The EPA's Definition Of Supply Is Wrong

  • Wednesday, 20 January 2016 15:18

Last week, several ethanol and ag groups filed a petition with the US Court of Appeals for the District of Columbia challenging the EPA's final rule on the 2016 RFS. This week, an economist has weighed and raise more questions, suggesting the EPA's intepretation of the law is wrong.

At contention is the EPA's definition of "supply" as stipulated in the RFS. The EPA has the authority to alter the RVOs under the RFS based on the supply of biofuels. As such, if there is a lack of supply of ethanol, the EPA can make the necessary changes to the RVO levels.

But that hasn't been the case as there is more than enough supply to meet the original RVO of 15 billion gallons.

As noted in last week's petition, the EPA was focusing on "fuel distribution capacity and demand rather than supply, and by failing to consider surplus [renewable identification numbers (RINs)] from prior years, the agency erroneously concluded that there was an inadequate supply of renewable fuel to justify a waiver of the levels established by Congress."

In a new report, Jonathan Coppess from the University of Illinois says the EPA justifies its changes to the RVO because the term "supply" to the EPA includes the use of biofuels by consumers.

"EPA argues that the phrase is ambiguous because Congress did "not specify what the general term 'supply' refers to" (Final RFS Rule, at 37). EPA concludes that the "common understanding" of the term supply is "an amount of a resource or product that is available for use by the person or place at issue" and that for renewable transportation fuel this would be "in terms of the person or place using the product" which it argues includes the ultimate consumer purchasing gasoline."  

He further elaborates :

"EPA argues that "there is no 'renewable fuel' and the RFS program does not achieve the desired benefits of the program unless biofuels like ethanol and biodiesel are actually used to replace fossil-based transportation fuels" by a person at issue (Final RFS Rule, at 37). EPA contends that Congress did not specify the person at issue. EPA's conclusion raises questions because Congress explicitly stated that all regulations promulgated for the RFS program "shall contain compliance provisions applicable to refineries, blenders, distributors, and importers" (45 U.S.C. §7545(o)(2)(A)(iii)(I)). This may well settle EPA's question and any ambiguity because the persons at issue for the mandate and waiver are the obligated parties (refineries, blenders, distributors and importers) not consumers."

Coppess points that further reading of the legislative history of the RFS confirms that consumers were not included.

"The House wrote the waiver for when "there is an inadequate domestic supply or distribution capacity to meet the requirement"; the Senate did not include "or distribution capacity" and the Senate version prevailed. While not definitive, this does indicate that when the two chambers resolved differences in conference, the conferees accepted the Senate's version. The ethanol industry has argued that Congress intentionally removed the phrase so it would not be a consideration."

Lastly, he says "Congressional meaning for the word supply can be informed by the larger statutory context. That context, however, cannot be used to distort the statute; an agency's discretion "does not license interpretive gerrymanders."

So, in other words, did the EPA really have the authority to make changes to the 2016 RVO?