apfm and api brief in monroe v epa

8/13/2019 APFM and API brief in Monroe v EPA

1/84

[ORAL ARGUMENT NOT YET SCHEDULED]

Nos. 13-1265, 13-1267 & 13-1268

IN THE UNITED STATES COURT OF APPEALSFOR THE DISTRICT OF COLUMBIA CIRCUIT

MONROE E NERGY , LLC, ET AL ., Petitioners ,

v.

E NVIRONMENTAL PROTECTION AGENCY , Respondent .

PETITIONS FOR R EVIEW OF FINAL ACTION OF THE E NVIRONMENTAL PROTECTION AGENCY

BRIEF FOR PETITIONERSAMERICAN PETROLEUM INSTITUTE AND

AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS

Chet M. ThompsonRobert MeyersDavid Y. ChungCROWELL & MORING LLP1001 Pennsylvania Avenue NWWashington, DC 200042595

Richard MoskowitzAMERICAN FUEL & PETROCHEMICALMANUFACTURERS

1667 K Street, NW Suite 700Washington, DC 20006

Counsel for Petitioner American Fuel & Petrochemical Manufacturers

December 9, 2013

Robert A. Long, Jr.Kristen E. EichensehrCOVINGTON & BURLING LLP1201 Pennsylvania Avenue NWWashington, DC 200042401(202) [email protected]

Harry M. NgErik C. Baptist

AMERICAN PETROLEUM I NSTITUTE 1220 L Street NWWashington, DC 200054070

Counsel for Petitioner American Petroleum Institute

USCA Case #13-1265 Document #1469617 Filed: 12/09/2013 Page 1 of 84


2/84

i

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES

Pursuant to Circuit Rule 28(a)(1), Petitioners hereby certify as

follows:

A. Parties and Amici: The parties in this Court are Petitioners

Monroe Energy (No. 13-1265), American Petroleum Institute (No. 13-1267),

American Fuel & Petrochemical Manufacturers (No. 13-1268) and Respondent

Environmental Protection Agency (EPA). The Intervenor for Petitioners is PBF

Holding Co. LLC. Intervenors for Respondent are the Biotechnology Industry

Organization, Growth Energy, National Biodiesel Board, and Renewable Fuels

Association. There are no amici at this time.

B. Rulings Under Review: The agency action under review is EPAs

final action, entitled Regulation of Fuels and Fuel Additives: 2013 Renewable

Fuel Standards; Final Rule, 78 Fed Reg. 49,794 (Aug. 15, 2013).

C. Related Cases: Petitioners are not aware of any related cases.



3/84

ii

RULE 26.1 DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1 and Local Rule 26.1,

Petitioner American Petroleum Institute (API) states that it is a nationwide, not-

for-profit association representing over 550 member companies engaged in all

aspects of the oil and gas industry, including science and research, exploration and

production of oil and natural gas, transportation, refining of crude oil, and

marketing of oil and gas products. API has no parent companies, and no publicly

held company has a 10% or greater ownership interest in API.

Petitioner American Fuel & Petrochemical Manufacturers (AFPM) states

that it is a national trade association of more than 400 companies, including

virtually all U.S. refiners and petrochemical manufacturers. AFPM has no parent

companies, and no publicly held company has a 10% or greater ownership interest

in AFPM.

API and AFPM are trade associations within the meaning of Circuit Rule

26.1. API and AFPM are continuing associations operating for the purpose of

promoting the general commercial, professional, legislative, or other interests of

their memberships.



4/84

iii

TABLE OF CONTENTS

Page(s)

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES ............. i

RULE 26.1 DISCLOSURE STATEMENT .............................................................. ii

TABLE OF CONTENTS ......................................................................................... iii

TABLE OF AUTHORITIES .................................................................................... v

GLOSSARY ............................................................................................................. ix

INTRODUCTION .................................................................................................... 1

JURISDICTIONAL STATEMENT ......................................................................... 3

ISSUES PRESENTED .............................................................................................. 3

STATEMENT OF FACTS ....................................................................................... 3

A. The RFS Program ................................................................................. 3

B. Regulatory History ............................................................................... 6

1. Persistent Delays and Prior RFS Rulemakings .......................... 6

2. 2013 RFS Rulemaking ............................................................... 8

a) Proposed Rule .................................................................. 8

b) Final Rule ......................................................................... 9

SUMMARY OF THE ARGUMENT ..................................................................... 11

STANDING ............................................................................................................ 13

ARGUMENT .......................................................................................................... 14

I. EPAS DECISION TO INCREASE THE RFS DURING THECOMPLIANCE YEAR WITHOUT NOTICE IS CONTRARY TOLAW AND ARBITRARY AND CAPRICIOUS. ........................................ 15



5/84

iv

A. EPA Impermissibly Increased The RFS By Altering TheEstimate Of Transportation Fuel Volume Without Notice. ............... 15

B. EPA Arbitrarily And Capriciously Increased The RFS ByGranting A Small Refinery Exemption During The ComplianceYear. ................................................................................................... 20

II. EPAS 2013 VOLUME REQUIREMENT FOR CELLULOSICBIOFUEL IS ARBITRARY AND CAPRICIOUS. ..................................... 22

A. EPAs Projected Available Volume For Cellulosic Biofuel IsArbitrary And Capricious. .................................................................. 22

B. EPAs Methodology for Projecting Cellulosic BiofuelProduction Is Arbitrary And Capricious. ........................................... 28

1. EPA Failed To Adequately Explain Its Methodology. ............ 29

2. EPA Failed To Provide Adequate Notice Regarding ItsBenchmark Methodology. .................................................... 31

CONCLUSION ....................................................................................................... 34

CERTIFICATE OF COMPLIANCE ...................................................................... 35

CERTIFICATE OF SERVICE ............................................................................... 36



6/84

v

TABLE OF AUTHORITIES *

Page(s)

Cases

Am. Lung Assn v. EPA ,134 F.3d 388 (D.C. Cir. 1998) ............................................................................ 30

*API v. EPA ,706 F.3d 474 (D.C. Cir. 2013) ............................................. 2, 7, 8, 12, 17, 22, 25

Chamber of Commerce of the United States v. EPA ,642 F.3d 192 (D.C. Cir. 2011) ............................................................................ 13

*Envtl. Integrity Project v. EPA ,425 F.3d 992 (D.C. Cir. 2005) .......................................................... 18, 19, 31, 32

Hunt v. Washington State Apple Adver. Commn ,432 U.S. 333 (1977) ............................................................................................ 13

*Motor Vehicle Mfrs. Assn of the United States, Inc. v. State Farm Mut. Auto. Ins.Co. ,463 U.S. 29 (1983) ............................................................... 14, 20, 26, 28, 29, 30

Natl Petrochem. & Refiners Assn v. EPA ,287 F.3d 1130 (D.C. Cir. 2002) .......................................................................... 14

Ne. Md. Waste Disposal Auth. v. EPA ,358 F.3d 936 (D.C. Cir. 2004) ............................................................................ 19

New York v. U.S. EPA ,413 F.3d 3 (D.C. Cir. 2005) ................................................................................ 29

North Carolina v. EPA ,531 F.3d 896 (D.C. Cir. 2008) ............................................................................ 14

SEC v. Chenery Corp. ,332 U.S. 194 (1947) ............................................................................................ 30

* Authorities upon which we chiefly rely are marked with asterisks.



7/84


8/84

vii

42 U.S.C. 7607(d)(9)(D) ....................................................................................... 14

Energy Independence and Security Act of 2007, Pub. L. No. 110-140, 121 Stat.1492 ....................................................................................................................... 3

Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 ................................ 3

Regulations

40 C.F.R. 80.1401 ................................................................................................... 5

40 C.F.R. 80.1405(c) ................................................................................... 9, 10, 16

40 C.F.R. 80.1406 ................................................................................................... 4

40 C.F.R. 80.1407 ................................................................................................... 4

40 C.F.R. 80.1415 ................................................................................................... 5

40 C.F.R. 80.1427 ................................................................................................... 5

40 C.F.R. 80.1427(a)(5) .......................................................................................... 5

40 C.F.R. 80.1427(a)(6) .......................................................................................... 5

40 C.F.R. 80.1427(b) .............................................................................................. 5

40 C.F.R. 80.1451 ................................................................................................... 5

40 C.F.R. 80.1451(a) ............................................................................................... 5

40 C.F.R. 80.1456 ................................................................................................... 6

40 C.F.R. 80.1463 ................................................................................................... 5

Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard

Program , 75 Fed. Reg. 14,670 (Mar. 26, 2010) ............................................... 6, 7 Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards , 75 Fed.

Reg. 76,790 (Dec. 9, 2010) ............................................................................... 6, 7

Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards , 77 Fed.Reg. 1320 (Jan. 9, 2012) ................................................................................... 6, 7



9/84

viii

Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards , 78 Fed.Reg. 49,794 (Aug. 15, 2013) (to be codified at 40 C.F.R. pt. 80) ........................ 3

2014 Standards for the Renewable Fuel Standard Program; Proposed Rule , 78Fed. Reg. 71,732 (Nov. 29, 2013) (to be codified at 40 C.F.R. pt. 80) .............. 28

Other Authorities

Complaint, Berry v. KiOR, Inc., No. 4:13-cv-2443 (S.D. Tex. Aug. 20, 2013), ECF No. 1 .................................................................................................................... 26

Documentation of OMB Review Under Executive Order 12,866, Attachment 1,EPA-HQ-OAR-2012-0546-0014 (Dec. 21 Draft NPRM) .................................. 18

EPA, 2010 RFS2 Data, http://www.epa.gov/otaq/fuels/rfsdata/2010emts.htm(updated Nov. 7, 2013) ......................................................................................... 7

EPA, 2011 RFS2 Data, http://www.epa.gov/otaq/fuels/rfsdata/2011emts.htm(updated Nov. 7, 2013) ......................................................................................... 7

EPA, 2012 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm(updated Nov. 7, 2013) ......................................................................................... 7

EPA, 2013 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm,(updated Nov. 7, 2013) ..................................................................... 11, 23, 24, 26

Fed. R. Evid. 201(b)(2) ............................................................................................ 23

Press Release, KiOR, KiOR to Announce Second Quarter 2013 Financial Resultson August 8, 2013, July 11, 2013, http://investor.kior.com/releases.cfm. ......... 27

Q1 2013 KiOR Inc Earnings Conference Call - Final,Roll Call, at 4 (May 9, 2013) .............................................................................. 26

Q2 2013 KiOR Inc., Earnings Conf. Call Final,

Roll Call (Aug. 8, 2013) ................................................................... 10, 11, 27, 28



10/84


11/84

1

INTRODUCTION

The federal Renewable Fuel Standards (RFS) program requires EPA to

issue, by November 30 of each year, standards for the use of renewable fuel for the

following year. Although EPA was statutorily required to issue the 2013 RFS by

November 30, 2012, it failed to issue the standards until August 15, 2013 almost

two-thirds of the way through the compliance year. Refiners and importers of

transportation fuel (collectively obligated parties) bear the burden of EPAs

chronic tardiness. Instead of benefitting from the lead time Congress mandated,

obligated parties must scramble to alter their compliance strategies more than half

way through the compliance year.

EPA exacerbated the negative effects of its tardiness by increasing obligated

parties RFS obligations without notice based on new information that was not

available for comment by interested parties. In an unprecedented move, EPA

solicited a new projection of total transportation fuel use from the Energy

Information Administration (EIA) during the compliance period and used the

new estimate to calculate the RFS. EPA also granted a small refinery exemption

and reallocated the exempt refiners obligations to the other obligated parties.

Both actions had the effect of increasing obligated parties compliance burdens

(their renewable volume obligation (RVO)) well into the compliance year,

without any notice or opportunity to comment.



12/84

2

Additionally, EPA engaged in yet another overly optimistic projection of

cellulosic biofuel production, despite this Courts recent decision vacating the 2012

cellulosic biofuel RFS. API v. EPA , 706 F.3d 474 (D.C. Cir. 2013). Despite this

Courts admonition that EPA must issue a cellulosic biofuel projection that aims

at accuracy, not at deliberately indulging a greater risk of overshooting than

undershooting, id. at 479, EPA selectively relied on information that supported its

projection and ignored information that undercut it. As a result, EPA has again

said, in effect, Do a good job, cellulosic fuel producers. If you fail, well fine

your customers. Id. at 480. EPA also failed to place information in the

rulemaking docket to permit notice and comment.

EPAs failure to comply with statutory deadlines, notice and comment

requirements, and this Courts order to aim at accuracy in cellulosic biofuel

projections renders the final rule arbitrary and capricious and not in accordance

with the Clean Air Act (CAA).



13/84

3

JURISDICTIONAL STATEMENT

EPA published its final rule in the Federal Register on August 15, 2013.

JA790-827 ( Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel

Standards , 78 Fed. Reg. 49,794 (Aug. 15, 2013) (to be codified at 40 C.F.R. pt.

80)). API and AFPM filed timely petitions for review on October 8 and 10, 2013

respectively. This Court has jurisdiction pursuant to 42 U.S.C. 7607(b).

ISSUES PRESENTED

1. Whether EPA violated the CAA by impermissibly and without notice

relying on a May 2013 EIA projection of transportation fuel consumption and

other information generated after the close of the public comment period.

2. Whether EPA violated the CAA by arbitrarily and without notice

increasing the RFS and consequently obligated parties RVOs due to EPAs grant

of a small refinery exemption during the 2013 compliance year.

3. Whether EPA violated the CAA by setting a cellulosic biofuel volume

requirement that is unrealistically high and inadequately explained.

STATEMENT OF FACTS

A. The RFS Program

Congress amended the CAA to establish the RFS program in the Energy

Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594; it expanded that program in

the Energy Independence and Security Act of 2007, Pub. L. No. 110-140, 121 Stat.

1492. The CAA sets yearly applicable volume requirements for renewable fuel,



14/84

4

advanced biofuel, cellulosic biofuel, and biomass-based diesel. See 42 U.S.C.

7545(o)(2)(B); see also id. 7545(o)(1).

The Act states that, by October 31 of each year, the EIA must provide EPA

with estimates for the volumes of transportation fuel, biomass-based diesel, and

cellulosic biofuel projected to be sold or introduced into commerce in the United

States in the following calendar year. Id. 7545(o)(3)(A). EPA, in turn, must

determine and publish in the Federal Register by November 30 an annual RFS,

which is expressed as a percentage, for the following calendar year for each of four

categories of fuel (cellulosic biofuel, biomass-based diesel, advanced biofuel, and

total renewable fuel). Id. 7545(o)(3)(B)(i). The RFS is expressed as a

percentage of transportation fuel sold or introduced into commerce in the United

States. Id. 7545(o)(3)(B)(ii)(II).

Obligated parties must demonstrate that they meet a required volume, known

as the annual RVO, for each type of renewable fuel. Id. 7545(o)(3)(B)(ii)(I); 40

C.F.R. 80.1406. The RVO (expressed in gallons) is determined by multiplying

the volume of non-renewable gasoline and diesel that the obligated party produces

or imports in a calendar year by the applicable RFS published annually by EPA.

See 42 U.S.C. 7545(o)(3)(B)(i); 40 C.F.R. 80.1407.

Obligated parties demonstrate compliance with their annual RVOs by

acquiring and then surrendering Renewable Identification Numbers (RINs), 40



15/84


16/84

6

Whenever EPA reduces annual requirements for cellulosic biofuel below the

applicable statutory volumes, EPA must make cellulosic biofuel waiver credits

available for purchase. If production of cellulosic biofuel falls below EPAs

projection and EPA does not waive its over-projection, obligated parties must

purchase credits from EPA equal to the volume by which EPA over-estimated

cellulosic biofuel production, or suffer substantial penalties for non-compliance.

Id. 7545(o)(7)(A); id. 7545(o)(7)(D); 40 C.F.R. 80.1456.

B. Regulatory History

1. Persistent Delays and Prior RFS Rulemakings

EPA has failed repeatedly to meet the November 30 statutory deadline for

publishing the annual RFS.

Compliance

Year

Statutory

Deadline

Final RulePublication

Date 2 2010 Nov. 30, 2009 Mar. 26, 20102011 Nov. 30, 2010 Dec. 9, 20102012 Nov. 30, 2011 Jan. 9, 20122013 Nov. 30, 2012 Aug. 15, 2013

2 See Regulation of Fuels and Fuel Additives: Changes to Renewable FuelStandard Program , 75 Fed. Reg. 14,670 (Mar. 26, 2010); Regulation of Fuels and

Fuel Additives: 2011 Renewable Fuel Standards , 75 Fed. Reg. 76,790 (Dec. 9,2010); Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards ,77 Fed. Reg. 1320 (Jan. 9, 2012); JA790.



17/84

7

Despite its habitual tardiness, until this rulemaking, EPA consistently based the

RFS on the estimates of total transportation fuel that EIA provided to EPA by

October 31 of the preceding year, in accordance with the CAA deadline. 3

Each year EPA has recognized that cellulosic biofuel production would not

meet the statutory volumes and has therefore reduced the cellulosic biofuel

applicable volume for each year as required by 7545(o)(7)(D). Despite those

reductions, EPA has grossly overestimated cellulosic biofuel production every

year:

ComplianceYear

ProjectedProduction (in

gallons) 4

ActualProduction 5

2010 5,000,000 02011 6,600,000 02012 8,650,000 21,093 6

This Court held EPAs 2012 cellulosic biofuel projection to be arbitrary and

capricious and vacated the 2012 cellulosic biofuel RFS. API , 706 F.3d 474. The

Court concluded that the CAA does not allow EPA to adopt a methodology in

3 See 75 Fed. Reg. at 14,748, 14,760; 75 Fed. Reg. at 76,796; 77 Fed. Reg. at 1323.4 75 Fed. Reg. at 14,751; 75 Fed. Reg. at 76,794; 77 Fed. Reg. at 1325.5 EPA, 2010 RFS2 Data, http://www.epa.gov/otaq/fuels/rfsdata/2010emts.htm

(updated Nov. 7, 2013); EPA, 2011 RFS2 Data,http://www.epa.gov/otaq/fuels/rfsdata/2011emts.htm (updated Nov. 7, 2013).6 This total includes 20,069 gallons of cellulosic biofuel and 1,024 gallons ofcellulosic diesel. EPA, 2012 EMTS Data,http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm (updated Nov. 7, 2013). Thecellulosic biofuel was not available for compliance purposes because it wasexported to Brazil. JA803. Thus, the effective production in 2012 was only 1,024gallons.



18/84

8

which the risk of overestimation is set deliberately to outweigh the risk of

underestimation. Id. at 479. It further emphasized that EPA acted arbitrarily and

capriciously by not tak[ing] neutral aim at accuracy in its projection. Id. at 476.

2. 2013 RFS Rulemaking

EPAs 2013 final rule violates the statutory deadlines more egregiously than

in past years, relies on information of which interested parties had no notice, and

continues EPAs pattern of over-projection of cellulosic biofuel.

a) Proposed RuleAlthough the statutory deadline for the final 2013 rule was November 30,

2012, EPA did not even propose the 2013 RFS until February 7, 2013. See JA16.

EPA based its proposal on EIAs October 2012 estimates of the volumes of

transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be

sold or introduced into commerce in the United States in 2013. JA36.

For cellulosic biofuel, EPA considered EIAs October 2012 estimate and

data from individual facilities, and it projected 14 million ethanol-equivalent

gallons of cellulosic biofuel production in 2013. See JA24-29. In particular, EPA

projected that two facilities owned by KiOR and INEOS Bio would produce 8

million and 6 million ethanol-equivalent gallons, respectively. See JA28. EPA

asserted that these facilities are scheduled to have already begun fuel production,

making our 2013 projections more reliable than prior year projections. Id.



19/84

9

Petitioners commented that EPAs cellulosic biofuel projections were once

again unrealistic. They pointed out that the EPA Moderated Transaction System

(EMTS) data for 2013 showed zero cellulosic biofuel production as of April

2013. See, e.g. , JA183 (AFPM comments); JA505 (API comments). Commenters

proposed various alternatives, including projecting zero volume based on historic

production or finalizing a projected volume based on the demonstrated production

rates. See JA183-84 (AFPM comments); JA504 (API comments).

b) Final Rule

Nearly two-thirds of the 2013 compliance year had passed by the time EPA

finalized the 2013 volume projections and RFS on August 15, 2013. See JA790.

EPA rejected all comments urging it to reduce the standards to account for its

untimely promulgation. See JA796. Instead, EPA increased the applicable

percentage standards for three of the four renewable fuels based on two

developments. First , EPA obtained a May 2013 EIA estimate that lowered the

total transportation fuel projection for 2013. See JA795. EPA used this new

estimate to calculate the 2013 RFS, but did not change the volume requirements

for any fuel types other than cellulosic biofuel. 7 Consequently, the RFS (and thus

obligated parties RVOs) for three out of four renewable fuels increased in the final

7 Lowering the projected gasoline and diesel to be used in 2013 lowers thedenominator in the calculation that EPA uses to develop the RFS. This effectivelyincreases the standard when the numerator stays the same. See 40 C.F.R. 80.1405(c).



20/84

10

rule. Compare JA38 with JA823. Second , EPA granted a small refinery/small

refiner exemption for 2013, which further increased the RFS. 8 See JA795. EPA

made both of these changes without providing notice or an opportunity for

comment.

For cellulosic biofuel, EPA selectively relied upon updated information from

facilities that supported a higher production projection. EPA based its final

cellulosic biofuel projection on the updated May 8, 2013, EIA projection and

additional facility-specific data that purportedly reflected [t]he current status of

each of these facilities, including target production levels for each facility in

2013. JA801-02. EPA relied on a July 31 press release from one cellulosic

biofuel producer (INEOS Bio) announcing that it had begun production. JA803.

For another cellulosic biofuel producer (KiOR), EPA relied on information from

May 2013 that was no longer plausible when EPA released the final rule. See id.

EPA essentially adopted a May 9, 2013, KiOR projection of 5-6 million gallons of

cellulosic biofuel production for 2013, see id. , even though KiOR had missed its

intermediate production targets and, a week before EPA published the final rule in

the Federal Register, projected that it would achieve less than half of that

projection (1 to 2 million gallons). See Q2 2013 KiOR Inc., Earnings Conf. Call

8 By regulation, if EPA grants a small refinery/small refiner exemption, it deductsthe amounts of gasoline and diesel projected to be produced by such exempt entityfrom the total transportation fuel volume that it uses to calculate the RFS, i.e. , itdecreases the denominator. See 40 C.F.R. 80.1405(c).



21/84

11

Final, Roll Call, at 4 (Aug. 8, 2013). 9 EPA did not make any of this new

information available for public comment prior to finalizing the rule.

SUMMARY OF THE ARGUMENT

1. EPAs increase of the RFS during the compliance year is contrary to law

and arbitrary and capricious. First , EPA impermissibly and without notice

switched from using the October 2012 EIA estimate of total transportation fuel,

which is specifically required by the CAA, to using a new, lower EIA estimate

from May 2013, which had the effect of increasing obligated parties RVOs.

Although EPA has issued late RFS rules in the past, it has never before used an

EIA estimate other than the one provided in October of the preceding year, and it

gave no notice that it would switch the estimate in 2013. The final rule is therefore

not a logical outgrowth of the proposed rule, and obligated parties were deprived

of notice and an opportunity to comment.

Second , EPA did not include a small refinery exemption in the proposed

rule, but it granted an exemption in the final rule, thereby increasing the RFS and

obligated parties RVOs. EPA thus deprived obligated parties of the regulatory

certainty that Congress intended and that EPA has repeatedly acknowledged is

9 EMTS data reveal limited, intermittent production of cellulosic biofuel throughAugust 2013, with entire months of zero production. See EPA, 2013 EMTS Data,RIN Generation and Renewable Fuel Volume Production by Month (last updated

Nov. 7, 2013), http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm (2013 EMTSData).



22/84

12

necessary. Indeed, EPA has recognized that the CAA requires issuance of a

single annual standard in November because [p]eriodic revisions to the

standards to reflect small refinery exemptions would contravene the statute and

introduce an undesirable level of uncertainty for obligated parties. JA822. EPA

failed to explain how its increase of the RVOs well into the compliance year

comports with its recognition of the need for regulatory certainty.

2. EPAs 2013 volume requirement for cellulosic biofuel is arbitrary and

capricious and the product of procedural violations. First , EPAs projected

available volume for cellulosic biofuel is arbitrary and capricious and violates this

Courts directive to aim at accuracy rather than overly optimistic projections.

API , 706 F.3d at 479. EPA relied on updated information about one facility

(INEOS Bio) that supported its projection, but ignored information about another

facility (KiOR) that showed its projection was too high. EPA based its projection

for KiOR on an assumption that the facility would undergo a 6 month straight-line

ramp-up period beginning in March, even though the facility produced no fuel at

all in April or May 2013. EPA also relied on a May 2013 projection from KiOR,

even though by August the facility had missed its own production targets and was

no longer on pace to meet its May projection. Most seriously, EPA took into

account the start of production at INEOS Bio on July 31, while ignoring evidence



23/84

13

of KiORs low productionproduction so low that KiOR reduced its own target

well below EPAs projection before EPA published its final rule.

Second , EPA appears to be using a new methodology for projecting

cellulosic biofuel production based on benchmarks. But EPA has failed to

explain its benchmark concept or to provide any justification for why a six-

month ramp-up period is reasonable for cellulosic biofuel facilities. Moreover,

EPA failed to provide any notice of its benchmark methodology. EPA claims it

received no comments opposing its benchmark methodology, but it never used the

words benchmark or methodology in its proposed rule. In fact, the proposed

ruled specifically stated that EPA used different ramp-up schedules for INEOS Bio

and KiOR, not a single benchmark. Thus, obligated parties had no reason to

believe that EPA was proposing a new methodology. This failure of notice renders

the final rule arbitrary and capricious.

STANDING

API and AFPM are trade associations whose members include many

companies that are obligated parties under the 2013 RFS Rule. Both associations

filed comments in the rulemaking proceeding and have associational standing to

challenge EPAs 2013 RFS Rule in this Court. See Hunt v. Washington State

Apple Adver. Commn , 432 U.S. 333, 343 (1977); Chamber of Commerce of the

United States v. EPA , 642 F.3d 192, 199 (D.C. Cir. 2011).



24/84

14

ARGUMENT

The Court applies the same standard for arbitrary and capricious review

under the CAA as it does under the Administrative Procedure Act (APA). Natl

Petrochem. & Refiners Assn v. EPA , 287 F.3d 1130, 1135 (D.C. Cir. 2002); see

also North Carolina v. EPA , 531 F.3d 896, 906 (D.C. Cir. 2008). Under this

standard, the agency must examine the relevant data and articulate a satisfactory

explanation for its action including a rational connection between the facts found

and the choice made. Motor Vehicle Mfrs. Assn of the United States, Inc. v. State

Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43 (1983) (citation and internal quotation

marks omitted). A rule will be arbitrary and capricious if the agency

has relied on factors which Congress has not intended itto consider, entirely failed to consider an importantaspect of the problem, offered an explanation for itsdecision that runs counter to the evidence before theagency, or is so implausible that it could not be ascribedto a difference in view or the product of agency expertise.

Id.

Agency rules are also subject to reversal if the Court finds them to be . . .

without observance of procedure required by law, if . . . such failure . . . is arbitrary

and capricious, 42 U.S.C. 7607(d)(9)(D), and the error is so serious and related

to matters of such central relevance to the rule that there is a substantial likelihood

that the rule would have been significantly changed if such errors had not been

made, id. 7607(d)(8). Procedural errors sufficient for reversal under the APA



25/84

15

also justify reversal under the CAA. Small Refiner Lead Phase-Down Task Force

v. EPA , 705 F.2d 506, 523, 543-44 (D.C. Cir. 1983).

I. EPAS DECISION TO INCREASE THE RFS DURING THECOMPLIANCE YEAR WITHOUT NOTICE IS CONTRARY TOLAW AND ARBITRARY AND CAPRICIOUS.

EPA arbitrarily increased regulated parties obligations during the

compliance year in two ways. First , it impermissibly and without notice switched

to a lower EIA estimate of the total volume of transportation fuel, thereby

increasing the RFS and consequently obligated parties RVOs. Second , it granted

a small refinery exemption and reallocated the exempted partys obligation across

the remaining obligated parties. Both changes increased obligated parties RVOs

7.5 months into the compliance year, without notice and in contravention of EPAs

stated goal of providing regulatory certainty.

A. EPA Impermissibly Increased The RFS By Altering The EstimateOf Transportation Fuel Volume Without Notice.

The CAA requires EIA to provide to EPA by October 31 of each year an

estimate, with respect to the following calendar year, of the volumes of

transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be

sold or introduced into commerce in the United States. 42 U.S.C.

7545(o)(3)(A). It then requires that [n]ot later than November 30 of each of

calendar years 2005 through 2021, based on the estimate provided under

subparagraph (A) , the Administrator of the [EPA] shall determine and publish in



26/84

16

the Federal Register, with respect to the following calendar year, the renewable

fuel obligation . . . . Id. 7545(o)(3)(B) (emphasis added).

EPA based its calculations in the proposed rule on the EIA estimate of total

transportation fuel provided by the October 31, 2012 statutory deadline, JA20. For

the first time in the history of the RFS program, however, EPA relied on a new

EIA estimate from May 2013 that EPA requested from EIA three days before the

close of the comment period (and that was not made public until the final rule was

released). The revised estimate decreased the projection of transportation fuel that

would be sold or introduced into commerce in 2013. JA795; compare JA88

(projecting 8.74 and 3.46 million barrels/day of gasoline and diesel respectively)

with JA937) (projecting 8.68 and 3.42 million barrels/day of gasoline and diesel

respectively). EIAs reduction totaled 1.533 billion gallons of transportation fuel,

which represents a significant change. 10

The projected decrease in the total amount of fuel sold in 2013 increased the

RFS. 11 For example, the proposed rule included a total renewable fuel standard of

9.63%, while the final rule set a standard of 9.74%. Compare JA20 with JA795.

10 A decrease of 0.10 million barrels/day equals 1.533 billion gallons/year (0.10 barrels/day x 42 gallons/barrel x 365 days/year = 1.533 billion gallons/year).11 Decreasing the total amount of fuel sold decreased the denominator in theequation EPA uses to calculate the RFS, while leaving the numerator (the amountof renewable fuel that must be used) unchanged. This resulted in a higher

percentage, i.e. , a higher RFS. See 40 C.F.R. 80.1405(c).



27/84


28/84

18

EPAs assertion that obligated parties had reasonable notice of this change

is simply untrue. The proposed rule gave no indication that EPA would request

and then use the May 2013 EIA estimate of total transportation fuel without

providing an opportunity for stakeholders to review. To the contrary, the

rulemaking materials in the EPA docket suggested precisely the opposite. A

December 21, 2012, draft of the proposed rule, which was posted to the

rulemaking docket on February 7, 2013, deleted a statement that EPA intends to

use updated EIA projections of gasoline and diesel consumption in 2013 in

calculating the final percentage standards. Documentation of OMB Review

Under Executive Order 12,866, Attachment 1 at 8, EPA-HQ-OAR-2012-0546-

0014 (Dec. 21 Draft NPRM). The deletion specifically indicated that EPA did not

intend to change the EIA estimate on which it would rely for the final rule.

Obligated parties thus had no notice that the denominator for the RFS calculation

was subject to change. 12

The final rule is not a logical outgrowth of the proposed rule. Envtl.

Integrity Project v. EPA , 425 F.3d 992, 996 (D.C. Cir. 2005) ([A]n agencys

proposed rule and its final rule may differ only insofar as the latter is a logical

outgrowth of the former.). As this Court has explained,

12 The public comment period ended on April 5, 2013, and the EIA letter is datedMay 8, 2013.



29/84


30/84

20

B. EPA Arbitrarily And Capriciously Increased The RFS ByGranting A Small Refinery Exemption During The ComplianceYear.

In the proposed rule, EPA did not include a small refinery exemption.

Instead, it calculated the proposed 2013 standards without a small refinery/small

refiner adjustment. JA37. In the final rule, however, EPA granted a small

refinery exemption and, contrary to its own avowed concern with regulatory

certainty, reallocated the exempted partys RVO across the rest of the industry,

thereby increasing every obligated partys RVO during the compliance year.13

Imposing the exempt small refiners RVOs on the remaining obligated

parties during the compliance year is arbitrary and capricious because it deprives

obligated parties of the regulatory certainty that Congress intended and EPA has

elsewhere acknowledged is necessary. EPA has failed to articulate a satisfactory

explanation for its action including a rational connection between the facts found

and the choice made. State Farm , 463 U.S. at 43 (citation and internal quotation

marks omitted).

In the final rule, EPA explained that if it granted any additional small

refinery exemptions, they would not affect the 2013 standards because, as EPA

explained in the 2011 final rule, the CAA:

13 EPA acknowledges in the final rule that an adjustment has been made to thestandards to account for the exemption. JA795.



31/84

21

is best interpreted to require issuance of a single annualstandard in November that is applicable in the followingcalendar year, thereby providing advance notice andcertainty to obligated parties regarding their regulatoryrequirements. Periodic revisions to the standards toreflect waivers issued to small refineries or refinerswould be inconsistent with the statutory text, and wouldintroduce an undesirable level of uncertainty forobligated parties.

JA822. EPAs rationale is equally applicable to altering obligated parties RVOs

at any time during the compliance year based on grants of exemptions. Because

EPA missed the statutory deadline of November 30, its alteration of the RVO

based on the grant of the small refinery exemption deprived obligated parties of the

notice and regulatory certainty that EPA has recognized is required.

The consequences of this regulatory uncertainty are clear from the final rule.

EPA argues that obligated parties have adequate lead time to comply with the

2013 RFS standards notwithstanding EPAs delay in issuing the rule because they

have been acquiring RINs since the beginning of 2013 in anticipation of the final

standards. JA797. But EPA fails to acknowledge that obligated parties who

responsibly acquired RINs throughout 2013 in anticipation of the 2013 RFS found

themselves in a hole after publication of the final rule because EPA increased each

obligated partys RVO without notice. 14

14 EPA also argues that parties have sufficient lead time to comply because EPAextended the compliance deadline to June 30, 2014. JA797. But EPA provided nolead time by finalizing the RFS after the start of the compliance year, and allowed(continued)



32/84

22

II. EPAS 2013 VOLUME REQUIREMENT FOR CELLULOSICBIOFUEL IS ARBITRARY AND CAPRICIOUS.

EPA acted arbitrarily and capriciously by relying on updated information

that supported a higher projection for cellulosic production while ignoring highly

relevant information that pointed in the opposite direction. As a result, EPA

violated the statutory requirement that it aim at accuracy rather than overly

optimistic projections. API , 706 F.3d at 479. EPA also failed to provide advance

notice or any explanation of its benchmark methodology for projecting cellulosic

biofuel production and for other information on which it relied in setting the

cellulosic biofuel RFS. There is a substantial likelihood that the final rule would

have been different absent these procedural violations. 42 U.S.C. 7607(d)(8).

A. EPAs Projected Available Volume For Cellulosic Biofuel IsArbitrary And Capricious.

EPA projected 2013 cellulosic biofuel production from two facilities:

INEOS Bio and KiOR. In the proposed rule, EPA stated that it expected both

facilities to begin fuel production in the first quarter of 2013 and achieve

production rates at or near their nameplate capacities by the end of 2013. JA24.

obligated parties only 4.5 months between issuance of the final rule and the end of

the 2013 compliance year. Thus, EPA arbitrarily shortened the amount of leadtime Congress mandated. During a compliance year, obligated parties can take arange of steps to meet their obligations, including altering their production orexport plans. Once a compliance year ends, these options are no longer available.For example, RINS generated after December 31, 2013, cannot be used forcompliance with the 2013 RFS. Lead time is therefore not measured by the time

between a final rule and the compliance deadline, but encompasses the advancenotice of upcoming standards required by statute.



33/84

23

In the final rule, EPA (i) noted that KiOR had shipped its first renewable fuel to

customers on March 18, 2013, and (ii) relied on a May 9, 2013 KiOR quarterly

update that projected production of 3-5 million actual gallons of cellulosic gasoline

and diesel for 2013 . JA803. EPA projected that KiOR would produce 3-4 million

actual gallons (5-6 million ethanol-equivalent gallons) of cellulosic biofuel in

2013. Id.

EPAs projection is arbitrary and capricious because EPA knew, or at a

minimum should have known, that KiOR was unlikely to meet its production

targets.

1. EPAs own data show that no cellulosic biofuel was produced by KiOR or

anyone else in the month preceding KiORs May 9 quarterly update. EPA, 2013

EMTS Data (updated Nov. 7, 2013),

http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm (2013 EMTS Data). 15 No

cellulosic fuel was produced in May 2013 either. Id. EPAs data show production

of only 16,664 RINs for cellulosic diesel in March 2013, and then no further

production of any cellulosic fuel until June 2013. Id.

15 The Court may take judicial notice of this official governmental publication. SeeYellow Taxi Co. v. NLRB , 721 F.2d 366, 375 n.29 (D.C. Cir. 1983) (Judicialnotice may be taken of facts which are capable of accurate and readydetermination by resort to sources whose accuracy cannot reasonably bequestioned. (quoting Fed. R. Evid. 201(b)(2)).



34/84

24

Despite these facts, EPA based its KiOR projection on a 6 month straight-

line ramp-up period beginning with KiORs first commercial shipment in March

2013. JA803. When EPA released the 2013 final rule in mid-August, it was clear

that no straight-line ramp up was occurring at KiOR, and therefore March was

not a reasonable starting point for a 6 month straight-line ramp-up period. Id.

Given the complete lack of production in April and May, a reasonable straight-line

ramp-up period could have begun in June at the earliest. 16

EPA did not explain the origin or meaning of its 6 month straight-line

ramp-up period. Assuming, however, that the straight-line ramp-up is a

prediction that the facility will go from zero production to full capacity in 6 months

and produce at full capacity for the remainder of the year, moving the starting date

from March to June produces a best case scenario benchmark of 3.67 million

actual gallons of cellulosic biofuel from KiOR in 2013. 17 This best case scenario

falls in the middle of EPAs projection of 3-4 million actual gallons for KiOR. Id.

Thus, applying EPAs own methodology by starting a straight-line six-month

ramp-up period in June 2013the earliest potentially reasonable date based on

16 Even a June starting date would have been too optimistic. After some

production in June and July, EPAs data show zero production again in August2013. 2013 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm.17 The KiOR facility has an annual capacity of 11 million gallons of cellulosic

biofuel, JA803, which makes its monthly capacity 916,666.67 gallons. A sixmonth ramp up period running from June through the end of November wouldresult in a volume of 2,750,000 million gallons of cellulosic biofuel ((1/2 x 6) x916,666.67). One additional month (December) of production at 100% of capacity(916,666.67 gallons), would result in a total of 3,666,666.67 gallons for the year.



35/84

25

facts EPA knew when it released the final rule in Augustdemonstrates that

EPAs projection of 3-4 million gallons from KiOR approaches (and, at the high

end, exceeds ) EPAs self-identified best-case scenario benchmark. 18

Contrary to EPAs claims of accuracy, a simple application of EPAs own

methodology reveals that the agency is once again making a projection that

impermissibly plans for the expected value of upside errors . . . to exceed the

expected value of downside errors. API , 706 F.3d at 479 n.2. As this Court

explained in invalidating the 2012 cellulosic biofuel RFS, the CAA call[s] for a

projection that aims at accuracy, not at deliberately indulging in a greater risk of

overshooting than undershooting. Id. at 479.

2. EPAs final rule relies on KiORs May 9, 2013 quarterly update, which

projected production of 3-5 million gallons of cellulosic biofuel in 2013. JA803.

KiOR President Fred Cannon stated that KiOR anticipated production of between

300,000 and 500,000 gallons in the second quarter to keep[] us on track to fall

within our projected production range of 3 million to 5 million gallons for 2013.

18 EPA asserted that its 5-6 million ethanol-equivalent gallon projection wassignificantly lower than the volume of fuel that would be produced assuming our

best case scenario benchmark of a 6 month straight-line ramp-up period starting inmid March (~9 million ethanol-equivalent gallons). JA803. EPA could make thisclaim only because it arbitrarily began its calculations in March, despite zerocellulosic biofuel production in April or May and June and July production far

below what a straight-line ramp-up from March would project.



36/84

26

Q1 2013 KiOR Inc Earnings Conference Call - Final, Roll Call, at 4 (May 9,

2013). 19

By the release of the final rule in mid-August, EPAs own data showed that

KiOR was no longer on pace to produce 3-5 million gallons. By the end of the

second quarter, only 75,636 total gallons of cellulosic biofuel and cellulosic diesel

had been produced. 2013 EMTS Data,

http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm. This is far below the

300,000-500,000 that KiOR stated was necessary to keep it on track to produce 3-5

million gallons in 2013. The record also shows a call between EPA staff and

KiOR on June 17, 2013, by which time KiORs failure to meet its projection would

have been clear. JA1145.

EPA acted arbitrarily and capriciously in relying on KiORs May production

projection without assessing its continued plausibility. By August, it was clear that

the May projection was no longer reliable. State Farm , 463 U.S. at 43 (a rule is

arbitrary and capricious where an agency entirely failed to consider an important

19 On August 20, 2013, KiOR shareholders filed a putative class action against the

company, alleging violations of the federal securities laws and arguing that thecompany misled investors concerning the timing of projected production levels of biofuel and continued to falsely reassure investors that the Company remainedon track to achieve commercially meaningful biofuel production levels at theColumbus facility during the timeframes promised. Complaint, 5, Berry v.KiOR, Inc., No. 4:13-cv-2443 (S.D. Tex. Aug. 20, 2013), ECF No. 1. Thecomplaint cites as one of the false or misleading statements the May 9, 2013,earnings call on which EPA relied. Id. 32.



37/84


38/84

28

production until 2014. 21 Id. As a result, EPAwhich claims to track KiORs

productionknew or should have known by no later than August 8 that its KiOR

projection was unreasonable.

In sum, EPA selectively used updated July 31 information concerning

INEOS Bio that supported EPAs projection, while disregarding information from

the same time period concerning KiOR that showed EPAs projection was

unreasonably high. This is the essence of arbitrary decision-making.

For these reasons, EPA failed to examine the relevant data and articulate a

satisfactory explanation for its action including a rational connection between the

facts found and the choice made. State Farm , 463 U.S. at 43 (citation and internal

quotation marks omitted).

B. EPAs Methodology for Projecting Cellulosic Biofuel ProductionIs Arbitrary And Capricious.

In discussing changes it made in light of this Courts invalidation of the

2012 cellulosic biofuel RFS, EPA stated that it has established [b]enchmarks for

how quickly new facilities ramp up to full production and for production volumes

during this ramp-up period in a best case scenario and that it has used the

benchmarks to assess the reasonableness of the production estimates received

21 In its 2014 Proposed Rule, EPAs projected production range for KiOR begins atzero gallons reflect[ing] uncertainty surrounding KiORs future productionlevels. 2014 Standards for the Renewable Fuel Standard Program; Proposed

Rule , 78 Fed. Reg. 71,732, 71,742 (Nov. 29, 2013) (to be codified at 40 C.F.R. Part80).



39/84


40/84


41/84


42/84

32

EPA to announce a broader methodology for predicting production of cellulosic

biofuels facilities more generally.

Moreover, EPAs explicit statements in the proposed rule indicated that it

did not intend to establish a single benchmark for predicting production at

cellulosic biofuels facilities. EPA explained that it established different ramp-up

schedules for INEOS Bio and KiOR based on differences in the facilities. JA27

(The ramp-up schedules estimated for these facilities [INEOS Bio and KiOR]

differ from each other and were developed based on information received from the

companies and EPAs knowledge of the production processes used by each

company. We believe these different ramp-up schedules, which correspond to

different effective utilization rates, are appropriate due to the significant

differences in the technologies used by INEOS Bio and KiOR to produce cellulosic

biofuel.). Indeed, the section on KiOR in the proposed rule does not discuss a

straight-line six-month ramp up period like the one mentioned for INEOS Bio.

This Court has explained that [w]hatever the logical outgrowth of [a] proposal

may include, it certainly does not include the Agencys decision to repudiate its

proposed interpretation and adopt its inverse. Envtl. Integrity Project , 425 F.3d at

998. Similarly here, EPAs adoption of a uniform benchmark in the final rule

cannot be a logical outgrowth of the proposed rules differing ramp-up schedules

and different effective utilization rates for each facility. JA27.



43/84

33

In light of EPAs explicit statements disclaiming uniformity in assessing

different facilities and failure to note or explain its benchmark concept in the

proposed rule, obligated parties were not on notice of EPAs intent to establish a

new methodology for projecting cellulosic biofuel production, a methodology that

remains unexplained in the final rule.

Finally, EPAs cellulosic biofuel projection is also procedurally deficient

because EPA relied upon information from cellulosic biofuel producers without

notice and failed to place certain information into the record. The CAA requires

that parties have an opportunity to comment on centrally relevant data, see 42

U.S.C. 7607(d)(6)-(9), and prohibits basing a rule on any information or data

which has not been placed in the docket as of the date on which the rule is

promulgated. See id. 7607(d)(6)(C). The CAA also requires that a transcript be

kept of any instances in which interested parties are given the opportunity for oral

presentation of data, views, or arguments, id. 7607(d)(5). Here, EPA posted a

call log showing over 60 phone calls with cellulosic biofuel producers, including

four calls with INEOS Bio and KiOR after the public comment period closed, only

after publication of the final rule in the Federal Register. See JA1145 (posted Sept.

9, 2013). The final rule also references information, including KiORs May 9,

2013 quarterly update and INEOS Bios July 31, 2013 announcement, that clearly

was generated after the close of the public comment period on April 5, 2013. No



44/84

34

information appears in the docket regarding these multiple contacts. The final rule

is thus procedurally deficient.

CONCLUSION

The Court should grant the petitions for review and invalidate the 2013 RFS

and corresponding RVOs. The Petitioners respectfully request that the Court issue

its decision in advance of the June 30, 2014, compliance deadline for the 2013

RFS.

Respectfully submitted,

Chet M. ThompsonRobert MeyersDavid ChungCROWELL & MORING LLP1001 Pennsylvania Avenue NWWashington, DC 200042595

Richard MoskowitzAMERICAN FUEL & PETROCHEMICALMANUFACTURERS 1667 K Street, NW Suite 700Washington, DC 20006

Counsel for Petitioner American Fuel & Petrochemical Manufacturers

DATE: December 9, 2013

/s/ Robert A. Long, Jr.Robert A. Long, Jr.Kristen E. EichensehrCOVINGTON & BURLING LLP1201 Pennsylvania Ave., NWWashington, DC 200042401(202) [email protected]

Harry M. NgErik C. BaptistAMERICAN PETROLEUM I NSTITUTE 1220 L Street NWWashington, DC 200054070

Counsel for Petitioner American Petroleum Institute



45/84

35

CERTIFICATE OF COMPLIANCE

This brief complies with the type-volume limitations of Federal Rule of

Appellate Procedure 32(a)(7)(B) because it contains 7898 words, excluding the

parts of the brief exempted by Rule 32(a)(7)(B)(iii). This brief complies with the

typeface requirements of Rule 32(a)(5) and the type style requirements of Rule

32(a)(6) because it has been prepared in a proportionally spaced typeface using

Microsoft Word 2010 in Times New Roman and 14 point font.

/s/ Robert A. Long, Jr.Robert A. Long, Jr.

December 9, 2013



46/84


47/84

1

ADDENDUM A: STATUTORY SUPPLEMENT

TABLE OF CONTENTS

Page

42 U.S.C. 7545(d) .................................................................................................. 1

42 U.S.C. 7545(o) .................................................................................................. 2

42 U.S.C. 7607(d) ................................................................................................ 20

40 C.F.R. 80.1401 ................................................................................................ 24

40 C.F.R. 80.1405(c) ............................................................................................ 24

40 C.F.R. 80.1406 ................................................................................................ 26

40 C.F.R. 80.1407 ................................................................................................ 27

40 C.F.R. 80.1415 ................................................................................................ 30

40 C.F.R. 80.1427 ................................................................................................ 33

40 C.F.R. 80.1451 ................................................................................................ 34

40 C.F.R. 80.1456 ................................................................................................ 36 40 C.F.R. 80.1463 ................................................................................................ 37

42 U.S.C. 7545(d)(d) Penalties and injunctions.

(1) Civil penalties. Any person who violates subsection (a), (f), (g), (k), (l), (m),(n), or (o) of this section or the regulations prescribed under subsection (c), (h),(i), (k), (l), (m), (n), or (o) of this section or who fails to furnish any informationor conduct any tests required by the Administrator under subsection (b) of thissection shall be liable to the United States for a civil penalty of not more than thesum of $ 25,000 for every day of such violation and the amount of economic

benefit or savings resulting from the violation. Any violation with respect to aregulation prescribed under subsection (c), (k), (l), (m), or (o) of this section



48/84


49/84

3

The types of fuels eligible for consideration as advanced biofuelmay include any of the following:

(I) Ethanol derived from cellulose, hemicellulose, or lignin.

(II) Ethanol derived from sugar or starch (other than corn starch).

(III) Ethanol derived from waste material, including crop residue,other vegetative waste material, animal waste, and food waste andyard waste.

(IV) Biomass-based diesel.

(V) Biogas (including landfill gas and sewage waste treatment gas) produced through the conversion of organic matter from renewable biomass.

(VI) Butanol or other alcohols produced through the conversion oforganic matter from renewable biomass.

(VII) Other fuel derived from cellulosic biomass.

(C) Baseline lifecycle greenhouse gas emissions

The term baseline lifecycle greenhouse gas emissions means theaverage lifecycle greenhouse gas emissions, as determined by theAdministrator, after notice and opportunity for comment, for gasoline ordiesel (whichever is being replaced by the renewable fuel) sold or distributedas transportation fuel in 2005.

(D) Biomass-based diesel

The term biomass-based diesel means renewable fuel that is biodieselas defined in section 312(f) of the Energy Policy Act of 1992 (42 U.S.C.

13220(f)) and that has lifecycle greenhouse gas emissions, as determined bythe Administrator, after notice and opportunity for comment, that are at least50 percent less than the baseline lifecycle greenhouse gas emissions.

Notwithstanding the preceding sentence, renewable fuel derived from co- processing biomass with a petroleum feedstock shall be advanced biofuel ifit meets the requirements of subparagraph (B), but is not biomass-baseddiesel.



50/84

4

(E) Cellulosic biofuel

The term cellulosic biofuel means renewable fuel derived from anycellulose, hemicellulose, or lignin that is derived from renewable biomassand that has lifecycle greenhouse gas emissions, as determined by theAdministrator, that are at least 60 percent less than the baseline lifecyclegreenhouse gas emissions.

(F) Conventional biofuel

The term conventional biofuel means renewable fuel that is ethanolderived from corn starch.

(G) Greenhouse gas

The term greenhouse gas means carbon dioxide, hydrofluorocarbons,methane, nitrous oxide, perfluorocarbons, sulfur hexafluoride. TheAdministrator may include any other anthropogenically emitted gas that isdetermined by the Administrator, after notice and comment, to contribute toglobal warming.

(H) Lifecycle greenhouse gas emissions

The term lifecycle greenhouse gas emissions means the aggregate

quantity of greenhouse gas emissions (including direct emissions andsignificant indirect emissions such as significant emissions from land usechanges), as determined by the Administrator, related to the full fuellifecycle, including all stages of fuel and feedstock production anddistribution, from feedstock generation or extraction through the distributionand delivery and use of the finished fuel to the ultimate consumer, where themass values for all greenhouse gases are adjusted to account for theirrelative global warming potential.

(I) Renewable biomass

The term renewable biomass means each of the following:

(i) Planted crops and crop residue harvested from agricultural landcleared or cultivated at any time prior to the enactment of this sentencethat is either actively managed or fallow, and nonforested.



51/84

5

(ii) Planted trees and tree residue from actively managed tree plantations on non-federal land cleared at any time prior to enactment ofthis sentence, including land belonging to an Indian tribe or an Indianindividual, that is held in trust by the United States or subject to arestriction against alienation imposed by the United States.

(iii) Animal waste material and animal byproducts.

(iv) Slash and pre-commercial thinnings that are from non-federalforestlands, including forestlands belonging to an Indian tribe or anIndian individual, that are held in trust by the United States or subject toa restriction against alienation imposed by the United States, but notforests or forestlands that are ecological communities with a global orState ranking of critically imperiled, imperiled, or rare pursuant to a State

Natural Heritage Program, old growth forest, or late successional forest.(v) Biomass obtained from the immediate vicinity of buildings and

other areas regularly occupied by people, or of public infrastructure, atrisk from wildfire.

(vi) Algae.

(vii) Separated yard waste or food waste, including recycled cookingand trap grease.

(J) Renewable fuel

The term renewable fuel means fuel that is produced from renewable biomass and that is used to replace or reduce the quantity of fossil fuel present in a transportation fuel.

(K) Small refinery

The term small refinery means a refinery for which the average

aggregate daily crude oil throughput for a calendar year (as determined bydividing the aggregate throughput for the calendar year by the number ofdays in the calendar year) does not exceed 75,000 barrels.

(L) Transportation fuel



52/84

6

The term transportation fuel means fuel for use in motor vehicles,motor vehicle engines, nonroad vehicles, or nonroad engines (except forocean-going vessels).

(2) Renewable fuel program

(A) Regulations

(i) In general

Not later than 1 year after the date of enactment of this paragraph[enacted Aug. 8, 2005], the Administrator shall promulgate regulations toensure that gasoline sold or introduced into commerce in the UnitedStates (except in noncontiguous States or territories), on an annualaverage basis, contains the applicable volume of renewable fueldetermined in accordance with subparagraph (B). Not later than 1 yearafter the date of enactment of this sentence [enacted Dec. 19, 2007], theAdministrator shall revise the regulations under this paragraph to ensurethat transportation fuel sold or introduced into commerce in the UnitedStates (except in noncontiguous States or territories), on an annualaverage basis, contains at least the applicable volume of renewable fuel,advanced biofuel, cellulosic biofuel, and biomass-based diesel,determined in accordance with subparagraph (B) and, in the case of anysuch renewable fuel produced from new facilities that commence

construction after the date of enactment of this sentence, achieves at leasta 20 percent reduction in lifecycle greenhouse gas emissions compared to

baseline lifecycle greenhouse gas emissions.

* * *

(iii) Provisions of regulations

Regardless of the date of promulgation, the regulations promulgatedunder clause (i)

(I) shall contain compliance provisions applicable to refineries, blenders, distributors, and importers, as appropriate, to ensure that therequirements of this paragraph are met; but

(II) shall not



53/84

7

(aa) restrict geographic areas in which renewable fuel may beused; or

(bb) impose any per-gallon obligation for the use of renewablefuel.

(iv) Requirement in case of failure to promulgate regulations

If the Administrator does not promulgate regulations under clause (i),the percentage of renewable fuel in gasoline sold or dispensed toconsumers in the United States, on a volume basis, shall be 2.78 percentfor calendar year 2006.

(B) Applicable volumes

(i) Calendar years after 2005

(I) Renewable fuel

For the purpose of subparagraph (A), the applicable volume ofrenewable fuel for the calendar years 2006 through 2022 shall bedetermined in accordance with the following table:

Calendar year:

Applicable volume ofrenewable fuel (in

billions of gallons):

2006 4.0

2007 4.7

2008 9.0

2009 11.1

2010 12.95

2011 13.95

2012 15.2

2013 16.55

2014 18.15



54/84

8

2015 20.5

2016 22.25

2017 24.0

2018 26.02019 28.0

2020 30.0

2021 33.0

2022 36.0

(II) Advanced biofuel . For the purpose of subparagraph (A), of thevolume of renewable fuel required under subclause (I), the applicablevolume of advanced biofuel for the calendar years 2009 through 2022shall be determined in accordance with the following table:

Calendar year:



2009 0.6

2010 0.95

2011 1.352012 2.0

2013 2.75

2014 3.75

2015 5.5

2016 7.25

2017 9.0

2018 11.0

2019 13.0

2020 15.0

2021 18.0



55/84

9

2022 21.0

(III) Cellulosic biofuel

For the purpose of subparagraph (A), of the volume of advanced

biofuel required under subclause (II), the applicable volume of cellulosic biofuel for the calendar years 2010 through 2022 shall be determined inaccordance with the following table:

Calendar year:



2010 0.1

2011 0.252012 0.5

2013 1.0

2014 1.75

2015 3.0

2016 4.25

2017 5.5

2018 7.0

2019 8.5

2020 10.5

2021 13.5

2022 16.0

(IV) Biomass-based diesel

For the purpose of subparagraph (A), of the volume of advanced biofuel required under subclause (II), the applicable volume of biomass-based diesel for the calendar years 2009 through 2012 shall be determined in accordance with the following table:




56/84


57/84

11

(VI) the impact of the use of renewable fuels on other factors,including job creation, the price and supply of agriculturalcommodities, rural economic development, and food prices.

The Administrator shall promulgate rules establishing the applicablevolumes under this clause no later than 14 months before the first yearfor which such applicable volume will apply.

(iii) Applicable volume of advanced biofuel

For the purpose of making the determinations in clause (ii), for eachcalendar year, the applicable volume of advanced biofuel shall be at leastthe same percentage of the applicable volume of renewable fuel as incalendar year 2022.

(iv) Applicable volume of cellulosic biofuel

For the purpose of making the determinations in clause (ii), for eachcalendar year, the applicable volume of cellulosic biofuel established bythe Administrator shall be based on the assumption that the Administratorwill not need to issue a waiver for such years under paragraph (7)(D).

(v) Minimum applicable volume of biomass-based diesel

For the purpose of making the determinations in clause (ii), theapplicable volume of biomass-based diesel shall not be less than theapplicable volume listed in clause (i)(IV) for calendar year 2012.

(3) Applicable percentages

(A) Provision of estimate of volumes of gasoline sales

Not later than October 31 of each of calendar years 2005 through 2021,the Administrator of the Energy Information Administration shall provide to

the Administrator of the Environmental Protection Agency an estimate, withrespect to the following calendar year, of the volumes of transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be sold orintroduced into commerce in the United States.

(B) Determination of applicable percentages



58/84


59/84

13

(i) for the generation of an appropriate amount of credits by any person that refines, blends, or imports gasoline that contains a quantity ofrenewable fuel that is greater than the quantity required under paragraph(2);

(ii) for the generation of an appropriate amount of credits for biodiesel; and

(iii) for the generation of credits by small refineries in accordancewith paragraph (9)(C).

(B) Use of credits

A person that generates credits under subparagraph (A) may use thecredits, or transfer all or a portion of the credits to another person, for the

purpose of complying with paragraph (2).

(C) Duration of credits

A credit generated under this paragraph shall be valid to showcompliance for the 12 months as of the date of generation.

(D) Inability to generate or purchase sufficient credits

The regulations promulgated under paragraph (2)(A) shall include provisions allowing any person that is unable to generate or purchasesufficient credits to meet the requirements of paragraph (2) to carry forwarda renewable fuel deficit on condition that the person, in the calendar yearfollowing the year in which the renewable fuel deficit is created

(i) achieves compliance with the renewable fuel requirement under paragraph (2); and

(ii) generates or purchases additional renewable fuel credits to offset

the renewable fuel deficit of the previous year.(E) Credits for additional renewable fuel

The Administrator may issue regulations providing: (i) for the generationof an appropriate amount of credits by any person that refines, blends, orimports additional renewable fuels specified by the Administrator; and (ii)



60/84

14

for the use of such credits by the generator, or the transfer of all or a portionof the credits to another person, for the purpose of complying with paragraph(2).

* * *

(7) Waivers

(A) In general

The Administrator, in consultation with the Secretary of Agriculture andthe Secretary of Energy, may waive the requirements of paragraph (2) inwhole or in part on petition by one or more States, by any person subject tothe requirements of this subsection, or by the Administrator on his ownmotion by reducing the national quantity of renewable fuel required under

paragraph (2)

(i) based on a determination by the Administrator, after public notice andopportunity for comment, that implementation of the requirement wouldseverely harm the economy or environment of a State, a region, or theUnited States; or

(ii) based on a determination by the Administrator, after public notice andopportunity for comment, that there is an inadequate domestic supply.

(B) Petitions for waivers

The Administrator, in consultation with the Secretary of Agriculture andthe Secretary of Energy, shall approve or disapprove a petition for a waiverof the requirements of paragraph (2) within 90 days after the date on whichthe petition is received by the Administrator.

(C) Termination of waivers

A waiver granted under subparagraph (A) shall terminate after 1 year, butmay be renewed by the Administrator after consultation with the Secretaryof Agriculture and the Secretary of Energy.

(D) Cellulosic biofuel



61/84

15

(i) For any calendar year for which the projected volume of cellulosic biofuel production is less than the minimum applicable volume establishedunder paragraph (2)(B), as determined by the Administrator based on theestimate provided under paragraph (3)(A), not later than November 30 of the

preceding calendar year, the Administrator shall reduce the applicablevolume of cellulosic biofuel required under paragraph (2)(B) to the projectedvolume available during that calendar year. For any calendar year in whichthe Administrator makes such a reduction, the Administrator may alsoreduce the applicable volume of renewable fuel and advanced biofuelsrequirement established under paragraph (2)(B) by the same or a lesservolume.

(ii) Whenever the Administrator reduces the minimum cellulosic biofuelvolume under this subparagraph, the Administrator shall make available for

sale cellulosic biofuel credits at the higher of $ 0.25 per gallon or the amount by which $ 3.00 per gallon exceeds the average wholesale price of a gallonof gasoline in the United States. Such amounts shall be adjusted forinflation by the Administrator for years after 2008.

(iii) Eighteen months after the date of enactment of this subparagraph, theAdministrator shall promulgate regulations to govern the issuance of creditsunder this subparagraph. The regulations shall set forth the method fordetermining the exact price of credits in the event of a waiver. The price ofsuch credits shall not be changed more frequently than once each quarter.These regulations shall include such provisions, including limiting thecredits uses and useful life, as the Administrator deems appropriate to assistmarket liquidity and transparency, to provide appropriate certainty forregulated entities and renewable fuel producers, and to limit any potentialmisuse of cellulosic biofuel credits to reduce the use of other renewablefuels, and for such other purposes as the Administrator determines will helpachieve the goals of this subsection. The regulations shall limit the numberof cellulosic biofuel credits for any calendar year to the minimum applicablevolume (as reduced under this subparagraph) of cellulosic biofuel for that

year.(E) Biomass-based diesel

(i) Market evaluation



62/84

16

The Administrator, in consultation with the Secretary of Energy andthe Secretary of Agriculture, shall periodically evaluate the impact of the

biomass-based diesel requirements established under this paragraph onthe price of diesel fuel.

(ii) Waiver

If the Administrator determines that there is a significant renewablefeedstock disruption or other market circumstances that would make the

price of biomass-based diesel fuel increase significantly, theAdministrator, in consultation with the Secretary of Energy and theSecretary of Agriculture, shall issue an order to reduce, for up to a 60-day

period, the quantity of biomass-based diesel required under subparagraph(A) by an appropriate quantity that does not exceed 15 percent of the

applicable annual requirement for biomass-based diesel. For anycalendar year in which the Administrator makes a reduction under thissubparagraph, the Administrator may also reduce the applicable volumeof renewable fuel and advanced biofuels requirement established under

paragraph (2)(B) by the same or a lesser volume.

(iii) Extensions

If the Administrator determines that the feedstock disruption orcircumstances described in clause (ii) is continuing beyond the 60-day

period described in clause (ii) or this clause, the Administrator, inconsultation with the Secretary of Energy and the Secretary ofAgriculture, may issue an order to reduce, for up to an additional 60-day

period, the quantity of biomass-based diesel required under subparagraph(A) by an appropriate quantity that does not exceed an additional 15

percent of the applicable annual requirement for biomass-based diesel.

(F) Modification of applicable volumes

For any of the tables in paragraph (2)(B), if the Administrator waives

(i) at least 20 percent of the applicable volume requirement set forth inany such table for 2 consecutive years; or

(ii) at least 50 percent of such volume requirement for a single year,



63/84

17

the Administrator shall promulgate a rule (within 1 year after issuing suchwaiver) that modifies the applicable volumes set forth in the table concernedfor all years following the final year to which the waiver applies, except thatno such modification in applicable volumes shall be made for any year

before 2016. In promulgating such a rule, the Administrator shall complywith the processes, criteria, and standards set forth in paragraph (2)(B)(ii).

(8) Study and waiver for initial year of program

(A) In general

Not later than 180 days after the date of enactment of this paragraph[enacted Aug. 8, 2005], the Secretary of Energy shall conduct for theAdministrator a study assessing whether the renewable fuel requirement

under paragraph (2) will likely result in significant adverse impacts onconsumers in 2006, on a national, regional, or State basis.

(B) Required evaluations

The study shall evaluate renewable fuel

(i) supplies and prices;

(ii) blendstock supplies; and

(iii) supply and distribution system capabilities.

(C) Recommendations by the Secretary

Based on the results of the study, the Secretary of Energy shall makespecific recommendations to the Administrator concerning waiver of therequirements of paragraph (2), in whole or in part, to prevent any adverseimpacts described in subparagraph (A).

(D) Waiver(i) In general

Not later than 270 days after the date of enactment of this paragraph[enacted Aug. 8, 2005], the Administrator shall, if and to the extentrecommended by the Secretary of Energy under subparagraph (C), waive,



64/84

18

in whole or in part, the renewable fuel requirement under paragraph (2) by reducing the national quantity of renewable fuel required under paragraph (2) in calendar year 2006.

(ii) No effect on waiver authority

Clause (i) does not limit the authority of the Administrator to waivethe requirements of paragraph (2) in whole, or in part, under paragraph(7).

(9) Small refineries

(A) Temporary exemption

(i) In general

apfm and api brief in monroe v epa

Documents