(Adds companies' comments, biofuel trade group reaction,
background on additional challenges)
By Ayesha Rascoe and Cezary Podkul
WASHINGTON May 6 A U.S. appeals court on
Tuesday threw out an oil industry challenge to the Obama
administration's 2013 biofuel mandate, ruling that the
government has "wide latitude" to decide whether to modify
renewable fuel use targets, and by how much.
The U.S. Court of Appeals for the District of Columbia
Circuit rejected arguments from refiners that the Environmental
Protection Agency had not thoroughly considered how renewable
fuel credits are used to satisfy federal targets.
The ruling could have broad implications for the biofuel
mandate, as various groups weigh challenges to EPA's management
of the program. The EPA's final 2014 quotas are due out in June.
The Renewable Fuel Standard requires increasing amounts of
biofuels such as ethanol to be blended into U.S. gasoline and
diesel supplies through 2022.
U.S. refiners need to accumulate credits, or Renewable
Identification Numbers (RINs), to prove they have blended their
share of renewable fuels into gasoline and diesel. If they do
not blend, they need to buy RINs.
The oil industry unsuccessfully urged the EPA to lower the
federal mandate to use 16.55 billion gallons of biofuels in
2013, saying it would unduly burden refiners.
In its challenge, PBF Energy said the EPA should not
consider the use of left over ethanol credits from 2012 when
setting targets for 2013.
"This contention is meritless," the court said, adding that
"EPA was entitled to conclude, as it did, that it had wide
latitude to consider a range of factors as appropriate."
PBF said it is evaluating its legal options. "We are
disappointed in the court's ruling and do not agree that EPA
properly exercised its discretion," a PBF spokesman said in an
Monroe Energy, a subsidiary of Delta Air Lines which
operates the 185,000 barrels-per-day (bpd) Trainer refinery in
Pennsylvania, argued the EPA's decision not to cut 2013 biofuel
targets did not take into account that companies might need to
carry over some ethanol credits for use in 2014, when it
finalized the 2013 targets.
The company said a spike in RIN prices last year could cost
Monroe more than $100 million. The ethanol blending credits
topped out at around $1.45 each in July 2013 and remain
elevated, with trades spotted at 43.00 cents each on Tuesday.
But the court ruled that expensive fuel credits were not
enough to warrant vacating the target and that there was "no
ground to conclude the 2013 standards are unlawful simply
because RINs are costlier than in prior years."
The court added that higher RIN prices should provide an
incentive to invest in more fueling infrastructure and in
diversification of the fuel supply.
In a statement reacting to the court decision, Monroe Energy
disagreed strongly with this reasoning: "These prices will not
increase the volume of renewable fuel consumed in the U.S., and
are in essence nothing but a tax on refiners," the company said
in an email.
BETTER LATE THAN NEVER
Biofuel supporters have been locked in a pitched lobbying
battle against the oil industry to keep the mandate intact. On
Tuesday, they had reason to celebrate at least one victory in a
larger battle over the biofuel content of fuel supplies.
"Today's decision is a victory for American consumers," said
a coalition of biofuel trade groups including the Renewable
Fuels Association, Growth Energy and the Biotechnology Industry
The court also rejected claims from the refineries that the
2013 rule should be thrown out because it was issued more than
eight months after the legislative deadline of November 30. The
court noted that companies could estimate their obligations
based on fuel consumption estimates from the Energy Information
The decision seems to indicate that the delay, while
inconvenient, does not prohibit refiners from complying with the
rules, some legal experts said.
"The unanimous nature of the decision, that the EPA can miss
the statutory deadline by more than eight months, is very
significant not just for the 2013 standards but also the 2014
standards," said David McCullough, a lawyer at Sutherland Asbill
& Brennan LLP who specializes in energy issues.
It means that, even if the EPA is late finalizing the rules,
the court held that refiners and other obligated parties "still
had notice under the statute establishing the mandates" to plan
ahead for their compliance, and therefore the court views it as
not unreasonable for the EPA to adjust them, said McCullough,
whose firm is not involved in the case.
Last month, the American Petroleum Institute and American
Fuel and Petrochemical Manufacturers asked the court to hold out
on ruling on their challenges to the 2013 rule, pending EPA's
review of the matters.
(Additional reporting by Lawrence Hurley; Editing by Diane
Craft and Grant McCool)