Gasoline pump handle with drop of gasoline coming off end of pump. ktsimage/ThinkstockPhotos

Court gives farmers big ethanol win

The U.S. Court of Appeals in Washington, D.C. just blew a huge hole through the ‘blend wall.’

Last week the U.S. Court of Appeals for the D.C. Circuit issued an opinion regarding biofuels. Jim Lane of Biofuels Digest claimed “…it [court decision] was the biggest victory in the courts for biofuels, ever.” The decision is 85 pages.

The dispute arose when EPA did not publish sufficient volumetric amounts for the use of ethanol from 2014-16. For example, in 2016, the statute called for 22.25 billions of gallons of renewable fuel. EPA only required 18.11 billions of gallons.

Industry group Americans for Clean Energy challenged EPA’s final rule claiming the renewable fuel volume requirements were too low. The Court, in reviewing the renewable fuel program, noted that the requirements Congress created in the 2005 and 2007 Energy Bills were achieved quickly. The Court said “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…”

Hitting the wall

But by 2014, ready compliance for statutory volume compliance was no longer possible. That is because the industry hit the ‘E10 blendwall’: an ‘infrastructure and market-related constraint on ethanol demand’ that ‘arises because most U.S. vehicle engines were not designed to handle gasoline consisting of more than 10 percent ethanol.’ Put differently, a few years into the amended Renewable Fuel Program, the supply of ethanol was much greater than the demand in the market.

That’s a familiar problem for agriculture-too much supply and too little demand!

The Court reversed EPA’s decision because the agency incorrectly interpreted the legal term “inadequate domestic supply”. This language allowed EPA, as part of its general waiver authority, to lower total renewable fuel requirements for the years, 2014, 2015, and 2016. Americans for Clean Energy argued EPA’s interpretation of the phrase “inadequate domestic supply” was wrong and not consistent with the statute.

The Court described how the Renewable Fuel Program requires that increasing volumes of renewable fuel be introduced into the U.S. fuel market. It describes the refiners and importers who manufacture and import gas and diesel fuel. Blenders are critical players who purchase the gas and diesel and mix in renewable fuels.

Meeting the volume requirements

As consumers, we have no obligation here, but refiners, importers and blenders are required by EPA and the statutes to ensure renewable fuel volume requirements are met. There is more ethanol supply than there is demand. Consequently EPA used its waiver power to reduce statutory volume requirements. EPA claimed under the waiver language of “inadequate domestic supply” that it could reduce the statutory requirements.

EPA had concluded that it could consider “supply side” constraints, such as there are insufficient numbers of vehicles and engines capable of using larger amounts of renewable fuel. EPA believes there are insufficient service stations with pumps to handle higher grades of ethanol.

EPA was taking the position that demand is not sufficient to increase renewable fuel gallons. But Americans for Clean Energy claimed just the opposite.

It said the only factor EPA could consider were factors affecting the supply or volume of fuels available to refiners, blenders, and importers. Americans for Clean Energy claimed EPA is not allowed to consider factors such as limits on engines or lack of availability of fuel pumps to deliver renewable fuels in amounts greater than 10%. It claimed EPA was not allowed to consider demand-side constraints but only supply-side factors. The Court agreed when it said “…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 to refiners, blenders, and importers to meet the statutory volume requirements.”

The biofuels industry considers this a huge win because the auto and oil industries have been able to indirectly impose a cap on how much renewable fuel can be used. EPA, with its rule, supported this position.

In fact there is a blend wall. The U.S. Court of Appeals in Washington, D.C. has now blown a huge hole in that wall. Now a huge amount of fuel which previously has had no market may start pouring through that wall as a result of this decision.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.

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