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National Petrochemical & Refiners Association v. Environmental Protection Agency

December 21, 2010

NATIONAL PETROCHEMICAL & REFINERS ASSOCIATION, PETITIONER
v.
ENVIRONMENTAL PROTECTION AGENCY, RESPONDENT GROWTH ENERGY AND NATIONAL BIODIESEL BOARD, INTERVENORS



The opinion of the court was delivered by: Rogers, Circuit Judge:

Argued September 17, 2010

On Petitions for Review of a Final Action of the Environmental Protection Agency

Before: GINSBURG, ROGERS and GARLAND, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

In 2007, Congress enacted the Energy Independence and Security Act ("the EISA"), Pub. L. No. 110--140, §§ 201--204, 121 Stat. 1492 (codified as amended at 42 U.S.C. § 7545(o) (Supp. II 2008)). It expanded the renewable fuel program under the Energy Policy Act of 2005, Pub. L. No. 109--58, § 1501, 119 Stat. 594 (codified as amended at 42 U.S.C. § 7545(o) (Supp. 2006)) ("2005 Act"), which required that set volumes of renewable fuel be incorporated into gasoline sold in the United States each year. The EISA increased the volume requirements for renewable fuel and added new volume requirements for advanced biofuels, biomass-based diesel, and cellulosic biofuel. Congress thus sought "[t]o move the United States toward greater energy independence and security, to increase the production of clean renewable fuels, to protect consumers, to increase the efficiency of products, buildings, and vehicles, to promote research on and deploy greenhouse gas capture and storage options, and to improve the energy performance of the Federal Government." Pub. L. No. 110--140, 121 Stat. 1492 (2007). EPA posted notice of the final revisions to the regulations promulgated under the 2005 Act on its website on February 3, 2010 and published the revised regulations in the Federal Register on March 26, 2010. Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program, 75 Fed. Reg. 14,670 (Mar. 26, 2010) ("Final Rule").

Petitioners, the National Petrochemical and Refiners Association and the American Petroleum Institute, challenge the Final Rule on three grounds. They contend that it violates statutory requirements setting separate biomass-based diesel volume requirements for 2009 and 2010; it is impermissibly retroactive; and it violates statutory lead time and compliance provisions. For the following reasons, we deny the petitions for review.

I.

In 2005 Congress amended section 211 of the Clean Air Act that authorizes EPA to regulate fuel and fuel additives to establish a renewable fuel program. See Pub. L. No. 109--58, § 1501, 119 Stat. 594 (codified at 42 U.S.C. § 7545(o)). For each year from 2006 until 2012, Congress specified increasing minimum volumes of renewable fuel to be used annually. EPA was directed to promulgate regulations by August 8, 2006 "to ensure that gasoline sold or introduced into commerce in the United States . . . , on an annual average basis, contains the applicable volume of renewable fuel determined in accordance with subparagraph (B)."*fn1 Subparagraph (B) listed the applicable volumes of renewable fuel that "shall be determined in accordance with" a table stating a volume for each calendar year.*fn2 The regulations were to include a credit trading program under which an obligated party: (1) may generate credits for over complying with its annual obligation, and can use or trade these credits for use by another obligated party, allowing an obligated party to comply in the most cost effective manner, and (2) may carry over a renewable fuel deficit to the next calendar year.*fn3 "Regardless of the date of promulgation,"*fn4 the regulations were to contain provisions to "ensure" the requirements of the renewable fuel program were met, without restricting geographic areas in which such fuel may be used or imposing any per-gallon obligation for use of such fuel.*fn5 If the August 8, 2006 date was not met, then a default percentage standard for 2006 of 2.78 percent would apply.*fn6

Obligated parties - refiners, importers, and certain blenders of gasoline - had to show that they had introduced a required volume of renewable fuel into the domestic gasoline pool each year.*fn7 The volume is determined by multiplying an obligated party's actual annual gasoline production in a given year by a percentage standard to be calculated and published by EPA by November 30 prior to each compliance year.*fn8 The percentage standard is the ratio of the statutory volume of renewable fuel for the particular year to the amount of gasoline that is projected to be used in the United States in the same year, subject to certain adjustments.*fn9 Ultimately, each obligated party is responsible for ensuring that its share of the overall renewable fuel volume requirement is blended into the gasoline it sells or introduces into commerce each year.

EPA published the implementing regulations in the Federal Register on May 1, 2007. Regulation of Fuels and Fuel Additives: Renewable Fuel Standard Program, 72 Fed. Reg. 23,900 (May 1, 2007) ("RFS1"). The regulations applied to gasoline produced or imported on or after September 1, 2007. RFS1, 72 Fed. Reg. at 23,913. As of that date, obligated parties had to be registered and the record-keeping responsibilities commenced. EPA stated that the renewable fuel program adopted in the RFS1 rulemaking "will continue to apply after 2012, though some elements may be modified in the rulemaking setting the standards for 2013 and beyond." Id. at 23,913. To facilitate compliance, EPA adopted a system of Renewable Identification Numbers ("RINs") for reporting purposes. Id. at 23,908--10. Thus, obligated parties would demonstrate their compliance with the annual volume standard by acquiring RINs for each gallon of renewable fuel, which would be assigned to batches of renewable fuel produced or imported into the United States, with different fuels carrying different values based on the energy content relative to ethanol. See id. at 23,909.

When Congress expanded the renewable fuel program in 2007 in the EISA, Pub. L. No. 110--140, §§ 201--204, 121 Stat. 1492, it significantly increased the applicable volumes of renewable fuel required to be used annually, beginning with 2008 through 2022.*fn10 In other major changes, it expanded the fuel pool subject to the standards to include diesel and some non-road fuels.*fn11 It separated the volumes into four categories (cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel) for purposes of reducing greenhouse gas emissions and set annual volume requirements for each category.*fn12 It also changed the definition of "renewable fuel" and set the criteria for determining which of the four renewable fuel categories a given renewable fuel is eligible to meet; "renewable fuel" was defined to require that such fuel be produced solely from feedstocks that qualify as "renewable biomass."*fn13 Although the definitions of each of the four categories of fuel overlap to a certain extent (therefore satisfying one volume requirement also satisfies other volume requirements in part), refiners, importers and certain blenders of gasoline are obligated to demonstrate that they have introduced the requisite volumes of each of the four categories of fuel into transportation fuel sold annually. The EISA authorized the waiver of the volume requirements only in limited circumstances.*fn14 The revised regulations were to be promulgated in one year, by December 19, 2008*fn15 ; the requirement that the volume standard be published by November 30 of the prior year remained unchanged.

By Notice of November 21, 2008, EPA published the renewable fuel standard for 2009. See Renewable Fuel Standard for 2009, Issued Pursuant to Section 211(o) of the Clean Air Act, 73 Fed. Reg. 70,643, 70,643 (Nov. 21, 2008) ("2008 Notice"). Additionally, the Notice stated, because EPA was not going to meet the December 19, 2008 deadline for promulging the revised regulations, that "for the 2009 compliance period regulated parties will continue to be subject to the existing RFS1 regulations at 40 C.F.R. part 80, Subpart K." Id. EPA would apply the modified volume requirements under the EISA to generate the 2009 standard. See id. The Notice also stated, because "the RFS1 regulatory structure does not provide a mechanism for implementing the [new] EISA requirement for use of 0.5 billion gallons of biomass-based diesel," id., that the future rulemaking proposal would "propose options," id. EPA advised that "[t]he primary approach for proposal that [it had] identified to date would be to increase the 2010 biomass-based diesel requirement by 0.5 billion gallons and allow 2009 biodiesel and renewable diesel RINs to be used to meet this combined 2009/2010 requirement." Id. "Such an approach to biomass-based diesel," EPA explained, "would provide a similar incentive for biomass-based diesel use in 2009 as would have occurred had [EPA] been able to implement the standard for 2009." Id. "While obligated parties would not need to demonstrate compliance with the combined 2009/2010 biomass-based diesel standard until the end of the 2010 compliance period under this approach," EPA advised that "it would behoove them to acquire the necessary RINs representing biodiesel and renewable diesel in 2009 in preparation for their 2010 compliance demonstration." Id.

On May 26, 2009, EPA published a notice of proposed rulemaking incorporating the EISA's changes to the renewable fuel program into a modified regulatory scheme (hereinafter referred to as RFS2). Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program, 74 Fed. Reg. 24,904 (May 26, 2009) ("NPRM"); see id. at 24,957. EPA stated that the proposed RFS2 program was based on its experience with the RFS1 program, "utilizing and building on the same programmatic structure created to implement the current [RFS1] program." Id. at 24,909. Thus, while "[t]he proposed regulations make a number of changes to the current Renewable Fuel Standard program," the RFS2 program would "retain[] many elements of the compliance and trading system already in place." Id. at 24,904. EPA proposed combining the 2009 and 2010 biomass-based diesel statutory volume requirements to create one 2010 standard, and allowing obligated parties to demonstrate their compliance with the 2010 biomass-based diesel standard on February 28, 2011, see id. at 24,959. EPA also indicated that it would retain the RIN system developed in RFS1, as modified to accommodate the additional renewable fuels and other changes made in the EISA, see id. at 24,910. This approach, EPA explained, was "in keeping with [its] overall intent for RFS1 - to design a flexible and enforceable system that could continue to operate effectively regardless of the level of renewable fuel use or market conditions in the transportation fuel sector." Id. at 24,909.

The NPRM stated that the revised regulations would take effect January 1, 2010. Id. at 24,913. EPA advised, however, that it was unable to promulgate the revised regulations by the statutory date, December 19, 2008. See id. EPA pointed specifically to delays caused by "the addition of [the greenhouse gas] complex lifecycle assessments to the determination of eligibility of renewable fuels [to meet the standards for the four fuel categories], the extensive analysis of impacts [being] conduct[ed] for the higher renewable fuel volumes, the various complex changes to the regulatory program [relating to the RINs and IT technology] that require close collaboration with stakeholders, and various statutory limitations such as . . . a 60 day Congressional review period for all significant action." Id.*fn16

EPA alerted obligated parties, much as it had in the 2008 Notice, that although "[f]or the remainder of 2009, the current RFS1 regulations would apply," "in anticipation of the biomass-based diesel standard proposed for 2010, obligated parties may find it in their best interest to plan accordingly in 2009." Id. at 24,908.

EPA promulgated the final revised regulations on February 3, 2010 and posted notice of the 2010 standards on its website the same day,*fn17 and published the Final Rule in the Federal Register on March 26, 2010. The Final Rule made few changes to the NPRM.*fn18 Thus, obligated parties were required to use 1.15 billion gallons of biomass-based diesel based on the combined volume requirements for 2009/2010, with a deferred compliance date. The Final Rule also set the final 2010 percentage standards for cellulosic biofuel, advanced biofuel, and total renewable fuel based on the statutory tables of applicable volumes for those fuels, in view of available volumes. 75 Fed. Reg. at 14,675. Obligated parties were required to apply these percentage standards to their 2010 production or importation of gasoline and diesel fuel to calculate their renewable volume obligation for 2010. Id. at 14,676. As a transition measure, obligated parties were allowed to use RINs generated under the RFS1 program in 2009 and in the first part of 2010 to meet the 2010 RFS2 renewable volume obligations, even though these RFS1 RINs may have been generated for fuel that did not meet the EISA's new greenhouse gas reduction and renewable biomass requirements.Id. at 14,723, 724. With certain limitations, parties also could use 2008 RINs to comply with the 2010 biomass-based diesel standard.*fn19 Id. at 14,719.

The compliance date for the combined 2009/2010 volume requirement was February 28, 2011, the end of the 2010 compliance year. Id. at 14,676. The effective date of the Final Rule was July 1, 2010, "the start of the first [reporting] quarter following completion of the statutorily required 60-day Congressional Review period" for a "major rule." Id. at 14,675.*fn20

EPA explained in the preamble that, in contrast to the alternatives proposed by commenters, it had adopted the combined 2009/2010 approach because it "more closely represent[ed] what would have occurred if [EPA] had been able to implement the 0.5 bill[ion] gal[lon] requirement in 2009." Id. at 14,719. This was, EPA stated, "a reasonable exercise of [its] authority under section [7545](o)(2) to issue regulations that ensure that the volumes for 2009 are ultimately used, even though [EPA was] unable to issue final regulations prior to the 2009 compliance year." Id. at 14,718. EPA observed that "the deficit carryover provision provides a conceptual ...


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