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Federal court strikes down challenge to rule governing biofuel blending mandates

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Federal court strikes down challenge to rule governing biofuel blending mandates

In a per curiam decision, the U.S. Court of Appeals for the District of Columbia Circuit on Aug. 30 struck down a challenge to federal regulations making refineries the point of obligation for complying with biofuel blending mandates.

The Renewable Fuels Standard, or RFS, program, administered by the U.S. Environmental Protection Agency, requires U.S. refiners to blend an increasing volume of biofuels such as ethanol into the transportation fuels they produce each year, escalating to 36 billion gallons by 2022. Refineries have two avenues of compliance: They can either blend biofuels into their petroleum production, or they can purchase biofuel blending credits known as RINs.

In its petition, the refining industry challenged a U.S. EPA regulation known as the 2010 point of obligation rule, arguing that the regulation is arbitrary and capricious and that "the current point of obligation misaligns incentives by requiring those that refine fossil fuel, but not those who blend it, to meet the RFS program's annual standards, [which] forces refiners to purchase RINs to satisfy their RFS obligations, jacking up their costs, while giving windfall profits to blenders, who produce (but don't consume) RINs."

However, the judges wrote that regulators pointed out that refiners are able to recover those costs by passing them along to consumers, and that the EPA "grounded that conclusion in studies and data in the record."

Petitioners also challenged the EPA's 2017 decision not to reassess the point of obligation, arguing the phrasing of the law requiring the EPA to set annual volume obligations "also imposes on EPA a nondiscretionary duty to reconsider — every year — which types of entities are obligated to demonstrate EPA compliance with the percentage standards" since "those renewable fuel obligations must ... be applicable to refineries, blenders, and importers, as appropriate."

But the panel of judges said such a mandate would lead to year-to-year shifts in the roles of market participants and could destabilize the RINs market.

"It is not plausible that Congress meant EPA to consider uprooting the baseline of the RFS program every year," the judges wrote. "The real stretch is that Congress would have imposed such an onerous and potentially disruptive duty merely by use of the phrase 'as appropriate.'"