http://www.reuters.com/article/2014/05/06/usa-court-energy-idUSL2N0NS0VO20140506
UPDATE 2-U.S. appeals court rejects challenge to 2013 renewable fuel
standard
Tue May 6, 2014 4:05pm EDT
(Adds companies' comments, biofuel trade group reaction, background on
additional challenges)
By Ayesha Rascoe and Cezary Podkul
May 6 (Reuters) - A U.S. appeals court on Tuesday threw out an oil
industry challenge to the Obama administration's 2013 biofuel mandate,
ruling that the government has "wide latitude" to decide whether to
modify renewable fuel use targets, and by how much.
The U.S. Court of Appeals for the District of Columbia Circuit rejected
arguments from refiners that the Environmental Protection Agency had not
thoroughly considered how renewable fuel credits are used to satisfy
federal targets.
The ruling could have broad implications for the biofuel mandate, as
various groups weigh challenges to EPA's management of the program. The
EPA's final 2014 quotas are due out in June.
The Renewable Fuel Standard requires increasing amounts of biofuels such
as ethanol to be blended into U.S. gasoline and diesel supplies through
2022.
U.S. refiners need to accumulate credits, or Renewable Identification
Numbers (RINs), to prove they have blended their share of renewable
fuels into gasoline and diesel. If they do not blend, they need to buy RINs.
The oil industry unsuccessfully urged the EPA to lower the federal
mandate to use 16.55 billion gallons of biofuels in 2013, saying it
would unduly burden refiners.
In its challenge, PBF Energy said the EPA should not consider the use of
left over ethanol credits from 2012 when setting targets for 2013.
"This contention is meritless," the court said, adding that "EPA was
entitled to conclude, as it did, that it had wide latitude to consider a
range of factors as appropriate."
PBF said it is evaluating its legal options. "We are disappointed in the
court's ruling and do not agree that EPA properly exercised its
discretion," a PBF spokesman said in an email.
Monroe Energy, a subsidiary of Delta Air Lines which operates the
185,000 barrels-per-day (bpd) Trainer refinery in Pennsylvania, argued
the EPA's decision not to cut 2013 biofuel targets did not take into
account that companies might need to carry over some ethanol credits for
use in 2014, when it finalized the 2013 targets.
The company said a spike in RIN prices last year could cost Monroe more
than $100 million. The ethanol blending credits topped out at around
$1.45 each in July 2013 and remain elevated, with trades spotted at
43.00 cents each on Tuesday.
But the court ruled that expensive fuel credits were not enough to
warrant vacating the target and that there was "no ground to conclude
the 2013 standards are unlawful simply because RINs are costlier than in
prior years."
The court added that higher RIN prices should provide an incentive to
invest in more fueling infrastructure and in diversification of the fuel
supply.
In a statement reacting to the court decision, Monroe Energy disagreed
strongly with this reasoning: "These prices will not increase the volume
of renewable fuel consumed in the U.S., and are in essence nothing but a
tax on refiners," the company said in an email.
BETTER LATE THAN NEVER
Biofuel supporters have been locked in a pitched lobbying battle against
the oil industry to keep the mandate intact. On Tuesday, they had reason
to celebrate at least one victory in a larger battle over the biofuel
content of fuel supplies.
"Today's decision is a victory for American consumers," said a coalition
of biofuel trade groups including the Renewable Fuels Association,
Growth Energy and the Biotechnology Industry Organization.
The court also rejected claims from the refineries that the 2013 rule
should be thrown out because it was issued more than eight months after
the legislative deadline of November 30. The court noted that companies
could estimate their obligations based on fuel consumption estimates
from the Energy Information Administration.
The decision seems to indicate that the delay, while inconvenient, does
not prohibit refiners from complying with the rules, some legal experts
said.
"The unanimous nature of the decision, that the EPA can miss the
statutory deadline by more than eight months, is very significant not
just for the 2013 standards but also the 2014 standards," said David
McCullough, a lawyer at Sutherland Asbill & Brennan LLP who specializes
in energy issues.
It means that, even if the EPA is late finalizing the rules, the court
held that refiners and other obligated parties "still had notice under
the statute establishing the mandates" to plan ahead for their
compliance, and therefore the court views it as not unreasonable for the
EPA to adjust them, said McCullough, whose firm is not involved in the case.
Last month, the American Petroleum Institute and American Fuel and
Petrochemical Manufacturers asked the court to hold out on ruling on
their challenges to the 2013 rule, pending EPA's review of the matters.
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