The D.C. Circuit Court of Appeals ruled July 2 that the Environmental Protection Agency (EPA) did not have statutory authority to authorize year-round sales of E15 across the United States. The decision is likely to have ripple effects throughout fuels markets and will necessitate advocacy activity before all three branches of the federal government in the days and weeks ahead.
The case was brought by the American Fuel and Petrochemical Manufacturers (AFPM). AFPM argued successfully that E15 is not "substantially similar" to E10 and therefore EPA is not permitted to expand to E15 the RVP waiver that E10 currently enjoys under federal law. "By its plain terms, then, [the exemption] applies to E10, leaving no room for EPA to exempt E15," the court wrote.
EPA had finalized its RVP waiver in June 2019. This was part of a Trump Administration "compromise" designed to appease agriculture and biofuel stakeholders who had been harmed by the Administration's aggressive issuance of small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS). In justifying this compromise, EPA argued that because E15 by definition also contains 10 percent ethanol, the higher-ethanol fuel should also qualify for the waiver. The ruling comes exactly one week after the Supreme Court dealt another blow to biofuels interests by upholding the Trump Administration's approach to issuing small refinery exemptions. Like the July 2 E15 ruling, the Supreme Court ruling was a matter of statutory interpretation rather than a substantive decision on the underlying biofuels policy.
Although the decision was released July 2, that does not mean that it immediately goes into effect. In order for the decision to go into effect, the court must issue a "mandate" to EPA to implement the decision.
The D.C. Circuit ordinarily delays issuing the mandate until at least 45 days after the decision is published to give EPA or other interested parties the opportunity to file a "petition for rehearing" before the same 3-judge panel that decided the case, or instead petition for an en banc rehearing before all of the judges of the D.C. Circuit. If EPA or another party files a petition for rehearing, the court usually further delays issuing the mandate until it has either denied the petition or else agreed to take up the petition for rehearing and issued another decision. At this point it is unclear when the ruling will take effect.
The decision threatens the summertime sales of E15 across all non-reformulated gasoline (RFG) areas. Today approximately 2/3 of retail sites that sell E15 do so in non-RFG areas (which tend to be more rural, while RFG areas tend to be more urban and densely populated). These sites represent approximately 90 percent of E15 sales. If and when the ruling takes effect, during the summer driving season (June 1-Sept. 15) retailers in non-RFG areas will need to affix a label on their fuel pumps where E15 is sold informing consumers that E15 is only permitted for use in flex fuel vehicles. This decision has no impact on long-standing rules that permit sale of E15 year-round in reformulated gasoline (RFG) markets.
The court decision will trigger significant advocacy activity in all three branches of the federal government.
In the courts, decisions will need to be made regarding when EPA will be required to implement this decision (i.e., prevent summertime sales of E15 to non-flex fuel vehicles). It would cause the least amount of disruption for fuel marketers that currently sell E15 if this decision does not take effect until after the 2021 summer driving season ends on September 15.
At EPA, this decision will implicate (and likely delay) the agency's proposed renewable volume obligations (RVOs) for 2021 and 2022. To the extent the Biden Administration is exploring ways to lower RIN prices, today's court decision, and the negative impact it could have on E15 sales nationwide, offers a defensible rationale to lower ethanol blending mandates.
In Congress, biofuels advocates will likely push to include a statutory "fix" to the E15 RVP issue as part of the bipartisan infrastructure package Congress is currently negotiating. Although liquid fuel policy has not been a major part of that debate, the ruling today could change that and create an opening, albeit a narrow one, for low carbon liquid fuel solutions to be on the table.
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