule, 80 Fed. Reg. at
84
77,476. We reject National Biodiesel Board’s arguments to the
contrary.
VI
The final issue raised by the Obligated Party Petitioners is
whether EPA was required to consider the appropriateness of
the current “point of obligation” – that is, EPA’s choice to
apply the statute’s renewable fuel requirements to refiners and
importers, but not blenders – in the Final Rule.
The Obligated Party Petitioners argue that EPA’s failure
to reconsider the point of obligation requires us to remand the
Final Rule to the agency. But we need not decide whether a
remand is required because, as discussed in Part II, we are
already remanding the Final Rule to EPA for further
proceedings in light of our interpretation of the “inadequate
domestic supply” waiver provision. With the Final Rule back
before the agency, EPA will have an opportunity to address the
Obligated Party Petitioners’ arguments regarding the point of
obligation. In addition, EPA is currently considering
comments on its proposed denial of a set of petitions – petitions
filed by some of the Obligated Party Petitioners – seeking
reconsideration of EPA’s current point of obligation
regulation. See Notice of Opportunity to Comment on
Proposed Denial of Petitions for Rulemaking to Change the
RFS Point of Obligation, 81 Fed. Reg. 83,776 (Nov. 22, 2016).
Given the stage of that proceeding, we leave it up to EPA to
determine whether to address the point of obligation issue
there, on remand in this case, or in both proceedings.
***
We agree with Americans for Clean Energy that the statute
forecloses EPA’s reading of the “inadequate domestic supply”
85
waiver provision. We therefore grant Americans for Clean
Energy’s petition for review of the 2015 Final Rule, vacate
EPA’s decision in the Rule to reduce the total renewable fuel
volume requirements for 2016 through use of the “inadequate
domestic supply” waiver authority, and remand the rule to EPA
for further consideration in light of our interpretation.
We have considered all of the parties’ other arguments and
have found them to be without merit. We deny the remainder
of the petitions for review.
So ordered.