Background: In 2023, two sets of petitioners brought a case before the U.S. Court of Appeals for the D.C. Circuit disputing the Environmental Protection Agency’s (EPA) implementation of the Renewable Fuel Standard (RFS) program. Biofuel petitioners argued that the EPA’s standards are set too low; refining petitioners argued that the volume requirements are too high, as they exceeded the federal government’s own projected transportation demand.
The decision: On May 14, 2024, the court ruled that EPA complied with the law and reasonably exercised its discretion in setting the RFS fuel requirements for 2020, 2021, and 2022, therefore denying the petitions. However, D.C. Circuit Judge Gregory G. Katsas provided a partially dissenting opinion arguing that the 2022 volume requirements are “arbitrarily high.”
Key excerpts include:
- “The agency further estimated that the new standards would generate only $160 million in quantified annual benefits, all coming from increased energy security. One need hardly be an expert to see that the $5.72 billion in costs is strikingly larger than the $160 million in benefits— more than 35 times larger, to be precise.”
- “In my view, the 2022 volume requirements are arbitrarily high. According to EPA, their quantified annual costs exceed their quantified annual benefits by over $5.5 billion. And vague references to potential climate benefits over the course of decades, which EPA viewed as too uncertain even to estimate, do not make up the difference. Moreover, the supplement does not even purport to reflect application of the governing legal standards. For these reasons, I would set aside the 2022 volume requirements.”
- “In discussing these [competing statutory] factors, EPA failed to mention increased fuel costs at all, much less acknowledge that it had estimated them to be several billion dollars annually. Instead, the agency ticked off two potential benefits from the higher volumes—“energy security” (without mentioning that it had estimated this benefit to be a paltry $160 million annually) and “climate change benefits” (without mentioning that it had declined to estimate reduced emissions or to monetize those benefits).”
- “Like my colleagues, I would deny the petitions for review filed by the biofuel producers, who seek to make the volume requirements even higher.”
Why it matters: Judge Katsas’ calls into question EPA’s calculus for setting its volume requirements, emphasizing that the economic consequences outweigh the benefits. The agency continues to set “arbitrarily high” and unreasonable RFS volumes that are impossible to achieve.
These points reinforce the broader advocacy push from independent refiners, elected officials, organized labor leaders, small businesses, and industry groups, who have been urging President Biden and EPA to recognize and address volatile RFS compliance costs.
What to watch next: There are bipartisan efforts afoot in Congress aimed at containing RFS compliance costs. The bicameral Safeguarding Domestic Energy Production and Independence Act would help stabilize our nation’s distillate fuel inventories, reining in the out-of-control costs – which, as Judge Katsas noted, significantly outweigh the benefits.
The bottom line: As Judge Katsas describes, the volume requirements under the RFS are out of control. They do not benefit the national ethanol supply and threaten the financial viability of the independent refiners forced to comply with the program. The program has contributed to several refinery closures and conversions in recent years, making it clear that the current compliance scheme of the RFS is a lose-lose for refiners and ethanol producers alike.
