EPA oversteps on ethanol policy

Are we running out of renewable fuel? According to the U.S. Environmental Protection Agency, the answer is yes.

In a surprising about-face, the Obama Administration in November proposed a rule that, if finalized, would relax the total amount of ethanol, biodiesel and other renewable fuels that must be used in this country. Its reason? That there will be an “inadequate domestic supply” next year and for years to come.

Back in 2007, Congress amended the Clean Air Act to require this country to use increasing amounts of renewable fuels. This year 16.5 billion gallons is required; next year 18.2 billion gallons must be used; and the figure increases yearly until it reaches 36 billion gallons in 2022.

Yet EPA is now trying to lower next year’s required amount by about 3 billion gallons (to 15.2 billion gallons), and the agency says it will likely lower the amounts in future years as well. To do so, EPA is relying on a never before used provision in the law that allows it to lower the Congressionally mandated levels if it determines that there is an “inadequate domestic supply.”

So is there an “inadequate domestic supply”? It depends on how you define the term “supply.”

The most logical reading is that “supply” means production capacity. Using this definition, EPA can only change the mandated level of renewable fuel if the agency determines that we can’t make enough renewable fuel to meet the required level. According to the U.S. Energy Information Agency and renewable fuel advocates, however, there is plenty of domestic ethanol and biodiesel production capacity to meet the mandate in 2014. And EPA is not disputing this fact.

Instead, EPA is saying in its proposal that technical infrastructure problems would make it extremely difficult for gas stations and drivers to actually use all of the renewable fuel that this country can produce. EPA believes that to meet the full 18.2 billion gallons mandate in 2014, gas would have to include more than 10 percent ethanol, which would force many gas stations to install new pumps and could void warranties or damage engines in some older model cars.

In other words, EPA is defining the term “inadequate domestic supply” very broadly and is focusing on whether the renewable fuel that can be produced will actually be supplied to consumers. According to EPA, considering the “adequacy of supply to the ultimate consumer of transportation fuel is consistent with the common understanding” of the term “supply.”

I disagree, and I think the courts will too. Gas stations are resellers of fuel, and drivers are consumers of fuel. Neither of them are suppliers. How much renewable fuel each can purchase and what they would have to spend to do so has nothing to do with whether there will be an “inadequate domestic supply” of renewable fuel. It has to do with the demand for renewable fuel. And that is the fundamental problem with EPA’s definition of “supply”: it muddles supply with demand.

I’m not the only one who thinks EPA’s definition of “supply” is on shaky legal ground. University of Illinois law professor Jonathan Coppess said as much on a recent media teleconference about EPA’s proposal, noting that “EPA’s interpretation of what constitutes inadequate supply could be viewed as contrary to Congressional intent.” And Bob Dinneen, president of the Renewable Fuels Association (which is the group that is most likely to challenge EPA in court), put it even more bluntly on the call. He said EPA’s proposal “dramatically overstepped” the statute with its “tortured reasoning for what is domestic supply.”

If (or more likely when) a court agrees, the originally mandated levels from the Clean Air Act will have to be reinstated.

When Congress originally set the renewable fuel levels back in 2007, the country’s views on ethanol and other renewable fuels were different than they are today. Many now question whether using food products as fuel makes sense and actually benefits the environment.

But a shift in the country’s mood does not give EPA carte-blanche authority to re-write the law. That’s Congress’ job. And until Congress does so, this country will be stuck with the renewable fuel levels they chose back in 2007. Unless, of course, this country’s supply of renewable fuels really does dry up.

Brian Potts is a partner in Foley & Lardner LLP’s Madison office and a member of the firm’s Environmental Regulation Practice.

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