Successful Legal Challenge To Renewable Fuel Standard Likely To Have Minimal Long-Term Impact On Biofuels

The Energy Independence and Security Act of 2007, commonly referred to as EISA, amended the Federal Renewable Fuel Standard (RFS) by mandating specific quantities and types of renewable transportation fuels for each year--known as the yearly "applicable volume." The applicable volume for a particular fuel (conventional biofuel, advanced biofuel, cellulosic biofuel, biomass-based diesel) determines the quantity fuel refiners, importers and blenders much purchase each year. The below graph illustrates the statutory legal requirements for renewable transportation fuels under the RFS.

The legislative standard, however, is only the first step in setting the actual yearly renewable transportation requirements. Because the volumetric requirements established by Congress in EISA assumed significant innovation in the cellulosic biofuel industry, Congress created an escape hatch in which the Environmental Protection Agency (EPA) can reduce the mandated quantity of advanced and cellulosic biofuel based on the projected production by the nascent industry. If the projected production volume of advanced and cellulosic biofuel for a year is less than the statutorily mandated volume, the EPA is required to reduce the applicable volume that fuel refiners, importers and blenders much purchase each year. The rationale behind this safety valve is that petroleum refiners are dependent upon the biofuel industry to produce advanced and cellulosic biofuels for them to purchase and blend into their product. If there is no biofuel to purchase, the refiners in essence have no option other than to miss the mandate and pay the accompanying penalty. As illustrated below, for each year of the RFS, the EPA has reduced the cellulosic biofuel applicable volume due to a lack of production capacity.

The Court Challenge to the 2012 Cellulosic Biofuel Mandate

The issue in the American Petroleum Institute (API) litigation is the EPA's mandate of 8.7 million gallons of cellulosic biofuel for 2012. Specifically, API challenged the process EPA used to reach the 8.7 million gallon applicable volume. EISA requires EPA to determine the projected volume of cellulosic ethanol based on an estimate created by the Energy Information Administration (EIA). The EIA projected 6.9 million gallons of cellulosic biofuel production in 2012--significantly less than the 8.7 million established by EPA as the applicable volume. The chart below illustrates the difference between EIA and EPA projections from 2010 to 2012.

Source: Farmdocdaily