[00:00:02] Speaker 11:
Case number 16-1005 at L, Americans for Clean Energy at L petitioners versus Environmental Protection Agency at L. Thank you.

[00:00:17] Speaker 11:
Since we have so many parties today, I'm going to ask council to introduce themselves and tell us what issues they're dealing with.

[00:00:32] Speaker 00:
Please go ahead.

[00:00:54] Speaker 00:
Thank you.

[00:01:16] Speaker 11:
One more.

[00:01:17] Speaker 05:
Oops, sorry.

[00:01:24] Speaker 11:
All right.

[00:01:25] Speaker 11:
Thank you.

[00:01:27] Speaker 11:
Anytime you're ready.

[00:01:35] Speaker 04:
May it please the court.

[00:01:36] Speaker 04:
My aim is to reserve three minutes for rebuttal.

[00:01:39] Speaker 04:
The court please.

[00:01:41] Speaker 04:
The RFS program mandates dramatically increased renewable fuel usage through a statutory mandatory schedule of volume requirements.

[00:01:52] Speaker 04:
Congress prescribed an exceptionally narrow role for the EPA to translate those volumes into percentages in order to, quote, ensure that the obligated parties meet those requirements.

[00:02:08] Speaker 04:
Congress's clear judgment was that so long as renewable fuels are available for those that turn renewable fuel into transportation fuel,

[00:02:20] Speaker 04:
the requirements must be met unless severe harm would result.

[00:02:25] Speaker 04:
The EPA's rule upends that program by discarding the statutory mandate and installing itself as a general market superintendent.

[00:02:37] Speaker 04:
Vastly over-reading its waiver authority, now EPA, not Congress, decides each year how much renewable fuel will be supplied.

[00:02:48] Speaker 04:
based not on the schedule that Congress mandated, but based on how much transportation fuel EPA thinks the consumer market will consume.

[00:03:01] Speaker 04:
But Congress did give the EPA authority to make those judgments, but only after 2022.

[00:03:09] Speaker 04:
It didn't do so in the initial phase of the renewable fuel standards statute because

[00:03:16] Speaker 04:
It wanted to provide market-forcing investment certainty that EPA's interpretation eradicates.

[00:03:24] Speaker 04:
Now, our brief addresses four errors in the EPA's analysis, but I think it probably makes sense to start with the first and the most fundamental, which is that EPA misunderstood its assignment under the statute.

[00:03:42] Speaker 04:
EPA agrees that the term supply

[00:03:46] Speaker 04:
is, quote, the amount of a resource available for its intended use.

[00:03:52] Speaker 04:
And EPA agrees that there is plenty of renewable fuel available for the use that Congress specified.

[00:04:01] Speaker 04:
And that is to reduce and replace or replace the quantity of fossil fuel that is present in transportation fuel.

[00:04:11] Speaker 10:
Do you distinguish between supply and production?

[00:04:16] Speaker 10:
Or are they the same in your theory?

[00:04:18] Speaker 04:
They are not the same in our theory.

[00:04:20] Speaker 04:
We think that the ordinary term of the supply ordinary term of supply means the amount that is produced and that can't that is available to

[00:04:30] Speaker 04:
the parties that blend renewable fuel into transportation fuel.

[00:04:35] Speaker 04:
So it includes upstream distribution.

[00:04:38] Speaker 04:
That is, it has to be produced or imported, and it has to be available to be transported to the parties that the statute obligates to do the blending.

[00:04:49] Speaker 10:
And what barriers would keep it from getting to, you're talking about stuff that has to get blended, to the blenders?

[00:04:57] Speaker 04:
I mean, the one that the parties have addressed would be transportation constraints.

[00:05:06] Speaker 04:
There's a brand new renewable fuels plant someplace that has a limited capacity to deliver it to the refiners and importers and blenders that are the obligated parties under the statute.

[00:05:21] Speaker 04:
I mean, generally speaking, those don't exist.

[00:05:24] Speaker 04:
So generally speaking, it ordinarily would be production.

[00:05:29] Speaker 04:
The salient point here, Judge Millett, is that the EPA agrees that there is no question that there is more than adequate renewable fuel to supply

[00:05:45] Speaker 04:
the parties that the statute obligates to blend that volume into transportation fuel.

[00:05:54] Speaker 04:
The EPA's view... Is there a glut?

[00:05:58] Speaker 04:
Excuse me?

[00:05:59] Speaker 10:
Is there a glut?

[00:06:04] Speaker 04:
There is vastly more than enough.

[00:06:06] Speaker 04:
I mean, supply, if you think about all the supply of the advanced biofuels and ethanol,

[00:06:16] Speaker 04:
the EPA and, for that matter, the Energy Information Agency, which is the agency that supplies data from the Department of Energy, agrees that there is vastly more available to suppliers than can be used.

[00:06:31] Speaker 04:
In fact, and I'm getting a little bit off onto point four of our brief, which is the miscalculation of the amount of

[00:06:40] Speaker 04:
fuel that's available for – to be blended into E85, which is a much higher renewable fuel content.

[00:06:48] Speaker 04:
Even looking at what – the way EPA defies supply, which is demand by consumers for a fuel, EPA admitted in its proposed 2014 rule that,

[00:07:05] Speaker 04:
Even counting only those flex-fuel vehicles with reasonable access to stations offering E85, their total consumption capacity is at least one billion gallons.

[00:07:18] Speaker 04:
The 2016 rule posits, irrationally, that only at most 200 million gallons of E85 would be consumed.

[00:07:31] Speaker 04:
I realize that I'm mixing consumption and demand, but the salient point here is that nobody disputes both that there is more than enough renewable fuel

[00:07:43] Speaker 04:
available to the parties on whom Congress placed the obligation to meet the statutory volumes to blend it into transportation fuel.

[00:07:54] Speaker 04:
And for that matter, as to part four of our argument, even EPA agrees that there are no downstream infrastructure constraints to consumption of a transportation fuel, E85,

[00:08:12] Speaker 04:
that would result in consumer consumption of 1 billion gallons, which would more than eclipse the 500 million dollar, 500 million gallon general waiver for 2016.

[00:08:24] Speaker 08:
I think they're going to argue that it's ambiguous and therefore give them deference.

[00:08:32] Speaker 08:
And they're going to focus, among other things, on is used, the phrase is used in the statute.

[00:08:38] Speaker 08:
So how do we

[00:08:40] Speaker 08:
How do we decide here that it's sufficiently unambiguous?

[00:08:45] Speaker 08:
What would you point us to?

[00:08:47] Speaker 04:
Well, sure.

[00:08:48] Speaker 04:
I mean, supply – the EPA starts off by agreeing that the definition of supply is, as they say, quote, the amount of a resource or product that is available for use.

[00:08:59] Speaker 04:
That's on page 77,435 of the Federal Register.

[00:09:05] Speaker 04:
The statute makes clear that supply is the supply of renewable fuel to the obligated parties.

[00:09:14] Speaker 04:
And we know, and that I guess raises the question of supply of what to whom.

[00:09:21] Speaker 04:
If supply is the amount that's available for use, it's the amount that could potentially be used by those on whom the statute places the obligation.

[00:09:32] Speaker 04:
So we know that the what of supply of what is renewable fuel, not transportation fuel, because it's renewable fuel that is the subject of the mandatory of the tables that contain the mandatory volumes.

[00:09:47] Speaker 04:
And we know the to whom because the statute tells us that.

[00:09:52] Speaker 04:
The statute in section O3B, the subsection after the tables,

[00:10:02] Speaker 04:
makes clear that it is obliging the obligated parties, quote, to ensure that the statutory standards are met.

[00:10:11] Speaker 04:
In other words, it tells you it's a supply of what?

[00:10:14] Speaker 04:
It's a supply of renewable fuel, not transportation fuel.

[00:10:19] Speaker 04:
And the obligation is placed in subsection 3B on the refiners, importers, and blenders, as EPA determines appropriate, which are

[00:10:31] Speaker 04:
deemed the obligated parties.

[00:10:35] Speaker 04:
And that's the only interpretation that makes sense.

[00:10:37] Speaker 04:
They say, well, okay, but supply is, you know, is, renewable fuel is defined as, quote, fuel produced from renewable biomass that is used to replace or reduce the quantity of fossil fuel present in a transportation fuel.

[00:10:55] Speaker 04:
used in that context obviously means that that's its function, not that it's actually used.

[00:11:03] Speaker 04:
If you were measuring whether it was actually used, you would be measuring consumption, not supply.

[00:11:09] Speaker 04:
And so that very definition of renewable fuel, renewable fuel that's used to reduce or replace the quantity of fuel is, as we say in our brief, is analogous to saying, you know, that paper is, you know, is sheets of wood pulp, dried wool pulp that is used for writing and printing.

[00:11:33] Speaker 08:
So they say I think that is used is sufficiently different from for use to

[00:11:39] Speaker 08:
qualifies an ambiguity in the statute.

[00:11:42] Speaker 04:
I mean, that is completely inconsistent with the structure of the statute.

[00:11:47] Speaker 04:
The statute imposes an obligation on the middlemen, the people that are taking renewable fuel, the supply,

[00:11:58] Speaker 04:
and transforming it into transportation fuel, and it obligates them to meet the requirements.

[00:12:06] Speaker 04:
If you are defining is used as how much our car, our driver is going to consume, you've completely defeated the entire meaning of the word supply.

[00:12:20] Speaker 04:
And I would make the following points, Judge Cavanaugh.

[00:12:23] Speaker 04:
You've also defeated the two, what I think everyone concedes,

[00:12:28] Speaker 04:
and this court in Monroe so found, are the two hallmark purposes of this statute.

[00:12:35] Speaker 04:
The purpose of these mandates was to overcome infrastructure and distribution constraints downstream of the blending by giving the investment market long-term certainty about what the demand levels were going to be.

[00:12:58] Speaker 04:
And if you allow EPA four or five weeks before a year starts to go through this crazy circular exercise of trying to figure out how much is going to be demanded and what the constraints are distributing to gas stations, et cetera, et cetera, and then come up with a number after saying, well, because we're so late, we can't really force the market.

[00:13:23] Speaker 04:
the statute defeats, the operation of the statute has defeated itself.

[00:13:28] Speaker 10:
Well, how does a statute work if there's a glut as of now on the production end and the import of your position is simply to move that glut to the post-blender stage of the process?

[00:13:45] Speaker 10:
EPA says that's going to have its own adverse consequences for the operation of this statute.

[00:13:52] Speaker 10:
Do you agree with that?

[00:13:53] Speaker 10:
And two, if you do in any resemblance whatsoever, why isn't that something that they're allowed to deal with?

[00:14:01] Speaker 04:
Well, I don't agree with that.

[00:14:02] Speaker 04:
First of all, I don't think what EPA is not saying that there is, if they stick to these mandates, there is going to be some huge glut.

[00:14:12] Speaker 04:
The interveners are saying, well, if we have to blend all this stuff, it's just going to sit in tanks and we won't be able to sell it.

[00:14:21] Speaker 04:
We don't think that the record remotely supports that.

[00:14:24] Speaker 04:
Quite to the contrary.

[00:14:26] Speaker 04:
But the point here is that what Congress aimed to do

[00:14:31] Speaker 04:
was to force whatever constraints exist.

[00:14:34] Speaker 04:
I don't think it would be a glut, but if there is some, if there is more transportation fuel that includes renewable fuel than the market would already consume, Congress intended to force the market to address that, which of course markets will do.

[00:14:50] Speaker 10:
If the if Congress, I mean, it's going to take some time to force the infrastructure and transportation, let alone the having the vehicle vehicles and stations that can dispense this 85 and things like that.

[00:15:07] Speaker 10:
And so in the meantime,

[00:15:09] Speaker 10:
Taking it from their vantage point, you're going to have tanks all over the place storing this stuff.

[00:15:16] Speaker 10:
Is that something they could deal with under the severe economic harm, wrong instead?

[00:15:25] Speaker 04:
Exactly right.

[00:15:25] Speaker 04:
What EPA is now saying is because there is a possibility

[00:15:30] Speaker 04:
of some minimal economic dislocation, which by the way, I guess this will be my argument in the second case, is not going to be borne entirely by the obligated parties.

[00:15:40] Speaker 04:
The market will find a way to allocate those burdens.

[00:15:44] Speaker 04:
The whole point of the statute is to force them to blend more renewable fuel than the market would otherwise consume.

[00:15:52] Speaker 04:
In order to, and if you stick with the purpose of having a statutory mandate that went out for 10 or 12 years, was to let everybody know this is the way it's going to be.

[00:16:06] Speaker 04:
We are artificially, Congress is artificially creating demand for renewable fuel.

[00:16:12] Speaker 04:
Now, just again, as to the point that, well, there's going to be a glut in the short term.

[00:16:19] Speaker 04:
If there were an excess in the short term, that would show that the market forcing standards are in fact working the way that Congress wanted them to work.

[00:16:30] Speaker 04:
But in fact,

[00:16:31] Speaker 04:
You know, I quoted you the language from EPA's own proposed 2014 rule that said that even if you look at the small percentage of stations that sell E85 and the 20 million flex-fuel vehicles that can consume E85, the market in late 2013 could already consume one

[00:16:56] Speaker 04:
billion gallons of E85, and yet they have, even accepting their definition of supply, the way they mean consumer demand, they have, without any explanation whatsoever, calculated that only at most 200 million gallons of E85 would be used.

[00:17:19] Speaker 04:
As we point out, if you look at their brief, the only explanation that they have for that 200 million gallon amount is that they say that the discount for E85 over E10, E85 will get you fewer miles per gallon, they said that they are assuming that the price discount will be 22 percent, which is the energy parity level.

[00:17:48] Speaker 04:
There is nothing in their rule, in the hundreds of pages of their rule, that explains why that would be the case, that why in a market an EPA has said year after year that price is overwhelmingly the factor that demands, that determines consumption of which fuels in the consumer market.

[00:18:12] Speaker 04:
They have no explanation.

[00:18:14] Speaker 04:
for why the price discount, no matter how much E85 fuel is available, would be 22 percent.

[00:18:22] Speaker 04:
It's incoherent.

[00:18:23] Speaker 04:
And it's inconsistent with basic economics, obviously, but it's also unsupported in the record.

[00:18:31] Speaker 04:
So even on the factual premise of your question, with respect, Judge Millett, that there will be a glut, there won't be.

[00:18:38] Speaker 04:
But if there were,

[00:18:40] Speaker 04:
it would mean that the statute is operating exactly the way that Congress wanted it to.

[00:18:45] Speaker 08:
Or, I think you said, the other waiver exception, the other waiver provision would be the place to accommodate those concerns.

[00:18:56] Speaker 08:
I know you don't want to concede too much probably on what that provision, but is that part of your argument?

[00:19:02] Speaker 04:
Yeah, of course.

[00:19:02] Speaker 04:
I mean, look, if there were some economic dislocation,

[00:19:06] Speaker 04:
there is a waiver exception for severe environmental or economic effects.

[00:19:12] Speaker 04:
And in fact, the statute actually has a reset provision under, I think it's 7C, where if EPA finds in two years in a row that it has to lower

[00:19:29] Speaker 04:
the standards by more than 20 percent or in any one year by 50 percent because of the severity of the harm, it has the authority to reset the statutory volumes.

[00:19:41] Speaker 04:
The whole point of a market forcing statute is, yes, to create some economic dislocation among the obligated parties that will be worked out between them and all the downstream users and, for that matter, will be negotiated in the price that they pay for the renewable fuel.

[00:20:02] Speaker 04:
But it's to do that and require that the market figure out a way to consume the fuel that they are blending and producing unless it causes severe harm.

[00:20:14] Speaker 10:
Now, is that reset provision that you referenced part of the concern here?

[00:20:19] Speaker 10:
Because I take it that if their rule is upheld, that reset provision will be triggered and they will then have the authority going forward to reset all the statutory.

[00:20:28] Speaker 04:
No, I don't think it will because

[00:20:32] Speaker 04:
Well, one thing that it's not in the record, but there is no waiver in 2017.

[00:20:37] Speaker 04:
The 2017 rule doesn't invoke the general waiver, either under the inadequate supply or the severe harm standard.

[00:20:48] Speaker 04:
So it's not implicated in this case.

[00:20:51] Speaker 04:
The point I was raising in response to Judge Kavanaugh's question is,

[00:20:56] Speaker 04:
Yes, there will be dislocation.

[00:20:58] Speaker 04:
Congress made the judgment that that dislocation that occurs will be great.

[00:21:03] Speaker 04:
That's what happens when the standards become, quote, binding, when they force the market to produce, that is, the obligated parties to produce, and the market to find a way to consume

[00:21:19] Speaker 04:
the statutory volumes.

[00:21:21] Speaker 04:
Now, it's not as if Congress didn't allow some flexibility.

[00:21:26] Speaker 04:
Congress allowed flexibility on the front end and the back end.

[00:21:30] Speaker 04:
On the front end, Congress provided that any obligated parties that generate more or that separate more RINS than they're required to be retired at the end of the year to show that they've satisfied their obligation,

[00:21:44] Speaker 04:
can keep those RINs as credits, which they can either use within 12 months or sell to another party.

[00:21:52] Speaker 04:
And there, of course, is a vibrant RIN market that we'll be hearing about in the second part of the arguments.

[00:21:59] Speaker 04:
It also specifically allows obligated parties that don't or can't produce enough or consume their allocated supply of renewable fuel

[00:22:13] Speaker 04:
to carry that deficit forward to the next year.

[00:22:18] Speaker 04:
So Congress said, yes, we want to force the market.

[00:22:21] Speaker 04:
And the way we force the market is having increasingly demanding standards that everybody knows about a decade in advance.

[00:22:30] Speaker 04:
But if there are years in which you produce too much, you can use those credits to satisfy your obligation the next year.

[00:22:38] Speaker 04:
And if you don't make it in a particular year, Congress expressly authorizes that deficit to be carried forward the next year.

[00:22:48] Speaker 04:
Those are the flexibilities that Congress determined should be part and parcel of its market-forcing regime.

[00:22:56] Speaker 04:
And with all due respect to EPA,

[00:23:00] Speaker 04:
EPA not only screwed up its assignment, it misunderstood its assignment.

[00:23:05] Speaker 04:
It is – no, but Congress didn't want – it didn't authorize the EPA to engage in some gigantically convoluted attempt to evaluate all of the constraints on the consumer fuels market and what consumer demand would be.

[00:23:23] Speaker 04:
Congress made those judgments, and EPA probably would have been one of the last agencies expert to be able to make those kinds of economic calculations.

[00:23:32] Speaker 10:
Congress... I just want to back up, though, just so I understand the consequences here.

[00:23:37] Speaker 10:
Why isn't the... I get what you said about 2017, but why isn't the reset provision triggered by what they've done for 2014, 15, 16?

[00:23:47] Speaker 04:
Well, the reset, they have to take the standards down, I believe, to consecutive years by at least 20%, maybe it's 25%.

[00:23:55] Speaker 10:
20%, but haven't they done that?

[00:23:57] Speaker 04:
The exact amount.

[00:23:59] Speaker 10:
Or 50% for a single year.

[00:24:01] Speaker 04:
Yes, that's right.

[00:24:02] Speaker 04:
No, they haven't.

[00:24:03] Speaker 04:
I don't think anybody, I'll be educated if I hear otherwise, but I don't think anybody's contending that reset is appropriately set here.

[00:24:12] Speaker 04:
Now, I just, I know that I'm vastly over my seven minutes, but I, we did have two other points in our brief and, you know, if the court would just permit me to say a few sentences about the two other arguments.

[00:24:26] Speaker 04:
One is what they did with 2014 and 2015.

[00:24:30] Speaker 04:
Because they, because the agency was so late in setting the standard, which should have simply been an arithmetic calculation,

[00:24:39] Speaker 04:
2000 they didn't set the standard until after 2014 and 11 of the 12 months of 2015 had passed and so what they did was to say okay well we couldn't force the market in those years so we're just going to drop the standards down to what to the number of rins that were separated that is the amount of renewable fuel that was blended or made available

[00:25:06] Speaker 04:
for trans – as transportation fuel.

[00:25:10] Speaker 04:
This court in NPRA and in Monroe made its own independent judgment that the EPA's delay, even a delay by a year,

[00:25:22] Speaker 04:
was not a circumstance that the general waiver provision was designed to address and that it was inconsistent with the statute to waive the statutory standards under those circumstances, particularly in a circumstance in which

[00:25:39] Speaker 04:
The EPA acknowledges that there were so many carryover rins in the RIN Bank that the statutory standards could have been met just based on what was actually produced

[00:25:55] Speaker 04:
taking into account the RINS that would expire in the next, during those years.

[00:26:01] Speaker 04:
And so the, we think that it is absolutely clear that the EPA should have applied this court's admonition in NPR or A and one row.

[00:26:14] Speaker 04:
that Congress wanted EPA to ensure that the requirements were met, notwithstanding the agency's delay, and that the general waiver doesn't address this.

[00:26:24] Speaker 10:
The fact that the agency isn't disqualified from acting doesn't mean that the agency doesn't have to factor in the impact, retroactive impact of what it's doing on companies.

[00:26:37] Speaker 10:
If you take 2014, they were done.

[00:26:39] Speaker 10:
And to go in and say, by the way, what you should have done for the last year was

[00:26:45] Speaker 10:
double what you did or some higher amount would have retroactive effects that we didn't address.

[00:26:50] Speaker 10:
I mean, Monroe, it came out, I think, in August, so you had more time to come into compliance.

[00:26:55] Speaker 10:
But you had no time for 2014 and essentially one month for 2015.

[00:26:59] Speaker 04:
So in both cases, in both NPR and Monroe, with respect, Judge Millett, what the court said is the EPA has decided that the statute requires that the now-passed standard be met.

[00:27:12] Speaker 04:
And what this court said is the EPA doesn't get deference on these judgments.

[00:27:18] Speaker 04:
It doesn't get deference on the consequences of its tardiness.

[00:27:23] Speaker 04:
We, that is you, made the independent judgment that under the circumstance where EPA has allowed the year to pass, the better reading of the statute, the purpose of the statute is to keep the statutory mandate

[00:27:39] Speaker 04:
assuming the statutory mandate can be kept, and the way to do that, this EPA said and this Court agreed, was to combine the past year with an upcoming year and allow the parties... Those were earlier years when we said Congress anticipated, particularly in those early years, that there would be retroactivity, but we're not dealing with that timeframe now.

[00:27:59] Speaker 04:
Well, I'm not sure.

[00:28:00] Speaker 04:
I mean, Monroe was a much, Monroe was not, Monroe had a lot more time to come on.

[00:28:06] Speaker 10:
I think the final rule came out in August and they had notice of it, at least at the midpoint of the year.

[00:28:10] Speaker 04:
Judge Millett, the point here is that even if it were appropriate to look retroactively, if you, and EPA agrees with this, if you look at the number of RINs that were separated in 2014 and 2015 and the number of RINs that were carried over,

[00:28:27] Speaker 04:
From 2013 to 2014 and 2014 to 2015, all of the volumes could be met.

[00:28:36] Speaker 04:
That is, compliance could be demonstrated.

[00:28:38] Speaker 10:
That's across the board for the industry.

[00:28:40] Speaker 10:
That doesn't help any particular company.

[00:28:42] Speaker 10:
that may not have when you have to go out and purchase those RINs and didn't budget for it.

[00:28:47] Speaker 04:
Right.

[00:28:47] Speaker 04:
So I'm not suggesting that the appropriate remedy would be for this court to say, okay, use up all those, the $1.74 billion RIN bank.

[00:28:57] Speaker 04:
to satisfy the total obligations.

[00:29:00] Speaker 04:
The correct approach for this court, I respectfully suggest, is a remand to the agency under the guidance of this court's rulings in NPRA and Monroe to propose a way, if possible, to meet the statutory standards for each year

[00:29:21] Speaker 04:
presumably by doing what it has been permitted to do before, which is to combine them to allow delayed compliance to include a future compliance year.

[00:29:32] Speaker 04:
Now, this does bear on the last point that we're making, which is

[00:29:36] Speaker 04:
the use of carryover rins.

[00:29:39] Speaker 04:
The EPA, everybody agrees that if there is an excess of rins supplied, and there was a substantial excess in the early years because the standards Congress set were below what the market was producing and consuming in any of them.

[00:29:58] Speaker 04:
Under EPA's regulations, an obligated party that has excess rins

[00:30:04] Speaker 04:
can use them to satisfy its obligations in the following year.

[00:30:08] Speaker 04:
In fact, it must use them.

[00:30:11] Speaker 04:
Those carryover rins will be the very first rins that will be used to demonstrate compliance with the next year.

[00:30:19] Speaker 04:
What EPA said in looking at 2014, 2015, and 2016 is, well, in determining the adequacy of the supply,

[00:30:31] Speaker 04:
we are not going to look at the carryover RINs, even though we allow those RINs to be used to demonstrate compliance, and even though we recognize that they will in fact be the very first RINs that the obligated parties will retire in order to demonstrate compliance.

[00:30:51] Speaker 04:
So what EPA did

[00:30:53] Speaker 04:
is essentially to give the obligated parties double credit for those carryover rins.

[00:30:59] Speaker 04:
And I think I can demonstrate this most clearly with a numerical example.

[00:31:04] Speaker 04:
Let's say that in year two, the statutory volume is 100, and in year three, the statutory volume is 200.

[00:31:14] Speaker 04:
So in year two,

[00:31:17] Speaker 04:
I'm not using one just because I don't want a transitional year.

[00:31:20] Speaker 04:
In year two, the industry, in fact, produces 105 RINs.

[00:31:25] Speaker 04:
So there are five carryover RINs.

[00:31:28] Speaker 04:
We know that those five RINs are going to be used to satisfy two of the 200 million RIN obligation the next year.

[00:31:37] Speaker 04:
Either that or they're worthless.

[00:31:41] Speaker 04:
What EPA has done by saying in determining the adequacy of the supply in year three, we aren't going to count those five, they are reducing year three to 195 and then allowing the obligated parties to use five, their five carryover, as partial satisfaction of the 195.

[00:32:03] Speaker 04:
That is the logic.

[00:32:05] Speaker 10:
Why isn't, in this respect, supply ambiguous as to whether it means actual supply or as opposed to these sort of accounting maneuvers?

[00:32:18] Speaker 10:
And I don't mean to sound pejorative, but isn't that, I know you don't think it goes as far as they take it on

[00:32:26] Speaker 10:
demand issue, but isn't that within their discretion?

[00:32:29] Speaker 04:
Well, I guess I would say, I think in this I can have my cake and eat it too, and not let them have their cake and eat it too.

[00:32:37] Speaker 04:
If you, if the court understands supply, to mean what we say supply means, which is the amount of renewable fuel that is available to those parties that are obligated to use it to produce transportation fuel.

[00:32:53] Speaker 04:
RINs or other artificial accounting things.

[00:32:55] Speaker 04:
If that amount is sufficient to – sufficient so that downstream constraints notwithstanding or consumer demand or anything like that, if that amount is available to be blended, the supply is adequate.

[00:33:11] Speaker 04:
And supply is only inadequate if that amount is less than the statutory mandated volume.

[00:33:17] Speaker 04:
If EPA were applying that rule, we wouldn't be using RINS other than to say, well, RINS are the way that – it's just another way of saying gallon.

[00:33:27] Speaker 04:
That's not what EPA is doing.

[00:33:29] Speaker 04:
What EPA is saying is we are calculating compliance with these – we are measuring compliance with the volumes.

[00:33:36] Speaker 04:
The way you established that the obligated party has met its obligation.

[00:33:42] Speaker 04:
is by the demonstration date, which is sometime in the following year, you show up and retire the amount of RINs that corresponds to the percentage you've been given.

[00:33:54] Speaker 04:
What they're doing and what's illogical and what in fact reduces the demand for renewable fuel rather than increases it is to say, okay, that's what we're going to do.

[00:34:07] Speaker 04:
We are going to look at

[00:34:09] Speaker 04:
the number of RINs that are retired and that will be available to retire, but we are only going to use the number of RINs that are generated that year, not ones that were generated the year before or separated that year instead of separated, although we will allow you to show compliance.

[00:34:25] Speaker 04:
And so, in effect, Judge Millett, what they're doing is saying they are finding a shortfall, even in years where there is

[00:34:38] Speaker 04:
There are going to be enough RINs generated in order to carry over into the future.

[00:34:43] Speaker 04:
That is, if the number is 200 and there are 15 carryover RINs from the year before, EPA is saying that even in a year in which you can generate 195 new RINs,

[00:34:59] Speaker 04:
the supply is inadequate, even though generating 195 rins will allow you to carry over an excess from the year in which the supply is supposedly inadequate to the next year.

[00:35:14] Speaker 04:
So if you calculate

[00:35:16] Speaker 04:
If you evaluate supply as gallons of renewable fuel that are available to be blended into transportation fuel, we don't have to address the carryover-rin situation.

[00:35:28] Speaker 04:
But if you're measuring supply and the inadequacy of supply by the number of rins that will be available to demonstrate compliance, it is incoherent

[00:35:39] Speaker 04:
to say that we will allow the obligated parties to use their carry, we know they will use their carry over rins to demonstrate compliance, but we are not going to count them in determining whether the supply is adequate because

[00:35:53] Speaker 04:
We want to ensure a perpetual carryover RIN Bank, which is not in the statute and not consistent with Congress's intent.

[00:36:04] Speaker 04:
Inadequacy is simply a question either of is there just not enough renewable fuel available for the parties that the statute obligates to combine it with fossil fuel, or are there simply not enough available RINs

[00:36:22] Speaker 04:
generated or carried over for the obligated parties to say, yes, I got an A for this year.

[00:36:30] Speaker 04:
I passed the compliance test this year.

[00:36:33] Speaker 04:
It's either or, and either way, the way that the EPA has done it is inadequate.

[00:36:41] Speaker 04:
I see that my time has nearly expired.

[00:36:46] Speaker 04:
Thank you.

[00:36:46] Speaker 11:
More than expired.

[00:37:00] Speaker 01:
Good morning, Your Honors.

[00:37:02] Speaker 01:
May it please the Court, I'm David Selmans on behalf of the National Biodiesel Board.

[00:37:07] Speaker 01:
These RFS volume disputes can sometimes feel like annual reunions.

[00:37:12] Speaker 01:
But this case has some important firsts to it.

[00:37:15] Speaker 01:
This is the first time, as we've just been discussing, that EPA reduce volumes based on an adequate domestic supply.

[00:37:20] Speaker 01:
And so it's the first time this court must construe the meaning of that term under subsection 7A.

[00:37:26] Speaker 01:
Just briefly on that issue, we agree that Congress's reference only to supply precludes EPA from relying on demand side and infrastructure concerns

[00:37:36] Speaker 01:
to lower volumes.

[00:37:38] Speaker 11:
Do you agree that this is ambiguous?

[00:37:42] Speaker 01:
No.

[00:37:42] Speaker 01:
We do not think it's ambiguous.

[00:37:44] Speaker 01:
We think it's clear.

[00:37:45] Speaker 01:
And we also, I would just point out, emphasize

[00:37:50] Speaker 01:
that the blending that was so much the focus of the prior discussion, that blending does not apply in the same way to advance biofuels, in particular biodiesel.

[00:38:01] Speaker 01:
Biodiesel is itself a transportation fuel.

[00:38:04] Speaker 01:
And so we think it's very important that the court defines supply, not just in terms of what happens at the blending stage.

[00:38:11] Speaker 01:
Supply means

[00:38:12] Speaker 01:
the total amount of production or production capacity plus the imports that are coming in.

[00:38:19] Speaker 01:
That's what the supply is.

[00:38:20] Speaker 01:
And the RINs are not just an accounting tool.

[00:38:24] Speaker 01:
They are the way in which the agency measures supply.

[00:38:27] Speaker 01:
And as this Court noted, it's a mechanism for complying with each year's individual volume requirements.

[00:38:34] Speaker 01:
But what I'd like to focus on is the other important first in this case.

[00:38:39] Speaker 01:
This is the first time the EPA has used the cellulosic waiver to reduce the broader volume standards.

[00:38:48] Speaker 01:
So this is the first occasion for this court to construe the limits on EPA's power to lower the standards for those volumes under subsection 7D.

[00:38:59] Speaker 01:
And I'd like to make three points on that issue.

[00:39:02] Speaker 01:
First, the text structure and purposes of the act

[00:39:06] Speaker 01:
all confirm that the same criteria Congress used to limit EPA's waiver discretion generally under subsection 7A also limit EPA's discretion to reduce volumes.

[00:39:18] Speaker 08:
Why not say that in the statute, then?

[00:39:21] Speaker 01:
Well, Your Honor, I think the reason is because the heading of 7A makes clear that it deals with waivers in general, and it applies to any volumes that are defined in the act.

[00:39:32] Speaker 01:
And so what Congress has done is it says, you know,

[00:39:36] Speaker 01:
EPA, you have lots of discretion to ensure that the volumes are satisfied, but when you want to reduce volumes, you have to do it based on one of these two criteria.

[00:39:48] Speaker 01:
There was no reason under 7D and 7E to repeat that limitation.

[00:39:52] Speaker 01:
I think it's important to note what 7D and 7E do.

[00:39:58] Speaker 01:
deals with the cellulosic waiver.

[00:40:00] Speaker 01:
7A is a similar provision when there is a temporary interruption with regard to biomass-based diesel.

[00:40:05] Speaker 01:
Both of these provisions are structured, if you will, as an exception to the general rule, because whereas under 7A, even when there's inadequate domestic supply or severe economic harm, the decision

[00:40:21] Speaker 01:
to reduce volumes is not required.

[00:40:24] Speaker 01:
It's discretionary, and the Act provides no particular standards.

[00:40:29] Speaker 08:
You said there was no need for Congress to repeat that, but there obviously was a need, because we wouldn't be having this debate.

[00:40:34] Speaker 08:
And the Congress just put the broad general language in there, may also reduce the applicable volume without setting forth standards, which would suggest it gets to consider

[00:40:49] Speaker 08:
whatever it deems appropriate and reasonable in deciding that.

[00:40:53] Speaker 01:
So this is the way we interpret the statute.

[00:40:55] Speaker 01:
We think that that would swallow the limitations Congress imposed on the EPA when it's going to reduce volumes.

[00:41:02] Speaker 01:
What the MAY does in 7D and 7E, it's a different structure.

[00:41:07] Speaker 01:
What it says is first there's a mandatory reduction requirement that applies only either to the cellulosic or to the biomass-based diesel.

[00:41:15] Speaker 01:
And then it follows that mandatory reduction command

[00:41:18] Speaker 01:
with the statement that they may also reduce the other categories.

[00:41:21] Speaker 01:
The may there primarily serves to make clear that the mandatory reduction, these are nested volume standards, the mandatory reduction only applies to the narrowest category that's being addressed and that EPA retains its discretion to still enforce and ensure compliance with the other standards.

[00:41:42] Speaker 10:
That may be one reading, but I don't get why it wouldn't make equal sense under this text to say, look, once you've knocked the cellulosic amount down,

[00:41:54] Speaker 10:
and requiring you to tie it to what actually happens.

[00:41:57] Speaker 10:
Once you do that, then you've got to go back and look and say, in knocking that down, is it still possible to meet these other two standards?

[00:42:07] Speaker 10:
Because we pulled out, you know, one leg of the school by reducing the cellulosic contribution to meeting those standards.

[00:42:14] Speaker 10:
And so you need to go back and see, as they've done in the past, well, are there other things that can make up the difference?

[00:42:21] Speaker 01:
Yes, absolutely.

[00:42:22] Speaker 10:
That's how we read it.

[00:42:23] Speaker 10:
Right.

[00:42:23] Speaker 10:
And if they can't, they'd see something, as I said here, that there's not going to be enough to make up the difference, then you get to reduce those.

[00:42:30] Speaker 10:
But there's not enough to make up the difference, doesn't seem to fit into the very narrow language of the seven

[00:42:37] Speaker 10:
general waiver.

[00:42:38] Speaker 01:
Your Honor, that's where we disagree.

[00:42:40] Speaker 01:
We think that that fits within inadequate domestic supply.

[00:42:44] Speaker 01:
So we think the way that 7D and 7E work is that when the cellulosic waiver provision is triggered, the reduction in the cellulosic volume is mandatory, and then just as your Honor says, this is exactly the way we think the statute works, the EPA is required to look and see, are there enough

[00:43:01] Speaker 01:
available alternative fuels, I shouldn't use alternatives since that becomes redundant, are there enough available other forms of renewable fuels, in particular advanced biofuels, to fill the cellulosic shortfall?

[00:43:14] Speaker 01:
That's the way it's always done it in the past, and that's the way we think it should be done.

[00:43:18] Speaker 01:
And that is consistent with the concept that when there's an inadequate domestic supply, EPA has authority to exercise discretion to reduce

[00:43:26] Speaker 01:
But the focus is still exactly on that.

[00:43:29] Speaker 08:
Go ahead.

[00:43:31] Speaker 10:
So we've said that they have broad discretion under this waiver provision.

[00:43:36] Speaker 10:
Certainly, and so why would we come back now and say actually it's going to be, it's not an independent waiver provision.

[00:43:44] Speaker 10:
It actually just points you right back up to 7A.

[00:43:48] Speaker 01:
Yes, Your Honor.

[00:43:48] Speaker 01:
This is reference to the Monroe Energy case, and this is a critical part of our argument, and so I appreciate the question.

[00:43:53] Speaker 01:
Monroe Energy,

[00:43:55] Speaker 01:
dealt with, as every prior decision in this area did, a determination by the EPA to enforce and not to reduce the volumes.

[00:44:04] Speaker 01:
And what this Court said is that there is no requirement to reduce these latter quotas, it said.

[00:44:11] Speaker 01:
nor does the statute prescribe any particular factors that EP must consider when deciding whether or not to reduce.

[00:44:18] Speaker 01:
We completely agree with that.

[00:44:19] Speaker 01:
It then says, therefore, EPA has broad discretion regarding whether and in what circumstances to reduce.

[00:44:26] Speaker 01:
Again, we agree with that.

[00:44:27] Speaker 01:
And that's perfectly consistent whenever a party challenges... You don't really agree with that.

[00:44:32] Speaker 01:
We do, Your Honor.

[00:44:33] Speaker 01:
Let me explain why.

[00:44:34] Speaker 01:
We agree with it because whenever a party

[00:44:36] Speaker 01:
challenges a determination by an agency not to undertake some discretionary act, then it's a very difficult challenge.

[00:44:45] Speaker 01:
And the agency usually has broad discretion in determining whether to reduce or in this context, whether to take a discretionary act.

[00:44:53] Speaker 01:
But once the EPA takes a discretionary act, once it reduces volumes, that's a different legal question entirely.

[00:45:00] Speaker 01:
This is Heckler versus Cheney.

[00:45:02] Speaker 01:
This is this point.

[00:45:03] Speaker 01:
when EPA decides to reduce, at that point its reduction has to comply with the requirements of the Act.

[00:45:10] Speaker 01:
In other words, I think the way to reconcile this is quite simply to recognize that EPA can decide to ensure that the volumes are met for many different reasons, but that its authority to reduce them is strictly limited by the statute.

[00:45:26] Speaker 01:
So we do not view Monroe Energy as an obstacle to the arguments we made, and we think what the EPA is doing and trying to take the perfectly understandable and long-settled principle

[00:45:39] Speaker 01:
that Monroe Energy stands for in this issue of discretion, which is when a party asks the agency to take a discretionary act and it doesn't, that's a very difficult challenge because the statute gives no factors that must be considered.

[00:45:54] Speaker 01:
But it's different when the agency reduces volumes.

[00:45:56] Speaker 08:
That's a way for us to distinguish Monroe, but it didn't say that in Monroe.

[00:46:02] Speaker 01:
Well, there was no occasion for the court to say it.

[00:46:04] Speaker 01:
Again, EPA has never reduced the broader volumes under the cellulosic waiver provision.

[00:46:10] Speaker 01:
Why would this court have addressed that issue in Monroe Energy?

[00:46:14] Speaker 01:
In fact,

[00:46:15] Speaker 01:
Other principles this Court has long established, the chennery and the like, would have made it very difficult for the Court to have addressed that issue, since it wasn't a basis for the EPA's initial determination.

[00:46:27] Speaker 10:
Yes?

[00:46:28] Speaker 10:
I was going to say, the whole reason we have a separate cellulosic biofuel waiver provision

[00:46:34] Speaker 10:
was I think Congress's recognition that this was a really innovative area, a difficult area, and it sort of expected that there was at least a substantial risk that its targets were not going to be met, and that's why it had this provision require an EPA to adjust it to what actually happens.

[00:46:52] Speaker 10:
And so why wouldn't that same rationale, that same understanding that the cellulosic obligations are different, have different problems, different challenges,

[00:47:02] Speaker 10:
mean that Congress thought EPA would have broader discretion than what it laid out in 7A to include things like, well, consumption, the ability, the downstream as well as the upstream supply, as they would say it.

[00:47:20] Speaker 10:
Why?

[00:47:20] Speaker 10:
Because cellulosic is different.

[00:47:22] Speaker 01:
Well, that's absolutely right.

[00:47:23] Speaker 01:
Cellulosic is different.

[00:47:25] Speaker 01:
Congress was well aware that its cellulosic volumes were based on hoped-for technologies that might prove stunningly optimistic, and that's the way it's turned out.

[00:47:34] Speaker 01:
And so this is why the cellulosic waiver provision is different.

[00:47:38] Speaker 01:
This is the key point, Your Honor, is that

[00:47:42] Speaker 01:
With regard to waiving the cellulosic volume, it's not discretionary.

[00:47:46] Speaker 01:
It's mandatory.

[00:47:47] Speaker 01:
That's how Congress recognized that cellulosic was different.

[00:47:50] Speaker 10:
But why wouldn't it mean the rest of that same paragraph would also be different?

[00:47:53] Speaker 01:
That's what I'm asking.

[00:47:54] Speaker 01:
All the rest of the paragraph does, we think, Your Honor, appropriately read, is say, hey, this mandatory reduction we just told you you have to make for cellulosic,

[00:48:03] Speaker 01:
It doesn't necessarily apply to these broader volumes, even though they're nested, because there might be sufficient supply to fill that shortfall.

[00:48:11] Speaker 10:
That's a perfectly reasonable reading of it.

[00:48:13] Speaker 10:
Don't you have to show that's the only reasonable reading of that other language to overcome the EPA's position?

[00:48:22] Speaker 01:
First of all, we do think it's the only reading.

[00:48:24] Speaker 01:
I'm not sure that we have to, because I think the EPA's reading is just too inconsistent with the fundamental objectives of the act.

[00:48:32] Speaker 01:
Keep in mind that it's precisely because Congress knew that the cellulosic volumes might prove unrealistic that this provision exists.

[00:48:42] Speaker 08:
You had three points you were going to get to, and I interrupted you after point one.

[00:48:47] Speaker 08:
Now points two and three may have been folded.

[00:48:49] Speaker 01:
Point two we're discussing, which is that this court's decision in Monroe Energy

[00:48:52] Speaker 01:
does not compel the determination that EPA has broad discretion to reduce volumes under 70.

[00:48:59] Speaker 01:
It has broad discretion to ensure the volumes are met, but it's a totally different matter when EPA is reducing volumes.

[00:49:06] Speaker 01:
Congress wanted EPA to ensure that they were met.

[00:49:09] Speaker 01:
That's the primary directive of the statute, ensure the volumes are met.

[00:49:14] Speaker 01:
So the only way to harmonize all of these waiver provisions is to remain focused on the fact that even when

[00:49:21] Speaker 01:
that the EPA is required to reduce cellulosic volumes, it retains the authority to ensure that the other volumes are met, and the standards by which it can decide to reduce those volumes should be the same that apply across the board.

[00:49:35] Speaker 01:
Is there sufficient supply to fill that cellulosic shortfall?

[00:49:41] Speaker 01:
And then my last point, Your Honor, is that regardless of how this Court defines the breadth of discretion the EPA has, its methodology

[00:49:50] Speaker 01:
was arbitrary and capricious and has to be reversed.

[00:49:54] Speaker 01:
And some of the arguments here are similar to some that we just heard, one being, for example, the refusal to count carryover rins.

[00:50:03] Speaker 01:
as part of the available supply to fill the cellulosic shortfall.

[00:50:08] Speaker 01:
This court in Monroe Energy, for example, the EPA's favorite case, makes absolutely clear that the carryover wins are appropriate to be counted in determining whether to fill the cellulosic shortfall.

[00:50:24] Speaker 01:
One of the parties in that case, that was the intervener, made the argument that counting carryover wins

[00:50:29] Speaker 01:
was inconsistent with the statutory scheme because it would raise RIN prices too much and it would destroy the RIN bank and some of these other points.

[00:50:40] Speaker 01:
And this court referred to those arguments as meritless and made the point, rightly so, that it is logical to assume that those carryover RINs will be used to fill the shortfall and to satisfy the requirements

[00:50:56] Speaker 01:
in that carryover year.

[00:50:57] Speaker 10:
Isn't that in a year where the volume of carryover bins was not as low as it is at the time they made this determination, right?

[00:51:05] Speaker 10:
There were much more at the time of the 2013 rule.

[00:51:08] Speaker 10:
Well, there were some more, but we don't think that... Concerns that they have now about the adequacy of supply are very different under this rule than they were under the rule in Mineral Energy.

[00:51:19] Speaker 01:
Yeah, I think our fundamental argument here is that it's not concerns about the supply that's driving their supposed statements about insufficient fuels to fill the shortfall.

[00:51:33] Speaker 01:
It's concerns about the demand and these other factors.

[00:51:36] Speaker 01:
The other thing this court noted in Monroe Energy is that the kinds of restrictions that you were discussing with Mr. Waxman regarding, for example, the blend wall.

[00:51:46] Speaker 01:
Those do not apply at all to advance biofuels, and in particular biomass-based diesel, since biomass-based diesel is itself a transportation fuel.

[00:51:55] Speaker 01:
It doesn't face a blend wall.

[00:51:57] Speaker 01:
Renewable biodiesel is a drop-in fuel that can be as chemically identical to petroleum diesel.

[00:52:04] Speaker 10:
And so these types of concerns... Why wasn't it reasonable for them to consider things like transportation limitations, or is it...

[00:52:14] Speaker 10:
biodiesel can't get cold, right?

[00:52:17] Speaker 10:
Except when it turns into a gel, if it gets too cold, you know, that's a wrong one.

[00:52:22] Speaker 01:
Well, you'll see some statements in the record in this case regarding that, but this is where our request for supplemental authority and the like comes into play.

[00:52:33] Speaker 01:
The EPA is wrong about that, and the most recent information has from the same source it relied on makes clear that that's the case.

[00:52:40] Speaker 01:
But the question... So it's just not a transportation problem.

[00:52:44] Speaker 01:
No, we don't think it is.

[00:52:45] Speaker 01:
And those arguments are set forth in our brief and in the procedural challenges that we've made.

[00:52:52] Speaker 01:
But the more fundamental point is that the question to ask is what were the available rins or the available fuel in 2014 to make up the cellulosic shortfall.

[00:53:06] Speaker 01:
And this court in Monroe Energy

[00:53:09] Speaker 01:
It self-noted, again, that biodiesel is different from ethanol.

[00:53:16] Speaker 01:
Its use is not limited by the E10 blend wall.

[00:53:19] Speaker 01:
And the court noted that EPA in that case had stated that as of February 2013, the aggregate production capacity of registered biodiesel plants in the U.S.

[00:53:31] Speaker 01:
was approximately 4.2 billion gallons.

[00:53:35] Speaker 01:
which is far greater than the 2014 and 15 volumes that were set.

[00:53:40] Speaker 01:
EPA set the volume in 2014 and 2015 for advanced biofuels at a number that's lower than the actual production of advanced biofuels in 2013.

[00:53:51] Speaker 10:
And so you think, at least as to these types of fuels, there's no difference between production and supply?

[00:53:57] Speaker 01:
There is no difference between production is supply, production and importation on which the EPA also, we think, you know, cheated and got it wrong to be quite blunt with regard to the imports and the way it calculated the available imports.

[00:54:12] Speaker 01:
But with regard to advanced biofuels, in fact, the entire program, I should just make this point, the entire program, RINs are generated at production and importation.

[00:54:23] Speaker 01:
They are separated at blending.

[00:54:25] Speaker 01:
But in terms of determining what is the available supply, EPA has always looked to the production and importation numbers and the production capacity for advanced biofuels, as has been demonstrated repeatedly, and as this Court noted, both in API

[00:54:43] Speaker 01:
and in Monroe Energy, that in sharp distinction, this is from API, in sharp distinction with cellulosic biofuel, there is no great obstacle to the production of advanced biofuels.

[00:54:56] Speaker 01:
To the extent that estimates in the record are low, that seems to be based on want of market, which of course continued pressure will tend to solve.

[00:55:05] Speaker 01:
So for EPA to look at the actual production of advanced biofuels in 2014 and 2015,

[00:55:12] Speaker 01:
after it had delayed and sent mixed signals to the market that caused obligated parties to simply stop purchasing fuel.

[00:55:24] Speaker 01:
And as a result, production was depressed artificially because of the EPA's own actions and, we think, profound misinterpretations of the statute.

[00:55:34] Speaker 01:
To now use those numbers as opposed to

[00:55:37] Speaker 01:
What is absolutely undisputed, settled production capacity that far exceeds the cellulosic shortfall for 2014 to 2015 is arbitrary and capricious and clearly wrong, even if this Court were to conclude that there was broad discretion.

[00:55:53] Speaker 01:
Ultimately, what EPA has done here is its entire methodology seeks to preserve modest RIN prices, flexible compliance options for obligated parties,

[00:56:05] Speaker 01:
and reasonably attainable growth of advanced biofuels.

[00:56:10] Speaker 01:
But Congress created the annual volumes to aggressively drive the market towards advanced biofuels and intended that higher-end prices would send key signals to both sides of the market to make the investments necessary to overcome the very infrastructure and other concerns to the extent they exist with regard to advanced biofuels, to overcome them.

[00:56:32] Speaker 01:
for EPA to now use those concerns as a reason to deviate from those statutory volumes, flips the statute on its head.

[00:56:41] Speaker 01:
And it's arbitrary and capricious, given that the statutory scheme is to prioritize compliance and advance biofuels.

[00:56:52] Speaker 01:
Thank you, Your Honors.

[00:57:10] Speaker 06:
May it please the Court, my name is Samara Spence and I'm here on behalf of EPA.

[00:57:14] Speaker 06:
With me at Council's table is Roland Dubois from EPA's Office of General Counsel.

[00:57:19] Speaker 06:
Your Honours, before discussing these issues in too much detail, I think it would help to put these claims into context.

[00:57:25] Speaker 06:
The goal of the Renewable Fuel Standards Program is to increase the use of renewable fuels as a replacement to fossil fuels primarily in the transportation industry.

[00:57:36] Speaker 06:
EPA correctly concluded that its general waiver is ambiguous and should be interpreted in light of this purpose.

[00:57:44] Speaker 06:
In setting the 2014 through 2016 volumes and standards, EPA was faced with a number of real-world market complexities that limit the amount of growth

[00:57:53] Speaker 06:
and renewable fuel use in the short term.

[00:57:56] Speaker 06:
EPA had to grapple with these complexities and it ultimately exercised its waiver authorities for the first time to lower total renewable fuel volumes to the level of the maximum achievable supply and advanced biofuel volumes to reasonably attainable levels.

[00:58:13] Speaker 06:
The resulting standards achieved significant growth in the use of these fuels.

[00:58:18] Speaker 06:
The oversimplified approach advocated by the biofuel industry would lead to absurd results contrary to the goals of the program and was reasonably rejected by EPA.

[00:58:29] Speaker 10:
I'm really having a lot of trouble understanding your textual argument for the general waiver when you look at the renewable fuel definition.

[00:58:41] Speaker 10:
Because it doesn't stop after is used.

[00:58:43] Speaker 10:
It says it's used for a particular object and that is used to replace or reduce the amount of fossil, the quantity of fossil fuel in A, transportation fuel.

[00:58:58] Speaker 10:
No consumer.

[00:59:00] Speaker 10:
is replacing or reducing the amount of fossil fuel in a transportation fuel when it pumps it.

[00:59:07] Speaker 06:
Well, transportation fuel is also defined in terms of use.

[00:59:10] Speaker 06:
It's defined as fuel for use in motor vehicles.

[00:59:13] Speaker 06:
Yes, of course, that's what transportation fuel is.

[00:59:15] Speaker 10:
I get that.

[00:59:16] Speaker 10:
It's fuel that's used for transportation.

[00:59:18] Speaker 10:
But I'm talking about all the words that perceive that.

[00:59:21] Speaker 10:
To replace or reduce, this is what blenders do.

[00:59:24] Speaker 10:
They take out petroleum and put in these other

[00:59:28] Speaker 10:
these other alternative fuels in a transportation field, but nobody further down the line is doing that replacing or reducing in a

[00:59:41] Speaker 10:
They might be reducing the overall amount used of fossil fuels, but they're not doing replacing or reducing in a fuel.

[00:59:48] Speaker 06:
So let's suppose that a fuel, a blender sits down and adds some renewable fuel to a barrel of fossil fuel, and you have this blended product.

[01:00:02] Speaker 06:
But if it can't be ultimately used for transportation purposes, and it's just sitting around in warehouses,

[01:00:09] Speaker 06:
EPA doesn't believe that would be meeting the purposes of the statute or the purpose encompassed in this definition.

[01:00:14] Speaker 06:
I'm just talking about your checks.

[01:00:15] Speaker 06:
Once they blend it, it's a renewable fuel, right?

[01:00:19] Speaker 10:
Once they take this, the renewable fuel is what they put in there to do the blending, right?

[01:00:25] Speaker 06:
Biofuel is what they put in there to do the blending.

[01:00:28] Speaker 06:
It's a renewable fuel when it's used to replace the fossil fuel.

[01:00:31] Speaker 06:
So that's actually one of the key mistakes that I think is made by the Americans for Clean Energy group.

[01:00:37] Speaker 06:
They confuse the phrase renewable fuel with biofuel.

[01:00:42] Speaker 06:
Renewable fuel when it replaces fossil fuel for use in a transportation fuel.

[01:00:48] Speaker 06:
So for example, if let's say I'm sorry Isn't that exactly what happens at the blunders?

[01:00:54] Speaker 06:
That it when it replaces

[01:00:56] Speaker 06:
Yes, so if – So that's what Congress – When the blender puts the biofuel in the same gallon of fuel as renewable fuel, it becomes a renewable fuel.

[01:01:08] Speaker 06:
But if it's not ultimately used for transportation purposes because the market can't support that, then it's not supporting the goal of the statute.

[01:01:15] Speaker 06:
That's what EPA found.

[01:01:16] Speaker 10:
That may be a goal argument, but it's not a textual argument.

[01:01:19] Speaker 06:
That's correct.

[01:01:20] Speaker 06:
I mean, EPA found that the term is ambiguous.

[01:01:23] Speaker 06:
And in fact, we heard two different definitions of the term from the two different biofuel petitioners.

[01:01:28] Speaker 06:
And if that's not an argument for why it's ambiguous, then I don't know what it is.

[01:01:31] Speaker 08:
Well, that happens all the time.

[01:01:33] Speaker 08:
That doesn't mean it's ambiguous in the relevant respect.

[01:01:35] Speaker 08:
I don't think that works necessarily.

[01:01:37] Speaker 08:
And what do you mean by that?

[01:01:42] Speaker 08:
What's the ambiguity that you heard the two different definitions create here?

[01:01:47] Speaker 06:
The two different definitions that we heard from

[01:01:50] Speaker 06:
from the biofuel industry petitioners was where in the supply line you calculate it.

[01:01:56] Speaker 06:
What EPA had to ask was supply to whom and supply of what.

[01:02:02] Speaker 06:
So if you take a more simplified example, what's the domestic supply of apples?

[01:02:07] Speaker 06:
Is it the number of apples that all the trees are capable of growing this year?

[01:02:11] Speaker 06:
Or is it the number of apples that are capable of being stacked up at the grocery store for me to purchase and eat?

[01:02:18] Speaker 06:
What EPA found here was that supply is the number of gallons of- Aren't you saying how many get eaten?

[01:02:23] Speaker 10:
Is it the supply?

[01:02:24] Speaker 10:
I'm sorry?

[01:02:26] Speaker 10:
I thought you- but your theory sounds more like how many apples get eaten dictates the supply.

[01:02:30] Speaker 10:
And if for some reason we just don't want to eat those apples, there must be a short supply of them.

[01:02:35] Speaker 06:
No, it's the number of apples that can be stacked up at the grocery store for purchase and use.

[01:02:41] Speaker 06:
And that's what EPA found here.

[01:02:42] Speaker 06:
The number of gallons of renewable fuel that can actually be made available for purchase and use by the consumer in the domestic transportation market.

[01:02:52] Speaker 06:
That's where you calculate it.

[01:02:54] Speaker 06:
And there are a number of things that go into that.

[01:02:56] Speaker 06:
For example, the distribution infrastructure.

[01:02:59] Speaker 06:
For example, whether or not cars are capable of

[01:03:03] Speaker 06:
burning that type of fuel.

[01:03:04] Speaker 06:
I mean, if a car can't burn an ethanol blend with more than 10 percent of ethanol, then it doesn't really matter if the consumer wants more fuel.

[01:03:17] Speaker 06:
They can't use it.

[01:03:18] Speaker 06:
That's a market problem.

[01:03:19] Speaker 06:
Their warranty is going to be voided.

[01:03:21] Speaker 08:
The point is that they were supposed to force the market to develop.

[01:03:26] Speaker 08:
Congress set these

[01:03:29] Speaker 08:
perhaps impossible to attain standards to force a market to develop.

[01:03:35] Speaker 06:
And in fact, EPA was doing that.

[01:03:36] Speaker 06:
And what EPA did was they looked at, well, how much can these standards force the market?

[01:03:43] Speaker 06:
There's an extensive analysis.

[01:03:45] Speaker 08:
But doesn't that belong, I guess this is my fundamental big picture question on this, which is a lot of what EPA has discussed seems to me

[01:03:55] Speaker 08:
to belong, if at all, in the other waiver provision, not the supply provision, but in the severe – we harm the economy or environment in a state – of a state region or the United States.

[01:04:10] Speaker 08:
And maybe it doesn't fit there either, in which case you don't have a waiver provision, but it doesn't – it seems odd to fit this into supply.

[01:04:19] Speaker 06:
Well, the severe harm to the economy waiver provision is... Well, first of all, it's not a finding that EPA made here, and it's a pretty different waiver provision.

[01:04:28] Speaker 06:
It's severe harm to the economy of a state or region, and it's not limited to supply.

[01:04:33] Speaker 06:
So, for example, let's say there was some... Exactly.

[01:04:36] Speaker 08:
That's why it's broader.

[01:04:37] Speaker 08:
It allows you much more flexibility.

[01:04:39] Speaker 08:
It would seem to me, EPA, more flexibility to say, well, this is not going to work.

[01:04:47] Speaker 08:
And so therefore we have to waive because it will cause harm to the economy.

[01:04:52] Speaker 08:
But you tell me what you think it means.

[01:04:54] Speaker 06:
The severe harm to the economy?

[01:04:58] Speaker 06:
So first of all, it's severe.

[01:04:59] Speaker 06:
Second of all, it's to the overall economy.

[01:05:02] Speaker 06:
And EPA would have to interpret what that means, but it doesn't necessarily refer to supply.

[01:05:10] Speaker 06:
It could be, for example, food prices or feed prices that somehow are affected by the high use of corn ethanol in renewable fuels.

[01:05:24] Speaker 06:
to a state or to a region, which is not something that is involved in the inadequate domestic supply.

[01:05:31] Speaker 06:
Or the United States, right?

[01:05:33] Speaker 10:
A state, a region, or the United States.

[01:05:35] Speaker 10:
That's correct.

[01:05:36] Speaker 10:
All three of those apply to the severe economic harm.

[01:05:38] Speaker ?:
Yes.

[01:05:38] Speaker 06:
Okay.

[01:05:38] Speaker 06:
Yes.

[01:05:39] Speaker 06:
So, you know, that doesn't necessarily refer to the renewable fuel industry at all.

[01:05:44] Speaker 06:
It could be a harm caused by renewable fuels that affects another industry.

[01:05:50] Speaker 10:
It sounds like exactly the area for interpretation that the EPA would normally have.

[01:05:56] Speaker 06:
Well, EPA hasn't made that finding here, so I don't want to say what they should or shouldn't have.

[01:06:00] Speaker 06:
You don't think it's foreclosed?

[01:06:02] Speaker 06:
I'm sorry?

[01:06:02] Speaker 10:
You don't think it's foreclosed by the EPA?

[01:06:05] Speaker 10:
You don't think this reading would be foreclosed to the EPA?

[01:06:07] Speaker 10:
They just didn't address it?

[01:06:09] Speaker 06:
Under that waiver provision, I just know that they didn't address it here, so I'm not prepared to speculate on that.

[01:06:16] Speaker 06:
But what EPA did do was interpret the term supply.

[01:06:20] Speaker 06:
So it had to say supply to whom, and it determined appropriately under the statutory goals, it means supply to the consumer who's going to use the fuel.

[01:06:33] Speaker 06:
And that was supported by several... Where do you get the focus on the consumer that's going to use the fuel?

[01:06:41] Speaker 10:
I'm having trouble figuring it.

[01:06:43] Speaker 10:
It seems to me that the supply has got to be... I suppose you could have barriers to supply even to the folks that are making...

[01:06:51] Speaker 10:
the renewable fuels in the first place, the biofuels in these, if there was a drought or something so that you didn't have soybeans or whatever, or some limitation on supply as it gets to the blender.

[01:07:05] Speaker 10:
But where do you see supply in the sense of to the consumer in here?

[01:07:11] Speaker 06:
Textually, they got this from a number of places.

[01:07:14] Speaker 06:
They sort of had to add up everything they found throughout.

[01:07:18] Speaker 06:
So first of all, they looked at the definition of renewable supply, which as we already talked about is fuel used to replace or reduce the quantity of fossil fuel in a transportation fuel.

[01:07:28] Speaker 06:
They also looked at other waiver provisions throughout the statute.

[01:07:31] Speaker 06:
So for example, the reformulated gasoline waiver has two different triggers for using the waiver, an insufficient capacity to produce or an insufficient capacity to supply.

[01:07:45] Speaker 06:
So that suggested to EPA that, well, those aren't necessarily the same thing.

[01:07:49] Speaker 06:
The offending fuel and fuel additive waiver

[01:07:53] Speaker 06:
permits a waiver when extremer and usual supply circumstances exist, which, quote, prevent the distribution of an adequate supply to consumers.

[01:08:04] Speaker 06:
So EPA looked at these other provisions and said, well, we're not getting the kind of guidance under the general waiver that Congress provided in these other waivers, but it suggests that these various points in the market can all add into

[01:08:18] Speaker 06:
or be calculated into what counts as simple.

[01:08:21] Speaker 08:
But the statute imposes obligations on the refineries, blenders, and the importers, as is in 3B2, and that's the whole point of the statutes, to impose the obligations on them.

[01:08:37] Speaker 08:
And so it then allows for waivers when there's an inadequate supply.

[01:08:43] Speaker 08:
it would seem an adequate supply for those obligated parties to meet their obligation.

[01:08:51] Speaker 08:
Isn't that the more natural reading?

[01:08:54] Speaker 06:
But that's not necessarily what Congress was trying to accomplish.

[01:09:00] Speaker 06:
What Congress was trying to accomplish was reduce greenhouse gases, gas emissions, and improved energy security.

[01:09:08] Speaker 06:
That suggests that there were... That's at such a level of generality.

[01:09:14] Speaker 08:
I mean, Congress was trying to accomplish a lot of different things here and balancing a lot of different interests, it seems to me.

[01:09:20] Speaker 08:
At that level of generality, we get fairly divorced from the text and structure that they actually set forth, which seems pretty commonsensical.

[01:09:30] Speaker 08:
You have these parties who have these obligations, and we're going to waive it if there's not enough supply for them to meet the obligations.

[01:09:39] Speaker 06:
So let's look at the other things that EPA was considering here.

[01:09:43] Speaker 06:
So yes, production was one of them.

[01:09:46] Speaker 06:
Are there enough fuels produced so that these fuels can be purchased by obligated parties?

[01:09:51] Speaker 06:
EPA was also looking at what happens then.

[01:09:52] Speaker 06:
Are we going to interpret supply in such a way that will require these obligated parties to purchase, I mean, we're talking billions of gallons of fuel here that can't necessarily actually be

[01:10:06] Speaker 08:
I know, it's crazy, I'm with you on that, but who gets to solve the craziness and how is the question.

[01:10:15] Speaker 06:
Well, the answer is that the term is ambiguous, and so EPA had to decide based on all of these things, including the goal of the statute, the text of the statute, these other provisions that suggest that distribution concerns and distribution to the ultimate consumer can't be included in the term.

[01:10:33] Speaker 10:
I guess that's where I think looking at the other provisions hurts you, because when Congress wanted the agency to look at barriers to the distribution of an adequate supply to consumers,

[01:10:46] Speaker 10:
It said that in 1990.

[01:10:48] Speaker 10:
It had this language on the table in front of it when it went to draft the general waiver provision, and it didn't say distribution of an adequate supply to consumers.

[01:10:59] Speaker 10:
It talked about an inadequate domestic supply in the context of entities that are all at the sort of pre-blending or don't get past the blender stage here, the reporters and the refiners.

[01:11:15] Speaker 06:
In each of the different provisions that EPA looked at, Congress provided a level of detail that was not provided here.

[01:11:23] Speaker 06:
None of the details are provided.

[01:11:25] Speaker 06:
And in each of those other provisions, Congress looked at it in a slightly different way and provided a different set of details.

[01:11:31] Speaker 06:
Here, there are no details, simply none.

[01:11:34] Speaker 06:
It says inadequate domestic supply.

[01:11:36] Speaker 06:
EPA had to decide

[01:11:38] Speaker 06:
What does that mean?

[01:11:39] Speaker 06:
What could it mean?

[01:11:41] Speaker 06:
Supply to whom?

[01:11:41] Speaker 06:
Supply of what?

[01:11:43] Speaker 06:
Supply for what period of time?

[01:11:44] Speaker 10:
But don't we have to look at that language going, well, when we look at that language, we know that if they meant distribution to consumers, they knew how to say that, and they didn't say that.

[01:11:55] Speaker 06:
They could have said that, but they also didn't say, for example, production, which they also could have said.

[01:12:05] Speaker 06:
Right.

[01:12:05] Speaker 06:
I get that they said supply and not production.

[01:12:07] Speaker 10:
I mean, at bottom, I'm having a lot of trouble understanding how if the real problem is here is a glut or concerns about a glut at one end or the other, how a glut turns into an inadequate supply.

[01:12:20] Speaker 06:
The market chain has a whole line of actors that supply different things to different parties.

[01:12:29] Speaker 06:
At some point in time in the chain, people are supplying

[01:12:35] Speaker 06:
things to a retail station.

[01:12:37] Speaker 06:
At some point in the chain the retail station is supplying something to a consumer.

[01:12:42] Speaker 06:
Every part along that line, somebody is passing on a product to somebody else.

[01:12:49] Speaker 06:
At somewhere along that line, EPA has to calculate what

[01:12:56] Speaker 06:
supply do you add up to say this is what Congress is talking about in the inadequate domestic supply language?

[01:13:05] Speaker 06:
EPA decided that it's the point at which it's made available for purchase and use by the ultimate consumer.

[01:13:14] Speaker 06:
It doesn't say in the statute that specifically.

[01:13:17] Speaker 06:
That's why the term is ambiguous.

[01:13:19] Speaker 06:
But it also doesn't say in the statute that it's supply to the blenders.

[01:13:24] Speaker 06:
It doesn't say in the statute that it's supply to the refiners, that it's supply to the retail stations.

[01:13:30] Speaker 06:
EPA had to decide and EPA decided that it was supply to the ultimate consumer because that is what best meets the purpose of the statute and that's what best avoids

[01:13:43] Speaker 06:
these sort of risks that would happen if you allowed a glut at the point of the obelisk.

[01:13:49] Speaker 10:
Isn't that the whole reason Congress passed this statute is that there wasn't enough available to consumers to use?

[01:13:57] Speaker 10:
The whole reason the statute exists is to force the front-end creation so that there will be that

[01:14:06] Speaker 10:
that ability for, that there'll be materials there for consumers to use.

[01:14:10] Speaker 10:
People will make vehicles that will use these products.

[01:14:14] Speaker 10:
There'll be stations that will supply these products.

[01:14:16] Speaker 10:
It was to force all that.

[01:14:17] Speaker 10:
And so it seems a little odd then to say that EPA could have on day one of the statute said, huh,

[01:14:24] Speaker 10:
We don't have vehicles yet that can drive this stuff, drive using this type of fuel, which means stations aren't providing it, so we can get rid of all these, we can waive all of these obligations in the first instance.

[01:14:35] Speaker 10:
It just seems to be at war with the whole purpose of what they were trying to change.

[01:14:39] Speaker 10:
It seems to be the one place they didn't want the EPA to look.

[01:14:42] Speaker 10:
That's where they were trying to change everything.

[01:14:44] Speaker 06:
So there's certainly the underlying theory that

[01:14:49] Speaker 06:
making these standards would eventually result in greater renewable fuel use.

[01:14:57] Speaker 06:
But Congress also created a number of off-ramps, including these waivers, including the reset provision, which I'll get into that if you would like.

[01:15:09] Speaker 06:
In doing so, they only obligated certain actors along the supply chain.

[01:15:14] Speaker 06:
They didn't obligate, for example, the retail stations.

[01:15:18] Speaker 06:
A lot of the decisions that need to happen in order to increase renewable fuel use happen at the retail station level.

[01:15:26] Speaker 06:
The obligated parties purchasing this glut of renewable fuels is not going to result in retail stations

[01:15:39] Speaker 06:
installing new pumps, partly because you have the problem of vehicles, vehicles that can't use them.

[01:15:47] Speaker 06:
Why would a retail station install a pump to supply fuel that's not going to be used by most vehicles?

[01:15:54] Speaker 06:
That's a retail station decision.

[01:15:56] Speaker 06:
However,

[01:16:00] Speaker 10:
I don't think it's fair to say that EPA didn't... That very problem you just articulated existed on day one of the statute, correct?

[01:16:08] Speaker 06:
That's right.

[01:16:09] Speaker 10:
So you could have just waived everything right then?

[01:16:12] Speaker 10:
No, the... You had the same inadequate supply from that vantage point then that you're asserting now.

[01:16:18] Speaker 06:
Well, no, that's not true.

[01:16:20] Speaker 06:
There has been a significant change in the market over time because of the increasing levels of renewable fuel.

[01:16:27] Speaker 06:
For example, one of the things EPA talks about in the rule is that they're at a transition point.

[01:16:33] Speaker 06:
Right now, either the fuel blends have to increase the amount of ethanol that they can use or the amount of

[01:16:42] Speaker 06:
non-ethanol biofuels has to increase.

[01:16:45] Speaker 06:
EPA set these standards in a way that said, well, one of these things are going to have to happen.

[01:16:50] Speaker 06:
And these fuels can force the market to a certain extent.

[01:16:54] Speaker 06:
They can make some of those things happen.

[01:16:56] Speaker 06:
But it can only accomplish so much.

[01:16:59] Speaker 06:
It does not have an unlimited ability to do that in the amount of time that

[01:17:05] Speaker 06:
The market had to do it under these rules.

[01:17:09] Speaker 06:
These are annual standards and as As time moves on then every year Sure, there is some room to force the market

[01:17:23] Speaker 06:
And EPA looked at how much room is there to force the market.

[01:17:28] Speaker 06:
EPA had an extensive analysis of that.

[01:17:31] Speaker 06:
Simply by setting the standards, it can increase the use and all these different investment decisions that have to happen.

[01:17:40] Speaker 06:
But these renewable fuel standards are not the only piece of the puzzle.

[01:17:43] Speaker 06:
For example, one of the things EPA looked at was the number of stations providing E85, a higher ethanol blend.

[01:17:52] Speaker 06:
Right now about 1% of retail stations are providing E85.

[01:17:58] Speaker 06:
One of the things EPA found was that that's a problem, that's a market problem, and it's not really competitive.

[01:18:06] Speaker 06:
If a person driving a flex-fuel vehicle, which are the only vehicles that can use that fuel, wants E85 and they have to drive around for 100 miles to find it, that's a market problem.

[01:18:16] Speaker 06:
But what EPA looked at was, well, there are other things out there that are also going to help, right?

[01:18:22] Speaker 06:
There are grant programs that are

[01:18:26] Speaker 06:
intended to increase the amounts of stations providing E85.

[01:18:32] Speaker 06:
That will help increase the number of retail stations, which will help this problem.

[01:18:39] Speaker 06:
The renewable fuel standards are not the only piece of the puzzle.

[01:18:42] Speaker 06:
They can force the market, but only so much.

[01:18:45] Speaker 08:
The whole argument you just made seems to be that EPA is in charge of making everything work out all right.

[01:18:52] Speaker 08:
And I don't see this statute as necessarily that kind of grant of authority to EPA.

[01:19:00] Speaker 08:
It seems to be much more narrowly confined in terms of the waiver provisions.

[01:19:05] Speaker 08:
And the broader separation of powers issue here is if this thing is totally screwed up, then Congress should fix it.

[01:19:14] Speaker 08:
And they certainly have studied it, as I understand it, and they can fix it at some point if it's a disaster.

[01:19:22] Speaker 06:
EPA would not describe as authority that way.

[01:19:26] Speaker 08:
I understand that.

[01:19:27] Speaker 08:
I'm just saying the way you just described it, though, was this is a problem here and this is a problem here, and we've got to kind of make it all fit.

[01:19:33] Speaker 08:
And I understand, like, I completely sympathize with that approach and mentality, and I understand the difficulty EPA's in here.

[01:19:43] Speaker 08:
But this statute, like others, doesn't seem to give that kind of fix-everything-that's-not-working-properly authority.

[01:19:51] Speaker 08:
That's the way I read it, at least.

[01:19:53] Speaker 06:
What the statute gives EPA authority to do is to decide if there's an inadequate domestic supply.

[01:19:58] Speaker 06:
Right.

[01:19:59] Speaker 06:
And the way EPA has interpreted supply to be something that you calculate at the point of supply to the consumer allows EPA to consider the factors that factor into whether or not you can make it available to the consumer.

[01:20:16] Speaker 06:
So, for example, if we want to relate it back to that apple example that I discussed, let's say, for example, that there was something about the apples that made them poisonous to 90 percent of people.

[01:20:28] Speaker 06:
Well, they're not really available to the consumer, if that's the case, and the grocery store is not going to put them on the shelf in the first place.

[01:20:35] Speaker 06:
So, if what you're looking at is that point in time, what's available to the consumer?

[01:20:41] Speaker 06:
then all of these market constraints that factor in before that point are something that EPA can and should analyze in answering that question.

[01:20:54] Speaker 06:
I would like to discuss a few of these other points that have come up briefly.

[01:21:01] Speaker 06:
Real quick on the cellulosic waiver question.

[01:21:03] Speaker 06:
It's clear that the argument raised by the biofuel petitioners here is foreclosed under Monroe.

[01:21:11] Speaker 06:
Monroe said that EPA has broad discretion to determine under the cellulosic waiver authority whether and under what circumstances to lower advanced biofuel when EPA reduces cellulosic volumes due to a projected shortfall.

[01:21:28] Speaker 10:
What is your argument that

[01:21:31] Speaker 10:
sure you have tons of discretion when it comes to the determination that, hey, we're not going to lower these numbers because agencies have lots of discretion when it comes to inaction.

[01:21:42] Speaker 10:
But when you do act, there has to be some framework.

[01:21:47] Speaker 10:
And absent a reference back to the 7A standards, there's really nothing that would seem to be any boundaries on this exercise of discretion.

[01:21:59] Speaker 06:
I have three answers to that.

[01:22:01] Speaker 06:
One, the court in Monroe sort of answered this question.

[01:22:04] Speaker 06:
It said broad discretion when deciding whether and under what circumstances to lower advanced biofuel.

[01:22:12] Speaker 06:
So that says either way.

[01:22:14] Speaker 06:
Second, in Monroe, the court specifically approved EPA's consideration of the availability of non-cellulosic advanced fuels to make up for the shortfall and the ability of those fuels to be consumed.

[01:22:26] Speaker 06:
Those were both expressly in that case.

[01:22:29] Speaker 06:
Second, I would point out that EPA has not interpreted this to give itself an unlimited authority.

[01:22:35] Speaker 06:
First, its authority is limited by the amount of shortfall in cellulosic.

[01:22:40] Speaker 06:
And then EPA has interpreted it to allow it to lower advanced biofuels only to the extent that reasonably attainable volumes of advanced biofuel could not make up for the shortfall.

[01:22:52] Speaker 06:
So if other fuels can make up for the shortfall,

[01:22:56] Speaker 06:
then EPA may not use it.

[01:22:58] Speaker 06:
That's how it's interpreted its authority.

[01:23:00] Speaker 10:
So you think the statute forbids you to waive it any more than, if things could reasonably, if the gap could reasonably be filled, you would read the statute as forbidding EPA from waiving that amount?

[01:23:14] Speaker 06:
That's the way EPA has interpreted its authority.

[01:23:17] Speaker 06:
It is just determined that it should not.

[01:23:20] Speaker 10:
No, should not is different.

[01:23:22] Speaker 10:
Could not.

[01:23:23] Speaker 10:
That's what I'm trying to figure out.

[01:23:24] Speaker 10:
There's two things.

[01:23:26] Speaker 10:
This is, look, we've got this thing, and here's how we, as a matter of our judgment and implementing the statute, are going to interpret this.

[01:23:33] Speaker 10:
And we're going to say we're only going to use it when and to the extent we don't think the difference can be made up.

[01:23:40] Speaker 10:
or option B would be really what Congress meant was, even though it didn't say a whole lot there, what it surely meant that we couldn't go any further than waiving things that are not reasonably attainable.

[01:23:54] Speaker 06:
That's not the way EPA described it when they interpreted it.

[01:23:57] Speaker 06:
They described it as, we believe this is the reasonable way to exercise our authority here.

[01:24:02] Speaker 06:
So I would hesitate to use the word forbid.

[01:24:05] Speaker 06:
But EPA has imposed that limit on itself, and it was a reasonable limit to oppose.

[01:24:11] Speaker 06:
I would also point out that the non-cellulosic advanced biofuel volumes have achieved considerable growth in excess of the congressional expectation.

[01:24:21] Speaker 06:
For each year under this rule,

[01:24:27] Speaker 06:
Because cellulosic biofuels are a subset of advanced biofuels, every time advanced biofuels make up for the gap, they're in fact exceeding congressional expectations.

[01:24:40] Speaker 06:
So for example, for the 2014 rule, the non-cellulosic advanced volumes were 637 million gallons greater than the congressional expectation.

[01:24:51] Speaker 06:
and they're greater for every year.

[01:24:54] Speaker 06:
So National Biodiesel Board is seeking a volume that's higher than the Act intended and higher than EPA's analysis shows could actually be made available to the consumer.

[01:25:05] Speaker 10:
I would also like to... Is it more than the amount that could actually be made available at the

[01:25:18] Speaker 10:
Also, sort of the blending stage, even to the extent meat fields don't need to be blended at that stage, or does it depend on, does your position depend on this focus on the consumer end?

[01:25:31] Speaker 10:
For the reasonable attain, because it's really what does reasonable attainment operate on?

[01:25:35] Speaker 10:
Is it reasonable attainment in the same way that it is for the general waiver provision, or I take it it's reasonable attainment here, if not under 7A, for the consumer?

[01:25:47] Speaker 06:
EPA took into account the entire supply chain, which was something that was approved in Monroe.

[01:25:52] Speaker 06:
And in EPA, it explained that it was looking at similar factors, but because supply and the interpretation of supply is not an issue under the cellulosic provision, it treated that as a slightly less rigorous standard.

[01:26:07] Speaker 10:
Sorry, where did you say Monroe said you can do attainment at the consumer level?

[01:26:11] Speaker 10:
Is that what you said?

[01:26:12] Speaker 06:
Yes, Monroe, see, it's at page 916 on Monroe.

[01:26:16] Speaker 06:
It says that EPA reasonably considered the ability of those fuels to be consumed.

[01:26:22] Speaker 06:
So it was considering downstream factors in that case.

[01:26:27] Speaker 10:
That's describing someone's, isn't that describing the challenge?

[01:26:32] Speaker 10:
At page 916.

[01:26:35] Speaker 10:
That begins intervener PBF holding company lodges a statutory challenge.

[01:26:40] Speaker 10:
So that's just describing someone's challenge.

[01:26:42] Speaker 10:
Oh you said this contention is meritless?

[01:26:44] Speaker 10:
Right.

[01:26:44] Speaker 10:
Okay.

[01:26:58] Speaker 10:
Isn't that a fight about the carryover?

[01:27:01] Speaker 10:
I thought that was set up as a fight about the carryover RIN issue.

[01:27:05] Speaker 10:
You read it more broadly.

[01:27:07] Speaker 06:
The carryover RIN issue is slightly different.

[01:27:10] Speaker 06:
EPA in Monroe

[01:27:14] Speaker 06:
did look at the number of carryover RINs that were available, but the discussion earlier about carryover RINs when we talked about how many RINs were available in Monroe as compared to here, it was vastly different.

[01:27:27] Speaker 06:
In Monroe, I believe it was 2.6 billion available, which was roughly 6 percent of the

[01:27:38] Speaker 06:
of the total volumes.

[01:27:40] Speaker 06:
Whereas here, the carryover rent bank was smaller than that.

[01:27:44] Speaker 06:
It was 1.74 billion carryover rents.

[01:27:48] Speaker 06:
And those could not have been used to reduce the need for, it could have reduced the need for a waiver in only one year and would not have eliminated the need for a waiver because the excess, the difference between

[01:28:07] Speaker 06:
the maximum achievable volumes in 2014, and the statutory volumes were higher than the amount of RINs in the RIN bank.

[01:28:16] Speaker 06:
So it was a different situation with the RIN bank.

[01:28:19] Speaker 06:
As for the language that you're asking about, I'm sorry, I need to check to see exactly where that is.

[01:28:29] Speaker 10:
It's the right-hand column on 916, the intervener PVF.

[01:28:32] Speaker 10:
And I was just trying to understand what

[01:28:35] Speaker 10:
court was describing there, was it reacting to the point about rims or was it reacting to the point about looking at consumption?

[01:28:41] Speaker 10:
I guess that's for us to figure out anyhow.

[01:28:44] Speaker 06:
Yeah, I mean, my recollection of this case is that what the court did was look at how EPA had to

[01:28:55] Speaker 06:
had to look at its authority and how it should act when it was acting late.

[01:28:59] Speaker 06:
And what the court said was EPA had to look at hardship to the parties based on the lateness and its statutory duties, and that this was a reasonable way for... I'm sorry, I'm talking about a different part of Monroe.

[01:29:19] Speaker 06:
My trustee council has found it for me.

[01:29:20] Speaker 06:
Let's see.

[01:29:22] Speaker 06:
EPA exercised its waiver discretion in a reasonable manner focusing on the ability of renewable fuels that would qualify as advanced biofuel and renewable fuel and the ability of those fuels to be consumed and carry over RINs from 2012.

[01:29:36] Speaker 06:
So that's right at the start of page 916 on Monroe.

[01:29:44] Speaker 06:
Does that answer the question?

[01:29:46] Speaker 06:
Okay.

[01:30:00] Speaker 10:
You're not doing the carryover RINs this time.

[01:30:02] Speaker 10:
I mean, you're saying just because it's because of the change in the adequacy of the supply of RINs.

[01:30:09] Speaker 06:
It was always for a few reasons.

[01:30:11] Speaker 06:
Well, so first of all, EPA looked at, again, going back to the supply definition and the ambiguity in supply.

[01:30:18] Speaker 06:
EPA had to say, well, there's also an ambiguity as to time.

[01:30:22] Speaker 06:
supply as to when so EPA determined that supply is the actual number of gallons made available for use in a particular year the leftover runs from the previous year aren't part of the trigger for the general waiver and then the second question on the general waiver which is should EPA use it remember the general waiver is written in terms of EPA may

[01:30:45] Speaker 06:
based on this trigger.

[01:30:47] Speaker 06:
So then EPA considered the carryover rents in its discretion to determine whether it should exercise its waiver.

[01:30:54] Speaker 06:
And then EPA looked at, well, what purpose is this serving in this program?

[01:31:00] Speaker 06:
And EPA determined that it was serving a lot of purposes.

[01:31:03] Speaker 06:
It was providing a well-functioning rent market.

[01:31:07] Speaker 06:
It provided a buffer for the difficulties in predicting the future.

[01:31:11] Speaker 06:
It was sort of functioning like an actual bank where, you know,

[01:31:15] Speaker 06:
If I spend a dollar more this month than I earned, well, I have a little bit of liquidity in my bank to help with that.

[01:31:26] Speaker 06:
So EPA determined that it was serving this really important purpose, and then EPA looked at the size of the rent bank in comparison to the amount of the shortfall.

[01:31:36] Speaker 06:
So there were 1.7 billion carryover rents in the rent bank at the beginning of 2014.

[01:31:42] Speaker 06:
The shortfall in 2014 was 1.87 billion gallons.

[01:31:46] Speaker 06:
So there wasn't enough to make up for it.

[01:31:50] Speaker 06:
Whereas in Monroe, even under the most conservative estimate, there were twice as many RINs in the RIN bank as would have been necessary to make up for a shortfall.

[01:31:59] Speaker 06:
And EPA didn't even think that was likely to happen.

[01:32:03] Speaker 06:
So here, EPA chose to preserve the RIN bank.

[01:32:06] Speaker 06:
That's right.

[01:32:11] Speaker 06:
Unless the court has further questions, we would ask the court to deny those petitions.

[01:32:17] Speaker 11:
Alright, thank you.

[01:32:37] Speaker 05:
Good morning, Your Honors.

[01:32:38] Speaker 05:
Thomas Lorenzen, representing the Respondent Interveners.

[01:32:40] Speaker 05:
I'd like to focus today on the General Waiver Authority, though I'm happy to answer questions about the other waiver authorities.

[01:32:45] Speaker 05:
2107A2, which is the general waiver provision, is a sort of oddly worded duck.

[01:32:56] Speaker 05:
It authorizes EPA to waive the volumetric requirements of subparagraph two in whole or in part

[01:33:06] Speaker 05:
If EPA determines there's an adequate domestic supply, period.

[01:33:11] Speaker 05:
An adequate domestic supply of what?

[01:33:14] Speaker 05:
It doesn't say.

[01:33:14] Speaker 05:
It might be, as Mr. Waxman suggested, an adequate domestic supply of the biofuels, although he conceded that that could also include constraints on transportation.

[01:33:25] Speaker 05:
Supply isn't defined.

[01:33:27] Speaker 05:
So in his definition of supply, supply includes constraints on transportation.

[01:33:31] Speaker 05:
That is the distribution capacity.

[01:33:34] Speaker 05:
It could be inadequate domestic supply of renewable fuel.

[01:33:38] Speaker 05:
That's what 7A2 is about, waiving the requirements regarding renewable fuel volumes.

[01:33:47] Speaker 05:
But renewable fuel is in turn defined as fuels containing biofuels that are used in transportation fuel.

[01:33:56] Speaker 05:
And transportation fuel is defined as fuel that's actually used to fuel motor vehicles and motor vehicle engines, et cetera.

[01:34:03] Speaker 10:
So it might also mean supply to transportation.

[01:34:09] Speaker 10:
Do you have any different answer on how you're not skipping right over the replace or reduce quantity in a transportation fuel?

[01:34:16] Speaker 05:
Well, I mean, yes.

[01:34:17] Speaker 05:
Renewable fuel has to be used for a specific purpose.

[01:34:20] Speaker 05:
And this is an interesting thing about the analogy that the ACE petitioners offer.

[01:34:26] Speaker 05:
They say, well, paper.

[01:34:28] Speaker 05:
Paper is a product that's produced from wood pulp, and it's defined as something that can be used for writing or printing or wrapping things or wallpapering.

[01:34:37] Speaker 05:
Those are all examples of paper's use.

[01:34:39] Speaker 05:
But paper is also paper if I line my birdcage with it or if I stuff it down my shirt.

[01:34:44] Speaker 05:
It doesn't matter how I use it.

[01:34:46] Speaker 05:
Renewable fuel, that is fuels containing biofuels, are only renewable fuels as Congress defined them if they are actually used in a transportation fuel.

[01:34:57] Speaker 05:
And I note that it does say fuel that is used in its actual use.

[01:35:07] Speaker 05:
Well, it is used, pardon me, let me pull up the definition here.

[01:35:14] Speaker 05:
Renewable fuel is fuel that is produced from renewable fuel and that is used, that is used.

[01:35:20] Speaker 05:
I'm focusing on the word is, not for use.

[01:35:22] Speaker 10:
I'm focusing on the words that come after that.

[01:35:25] Speaker 05:
Yes, to replace or reduce the quantity of fossil fuel present in a transportation fuel.

[01:35:30] Speaker 05:
It has to be used to reduce the quantity of fossil fuels present in a transportation fuel.

[01:35:36] Speaker 05:
But then transportation fuel is itself defined.

[01:35:39] Speaker 05:
And transportation fuel has to be fuel that is for use in motor vehicles.

[01:35:44] Speaker 05:
So there's a whole bunch of nested definitions here, and there's no indication from Congress which of these various things it's referring to.

[01:35:51] Speaker 05:
My view of the statute is it can be reasonably read to refer to all three things, where there's a constraint in the supply of one of these things in the chain.

[01:35:59] Speaker 10:
Well, if the concern is the blenders will blend all this, and then there'll be big tanks of it sitting out there that can't be used because there's not enough cars to use it or stations to sell it,

[01:36:13] Speaker 10:
What's sitting in those tanks?

[01:36:14] Speaker 05:
Well, what's sitting in those tanks, well, it depends on at what stage.

[01:36:18] Speaker 05:
Is it the biofuels?

[01:36:20] Speaker 10:
It's post blending and it's sitting there.

[01:36:22] Speaker 10:
It's post blending and it's sitting there in those tanks.

[01:36:24] Speaker 10:
Is that not a renewable fuel?

[01:36:26] Speaker 10:
Because it is for use, even if it's not being used.

[01:36:29] Speaker 05:
But it is not being used.

[01:36:31] Speaker 05:
And that's the critical thing.

[01:36:32] Speaker 05:
Transportation fuel is for use.

[01:36:35] Speaker 05:
And I think one of the sort of interesting things, that fuel, if it's in those tanks and it's exported, also doesn't count as renewable fuels.

[01:36:42] Speaker 05:
It has to actually be used, but let's take... Does that make any sense?

[01:36:47] Speaker 05:
That if it's exported, it's not ready?

[01:36:49] Speaker 08:
No, no.

[01:36:49] Speaker 08:
The distinction you're drawing between is used and for use in this context in response to Judge Millett's hypothetical.

[01:36:56] Speaker 05:
I think it does make a difference because the for use is a purpose.

[01:37:00] Speaker 05:
Transportation fuel is fuel that is intended for a purpose, whether it's used for that purpose or not.

[01:37:05] Speaker 05:
Renewable fuel is only renewable fuel to the extent it is actually in that transportation fuel.

[01:37:12] Speaker 05:
It's used to replace fossil fuels that are in

[01:37:16] Speaker 08:
But if it's designed for use but not yet actually used, it doesn't qualify as a renewable fuel?

[01:37:21] Speaker 05:
Well, that is the definition there.

[01:37:23] Speaker 05:
That is used to replace.

[01:37:25] Speaker 05:
I mean, Congress could have said for use in the definition of renewable fuel, just as it had done in the definition of transportation fuel.

[01:37:34] Speaker 08:
They could also have said... But it's not, again, Judge Millett's question, I think, focuses it.

[01:37:40] Speaker 08:
So it's not a renewable fuel if it's

[01:37:44] Speaker 08:
just short of being used?

[01:37:48] Speaker 05:
Well, again, I think the definitions are really complicated here.

[01:37:51] Speaker 05:
There's a lot of ambiguity.

[01:37:53] Speaker 05:
But I want to propose, for your honor, a hypothetical.

[01:37:58] Speaker 08:
Let us assume that... I guess your answer to that is it's not a renewable fuel in her question.

[01:38:06] Speaker 08:
I think that is right.

[01:38:07] Speaker 08:
But let's... I mean, that doesn't make a lot of sense, though.

[01:38:11] Speaker 05:
Well, if you look at the definition, renewable fuels... I know, I know.

[01:38:15] Speaker 08:
I'm talking about sense, making sense in the world.

[01:38:18] Speaker 05:
Yeah, and I am trying to do that too.

[01:38:20] Speaker 05:
But I want to give you a hypothetical that I think will help explain what Congress may have been after here.

[01:38:25] Speaker 05:
Yes.

[01:38:26] Speaker 05:
Congress had the purpose of requiring EPA to ensure that these renewable volumes were used, but it also included nine separate waiver provisions.

[01:38:37] Speaker 05:
That doesn't sound like a Congress that really wants EPA to make sure, no matter what, these fuel volumes are used.

[01:38:44] Speaker 05:
It wants to make sure that they're used, and as Your Honor said, as Judge Kavanaugh said earlier, there's a balancing here.

[01:38:51] Speaker 05:
What is practicable?

[01:38:53] Speaker 05:
What can be done?

[01:38:54] Speaker 05:
Imagine that Elon Musk had succeeded in the past few years in actually developing that much-vaunted electric vehicle for the masses.

[01:39:03] Speaker 05:
Or we have a hydrogen fuel cell vehicle on the road now that everybody has at a reasonable price.

[01:39:08] Speaker 05:
And transportation fuel, fuel intended for use in motor vehicles, is not as

[01:39:17] Speaker 05:
voluminous as it once was.

[01:39:19] Speaker 05:
In fact, if you look at the EIA records, you'll see that consumption of transportation fuel of gasoline has actually declined every year since 2007 when this provision was enacted.

[01:39:33] Speaker 05:
If there's not enough transportation fuel on the market into which to blend these renewable fuels,

[01:39:39] Speaker 05:
My view of the statute is that waiver provision authorizes EPA to look at that and say there's an inadequate supply of transportation fuel, one of the things that EPA may look at in terms of an inadequate domestic supply because Congress didn't define which particular fuel category it was looking to.

[01:39:59] Speaker 05:
This general waiver provision is in that sense notably different from other things.

[01:40:04] Speaker 05:
For instance, the cellulosic waiver provision, which refers to production very conspicuously, talks about production of cellulosic fuels or cellulosic biofuels.

[01:40:17] Speaker 05:
The oxygenated fuel provision that's cited in the petitioner's brief refers to inadequate supply of or distribution capacity for oxygenated gasoline.

[01:40:32] Speaker 05:
Because they actually define which fuel they're looking to, those provisions are more clear.

[01:40:41] Speaker 05:
And I think because, Your Honor, you had asked about why don't they refer to distribution capacity here, constraints on that.

[01:40:48] Speaker 05:
In the oxygenated fuel provision where they do refer to constraints on distribution fuel capacity, they had to because they told you what particular fuel supply they're talking about, oxygenated gasoline.

[01:40:59] Speaker 05:
There's supply.

[01:41:01] Speaker 05:
And there's problems with distribution capacity.

[01:41:04] Speaker 05:
With the general waiver provision, you didn't need to say distribution capacity because depending on which of those categories of fuel you're talking about, whether it's the biofuels or whether it's renewable fuels or whether it's transportation fuels, you're going down the line of production towards the consumer.

[01:41:22] Speaker 05:
And at each of those stages, constraints of distribution capacity are built into the supply.

[01:41:29] Speaker 05:
So just as Mr. Waxman said, when you're looking at the biofuels, it's the production as limited by constraints on transportation.

[01:41:37] Speaker 05:
In renewable fuels, it's the same thing.

[01:41:39] Speaker 05:
It's the production of renewable fuels as limited by constraints on getting it to the retailer.

[01:41:45] Speaker 05:
If you're looking at transportation fuels, it's all of those constraints and getting them to the ultimate consumer.

[01:41:51] Speaker 05:
So there's lots of different opportunities here for EPA to consider

[01:41:55] Speaker 05:
What is a constraint on the supply of one of these categories of fuels?

[01:42:04] Speaker 05:
I think it's very important that the term supply has not been defined, and the petitioners themselves haven't been able to agree on what that definition means.

[01:42:15] Speaker 05:
EPA, I think, is looking at it reasonably to include the constraints on that supply at the various stages in the production chain.

[01:42:27] Speaker 05:
Unless your honors have questions, I know I've used my time.

[01:42:33] Speaker 05:
I thank you.

[01:42:33] Speaker 04:
I just have four points to make.

[01:42:45] Speaker 04:
First of all, on this question of two different definitions, I think we should be clear, neither Mr. Samuels nor I think we have two different definitions, and let me explain why.

[01:42:55] Speaker 04:
As Judge Millett has pointed out repeatedly, the definition of renewable fuel is renewable fuel that's used, which they define as available to be used, to reduce or replace fossil fuel in transportation fuel.

[01:43:10] Speaker 04:
For those fuels that are not neat, that is, that can't actually be consumed in their pure renewable form,

[01:43:19] Speaker 04:
the operative word is reduced, reduce the amount of fossil fuels and transportation fuels.

[01:43:25] Speaker 04:
For those kinds of advanced fuels and advanced biodiesel that are neat, that can be burned in a car tank, the word is replaced.

[01:43:34] Speaker 04:
But in any event, the definition is the same.

[01:43:37] Speaker 04:
Now, the EPA points out here, as it did in its brief, that Congress obviously was concerned about results.

[01:43:45] Speaker 04:
They wanted to reduce the increase our fuel security and decrease the burning of greenhouse gases.

[01:43:53] Speaker 04:
That is right.

[01:43:54] Speaker 04:
Congress wanted results in the end market.

[01:43:58] Speaker 04:
It chose, it didn't choose to let EPA figure out how to achieve that result.

[01:44:04] Speaker 04:
And the way it achieved that result

[01:44:07] Speaker 04:
is by obligating defined middlemen to consume, to blend or otherwise produce for the market, the statutory volumes.

[01:44:20] Speaker 04:
And it's no question of volumes of what?

[01:44:22] Speaker 04:
This is volumes of renewable fuel.

[01:44:26] Speaker 04:
It is incoherent to apply a general waiver

[01:44:32] Speaker 04:
on account of a constraint in a part of the market that Congress was intending to force.

[01:44:38] Speaker 04:
The question the EPA says, and Mr. Lorenzen says, well, we don't know supply to whom.

[01:44:44] Speaker 04:
Could be supply to the ultimate consumer.

[01:44:48] Speaker 04:
No, it couldn't.

[01:44:50] Speaker 04:
This renewable fuel and transportation fuel, as we've discussed, are defined terms.

[01:44:57] Speaker 04:
The consumer gets transportation fuel.

[01:45:01] Speaker 04:
That is what is delivered to the consumer and what the consumer consumes.

[01:45:06] Speaker 04:
It is not renewable fuel as it is used in this term.

[01:45:10] Speaker 04:
Perhaps in the vernacular you could say, you know, that E-10 or E-85 is renewable fuel.

[01:45:17] Speaker 04:
It's partially renewable fuel.

[01:45:19] Speaker 04:
But the statute, what is delivered to the consumers, what is delivered to the distributors, what is delivered

[01:45:28] Speaker 04:
To Judge Millett's question, once the fuel comes off the blender's rack and sits in some proverbial storage tank, is transportation fuel.

[01:45:43] Speaker 04:
you know, in the end, Judge Kavanaugh maybe will all live long enough to figure out whether what Congress had in mind was crazy or not.

[01:45:50] Speaker 04:
But it doesn't seem crazy to me to say, and in any event, this was Congress's choice.

[01:45:58] Speaker 04:
And if it was crazy, it's going to have to own up politically to its choice.

[01:46:02] Speaker 04:
We want to achieve the following result.

[01:46:05] Speaker 04:
And here's what we're going to do.

[01:46:06] Speaker 04:
We are going to create artificial demand, statutory mandates that are utterly predictable.

[01:46:13] Speaker 04:
for the first 10 or 12 years for renewable fuels, demand buy obligated parties for renewable fuels, and they are obligated to ensure that those volumes are used.

[01:46:29] Speaker 04:
On the question of RINs, the EPA has spun out a lot and for years has spun out reasons why having a large perpetual RIN bank is desirable for any number of policy reasons that they

[01:46:48] Speaker 04:
have articulated.

[01:46:49] Speaker 04:
I think it's important to note that none of this is reflected in the statute.

[01:46:54] Speaker 04:
The statute just says that if a particular obligated party separates more RINs in a year, then in that 12 months, it can use the RIN as a credit.

[01:47:06] Speaker 04:
The notion of a perpetual RIN bank

[01:47:09] Speaker 04:
is EPA's policy innovation and the salient point here.

[01:47:13] Speaker 10:
Sorry, I thought the statute, one of the things assigned to them was to create a, I didn't call it RIN, but to create a credit trading system.

[01:47:20] Speaker 04:
Yes, exactly.

[01:47:21] Speaker 04:
The whole point is if you and I are both obligated parties and you have separated, you know, a hundred more RINs than you can use, and I haven't,

[01:47:35] Speaker 04:
it may be cheaper for me to buy yours than to go ahead and do it.

[01:47:39] Speaker 04:
That's what Congress set up.

[01:47:41] Speaker 04:
This notion that there has to be 1.74 or 2.23 or 0.39 wins, that is, that EPA can set up the system so that it can set

[01:47:57] Speaker 04:
the standard, I mean it keeps referring to what the government, what Congress has done as targets, it's the opposite, it can set the target low enough that the obligated parties will be able in that very year to generate as many RINs as they inherited from the previous year is nowhere in Congress's plan and the reality, and I think we'll get into this in the next argument.

[01:48:21] Speaker 10:
Why isn't it part of maintaining this trading system to make sure that as these

[01:48:25] Speaker 10:
You know, as the fuel numbers go up each year, then more and more winds are being used, and so it makes sense that while there was a nice abundance of them in 2013, now we're going to be scraping the bottom, just to put it in their view, scraping the bottom of the barrel, and we won't be able to maintain the trading system Congress wanted us to create and maintain.

[01:48:43] Speaker 04:
Judge Millett, just to be clear, there will, if the statutory standard is met,

[01:48:49] Speaker 04:
By definition, that many RINs will be separated each year.

[01:48:54] Speaker 04:
And maintaining – and EPA never – they say, oh, we don't want the RIN bank to go down to zero.

[01:49:01] Speaker 04:
But they've never explained – certainly in this whole rule, they never explained why the RIN bank has to be 1.74 as opposed to

[01:49:10] Speaker 04:
0.8 or 0.5 or 2.3 or anything like that.

[01:49:15] Speaker 04:
They just say, we want the RIN Bank.

[01:49:18] Speaker 04:
The RIN Bank should stay at what it was coming into 2014.

[01:49:21] Speaker 04:
The economic point here is that having artificially low RIN prices, which is what a perpetual RIN Bank does, it makes it cheaper for obligated parties just to buy RINs to satisfy their production obligations

[01:49:39] Speaker 04:
rather than do the blending and invest in whatever infrastructure is needed defeats Congress's purpose because it is high, and EPA has recognized this in Monroe, you said it flat out, it is high RIN prices.

[01:49:57] Speaker 04:
that will in fact make renewable fuels cheaper and therefore drive the consumer demand that Congress is intending to force by imposing obligated parties' demands.

[01:50:10] Speaker 08:
What if the demand is just not there?

[01:50:13] Speaker 08:
It's never there.

[01:50:14] Speaker 04:
So then you have the severe harm.

[01:50:17] Speaker 04:
I mean, supply is supply.

[01:50:20] Speaker 04:
It's supply of renewable fuel to the obligated parties, and they are obligated to use that percentage of renewable fuel in the transportation fuel they provide.

[01:50:31] Speaker 04:
If it's not there, you know, we've heard today, I mean, amazingly, in light of what EPA said in its brief about E85 and what it said in its rule about E85,

[01:50:41] Speaker 04:
We heard today, well, there just aren't any stations and there just aren't any flex-fuel vehicles when, as I pointed out before, in the notice of proposed rule making for the 2014 rule, they said, quote, even counting only those flex-fuel vehicles with reasonable access to stations offering E85,

[01:51:03] Speaker 04:
Their total consumption capacity is at least one billion gallons.

[01:51:08] Speaker 04:
So all this talk about infrastructure constraints.

[01:51:11] Speaker 04:
If there were huge infrastructure constraints that the market, that Congress's standards were demonstrably not overcoming.

[01:51:20] Speaker 04:
They were market insensitive constraints.

[01:51:24] Speaker 04:
Congress needs to step in, but in the first instance, EPA would say, look, there's severe harm to the economy, and we're implicating that exception, not this supply exception.

[01:51:36] Speaker 04:
And so whereas, you know, the EPA in its rule and in its brief says the problem with achieving the full standard with ethanol

[01:51:49] Speaker 04:
is the blend the so-called blend wall that is old cars can only use 10 or 15 percent ethanol in the rule.

[01:51:58] Speaker 04:
And in their brief, that's not how they're defending it.

[01:52:01] Speaker 04:
They concede that there is enough infrastructure and there is enough consumer demand.

[01:52:06] Speaker 04:
The only reason that they give in their brief, and in the, well, not even in the brief, is that they think the discount, they posit that the discount can't be more than 10%.

[01:52:17] Speaker 04:
There is not one page of the rule that they cite to that explains why on earth that could possibly be true.

[01:52:27] Speaker 04:
And that because they have conceded that price is the only justification for consumers, the only justification for determining that they have to waive this amount, even using their own definition of supply.

[01:52:44] Speaker 04:
It is a completely unexplained conclusion that can't be supported.

[01:52:50] Speaker 04:
And for that reason alone, even if you agreed with them on supply and the prior years and the carryover wins, they have not justified the half a million, half a billion gallon reduction from the actual standard that is set.

[01:53:11] Speaker 04:
And if you want to know,

[01:53:15] Speaker 04:
What?

[01:53:20] Speaker 04:
If you want to see in the EPA, how the EPA defines supply, look at JA 33 and 34, which is 77,451 and 77,452.

[01:53:33] Speaker 04:
This is going back to the supply point, and I promise you this is my last point.

[01:53:42] Speaker 10:
Sorry, which page is it again?

[01:53:43] Speaker 04:
They have a table.

[01:53:48] Speaker 04:
The table is defined factors that affect the supply of renewable fuel.

[01:53:54] Speaker 04:
So the third, I guess the second bullet, is diversion from food and other sources.

[01:54:01] Speaker 04:
Those were the reasons that they said might be implicated for severe harm, like you're taking corn away from people who need to eat it.

[01:54:10] Speaker 04:
I won't go through all these in order, but if you turn to the next page, the last two major, the two penultimate major headings, one of their factors about the supply of renewable fuel is consumption capacity.

[01:54:28] Speaker 04:
The next one is marketing effectiveness, which includes, amazingly, retail fuel prices, product features, and images.

[01:54:39] Speaker 04:
This is how EPA is seeking to justify its calculation of the supply of renewable fuel by looking at any number of factors that relate to the demand for transportation fuel.

[01:54:55] Speaker 04:
That is inconsistent with the language and the structure of the statute, and if it weren't enough to resolve this case on Chevron step one, it would resolve it on Chevron step two.

[01:55:07] Speaker 04:
Thank you.

[01:55:10] Speaker 11:
Thank you, Mr. Waxman.

[01:55:15] Speaker 01:
Thank you, Your Honors, for your generosity today.

[01:55:18] Speaker 01:
I just have a few points to make.

[01:55:20] Speaker 01:
Let me just start by pointing out one thing quickly.

[01:55:23] Speaker 01:
We're talking about waivers.

[01:55:24] Speaker 01:
It's important to keep in mind we're talking about waivers for volumes, and we seem to have lost track of the language of subsection 2A1 of the statute, which defines

[01:55:37] Speaker 01:
what it is EPA has to enforce.

[01:55:39] Speaker 01:
This is 7545.

[01:55:41] Speaker 01:
Yeah, this is under a two of the if you look, I can tell you the page on the addendum to the brief if that would be helpful.

[01:55:53] Speaker 01:
This is, if you look, pick the addendum.

[01:55:56] Speaker 08:
02A1, right?

[01:55:57] Speaker 08:
754502A1.

[01:56:00] Speaker 01:
Correct.

[01:56:02] Speaker 01:
So it's addendum A3 to the AFCEI's brief.

[01:56:09] Speaker 01:
It requires

[01:56:15] Speaker 01:
It requires EPA to revise the regulations under this paragraph to ensure that transportation fuels sold or introduced into commerce in the United States on an annual average basis contains at least the applicable volume of each category.

[01:56:36] Speaker 01:
We think that makes clear that defining supply at the point of the ultimate consumer is inconsistent with the statute.

[01:56:46] Speaker 01:
The two categories are sold or introduced into commerce.

[01:56:51] Speaker 01:
It has to mandate that what's introduced into commerce satisfies the volumes.

[01:56:59] Speaker 01:
Council for EPA mentioned that the term is supply and it's not production.

[01:57:04] Speaker 01:
And I would just like to point out that all the parties here agree that imports also count towards supply.

[01:57:11] Speaker 01:
And so the reason Congress didn't use the term inadequate production is because there are other things that go into the supply than just what was produced here.

[01:57:20] Speaker 01:
There are two ways to read the cellulosic waiver provision.

[01:57:24] Speaker 01:
One way is that when there is a shortfall in cellulosic,

[01:57:29] Speaker 01:
when there's an inadequate supply of cellulosic fuels, then EPA may decide to waive requirements for the broader volumes

[01:57:42] Speaker 01:
for reasons that are otherwise prohibited under subsection A. We think that's the interpretation that has to be rejected.

[01:57:52] Speaker 01:
The other is to say when there's a shortfall of cellulosic, you may decide to waive the broader categories.

[01:58:04] Speaker 01:
Based on the same criteria, which prominently here is going to be about supply, since there's a shortage in supply of a nested

[01:58:11] Speaker 01:
volume that's triggering this to begin with, the relevant question, and this is exactly what this court said in API, the relevant question is, is there enough of the advanced biofuels and other renewable fuels to fill that gap?

[01:58:24] Speaker 01:
That's a supply question.

[01:58:25] Speaker 01:
And however this court defines supply for purposes of EPA's discretion to reduce, it ought to apply it the same way under the cellulosic waiver provision.

[01:58:40] Speaker 01:
The reliance on Monroe Energy, let me just make this point and I'll do so very quickly, and that's that we have to remember that EPA had never previously reduced volumes under this provision.

[01:58:54] Speaker 01:
And in this court, an API upheld the EPA's decision to enforce, and all the EPA pointed to was that there was an adequate supply of other fuels.

[01:59:04] Speaker 01:
The same thing happens leading in to the Monroe Energy case.

[01:59:08] Speaker 01:
And EPA addresses the challenges that were brought by the industry against their decision to enforce that walk through a lot of consumer side and demand side concerns.

[01:59:20] Speaker 01:
And it walks one by one down, and it says the reasons why in its judgment, in its discretion, it doesn't think those arguments are persuasive.

[01:59:28] Speaker 01:
uh, but it, it, it, and it, and it says it has broad authority, uh, to make that determination.

[01:59:33] Speaker 01:
This court, in affirming the decision not to, uh, reduce those volumes, walked through each of the steps that, of, of the EPA's reasoning and said it wasn't arbitrary and capricious, because that was the challenge the court had in front of it.

[01:59:48] Speaker 01:
None of the petitioners in that case had argued that the EPA, uh, did not have discretion to reduce except for in a couple of positions.

[01:59:56] Speaker 01:
All the petitioners in that case

[01:59:58] Speaker 01:
wanted EPA to have broad discretion to reduce.

[02:00:02] Speaker 01:
And, you know, the biodiesel industry couldn't come in and challenge the determination because the EPA enforced it.

[02:00:08] Speaker 10:
This is the first opportunity for this Court to get... We did say they have broad discretion not only whether, but in what circumstances to reduce.

[02:00:16] Speaker 10:
Correct.

[02:00:17] Speaker 10:
You're trying to say they don't have broad discretion in what circumstances?

[02:00:20] Speaker 01:
No, that's not correct, Your Honor.

[02:00:21] Speaker 01:
And this is the critical point.

[02:00:23] Speaker 01:
Even when the two criteria specified for a possible reduction are present, even when there is an adequate domestic supply.

[02:00:32] Speaker 01:
It's still not required for EPA to reduce.

[02:00:34] Speaker 01:
EPA has discretion whether to reduce and under what circumstances to reduce.

[02:00:40] Speaker 01:
And even though there's an inadequate domestic supply, it may still enforce the volumes and it may do so for any reason that is not arbitrary and capricious because the statute

[02:00:54] Speaker 01:
doesn't specify what criteria EPA has to consider in deciding whether to reduce or what circumstances to reduce.

[02:01:01] Speaker 01:
What it says is any reductions have to be based on these two criteria.

[02:01:06] Speaker 01:
And this is the first opportunity for this court to get that right.

[02:01:09] Speaker 08:
You're saying, I think, that we perhaps used overly broad language because we weren't thinking about this circumstance.

[02:01:17] Speaker 01:
I don't even think the language was necessarily overly broad.

[02:01:20] Speaker 01:
I think the court just has to realize that the only thing that the court was addressing was a decision to enforce the volumes.

[02:01:28] Speaker 01:
A decision not to exercise its discretion to reduce.

[02:01:33] Speaker 01:
It was a challenge for not taking a discretionary act.

[02:01:36] Speaker 01:
The very last point I would make, and this goes to a question Judge Millett was asking about the credit, is I would just point to the provision in the statute

[02:01:45] Speaker 01:
5C, which defines how the credits work.

[02:01:50] Speaker 01:
Sorry, this is A5 of the addendum at the very bottom of the right-hand column.

[02:01:57] Speaker 01:
You're right that the agency has discretion to come up with a credit system, a RIN system, but it says a credit generated under this paragraph shall be valid to show compliance for the 12 months

[02:02:08] Speaker 01:
as of the date of generation, and we think this continuous RIN banking concern is inconsistent with that.

[02:02:15] Speaker 01:
What the credits of the RINs were designed to do is to give a little play in the joints for obligated parties so that when they have some overcompliance in one year, that it has a little bit of a carryover effect to meet the volumes for the next.

[02:02:32] Speaker 01:
It cannot provide a basis for reducing volumes.

[02:02:36] Speaker 01:
Thank you, Your Honors.

[02:03:04] Speaker 10:
You should all move around too.

[02:03:27] Speaker 11:
We'll wait a moment to let the courtroom clear.

[02:03:49] Speaker 07:
Thank you.

[02:03:50] Speaker 07:
May it please the court, I'm Robert Long representing the obligated party petitioners.

[02:03:56] Speaker 07:
I will address the cellulosic biofuel and the biomass based diesel requirements.

[02:04:03] Speaker 07:
When EPA projects cellulosic biofuel production, it must take neutral aim at accuracy.

[02:04:12] Speaker 07:
EPA has not done that here.

[02:04:16] Speaker 07:
The number one reason

[02:04:18] Speaker 07:
is that EPA did not explain why it was persisting in using a methodology that it had tried out in 2014 and that resulted in a huge 95% error rate, that is only 5% as much

[02:04:38] Speaker 07:
cellulosic biofuel was produced as EPA was predicting using this methodology.

[02:04:45] Speaker 07:
And EPA really doesn't come to grips with that in the rule.

[02:04:50] Speaker 07:
It never faces up to it.

[02:04:53] Speaker 07:
Indeed, we had to do a fair amount of archaeology in the record to figure out exactly how much

[02:04:59] Speaker 07:
liquid cellulosic biofuel and the new kind, the CNG, LNG compressed natural gas and liquefied natural gas, we think, and it's really our basic submission to the court today, in EPI versus EPA, the court said under the statute, EPA has to take neutral laminate accuracy, and that means it needs to take a look

[02:05:26] Speaker 07:
at the success of its past predictions and the rationality of persisting with the methodology is called into question if the past predictions didn't work.

[02:05:40] Speaker 10:
So it's 2017.

[02:05:43] Speaker 10:
Do we know how, maybe this is peeking where I'm not supposed to look, but do we know

[02:05:49] Speaker 10:
how far off they were in 2014.

[02:05:51] Speaker 07:
We do know for 2016 or for 20.

[02:05:55] Speaker 10:
Whatever years you got.

[02:05:56] Speaker 10:
For 2015 and 16.

[02:05:59] Speaker 07:
For 2015, the only prediction they made was for the last three months of the year.

[02:06:07] Speaker 07:
So you would think

[02:06:08] Speaker 07:
They'd be pretty good at that.

[02:06:10] Speaker 07:
And they predicted 2 million gallons of liquid cellulosic and 400,000 was what was produced.

[02:06:16] Speaker 07:
How much for the whole year?

[02:06:17] Speaker 07:
As best we can tell.

[02:06:18] Speaker 07:
I mean, this is our, they have not disputed this.

[02:06:21] Speaker 10:
How far off are they for the whole year, if you add to the whole period?

[02:06:24] Speaker 07:
For the whole year, for 200, for all types, they actually, for 2015, they were, this is the only time they have ever under predicted.

[02:06:38] Speaker 07:
They had a surplus of CNG and LNG.

[02:06:42] Speaker 07:
So for the whole year, for 2015, I'm sorry, for 2015, there was 2.4 million

[02:06:51] Speaker 07:
liquid of cellulosic and they never made a prediction for the whole year.

[02:07:00] Speaker 07:
They only predicted three months and they used actual numbers for the first nine months.

[02:07:06] Speaker 07:
For 2016, they were off by, they predicted 23 million gallons of liquid cellulosic, 4.3 million gallons were produced

[02:07:17] Speaker 07:
So they were off by 81 percent.

[02:07:20] Speaker 07:
So this is not in the record of this case, but you can find it on EPA's website.

[02:07:26] Speaker 07:
So this methodology that they used for liquid cellulosic

[02:07:31] Speaker 07:
was disastrously off for 2016.

[02:07:33] Speaker 10:
They were also... Not just liquid.

[02:07:35] Speaker 10:
I want to look at the whole thing, right?

[02:07:37] Speaker 10:
I had them off as only off by about 38 million gallons for 2016.

[02:07:40] Speaker 07:
For 2016?

[02:07:41] Speaker 07:
Don't look at just liquid.

[02:07:43] Speaker 07:
Well, they were also a little bit off for the CNG, LNG.

[02:07:49] Speaker 07:
They were off by 10 percent for that.

[02:07:51] Speaker 07:
And so, yes, you're quite right.

[02:07:52] Speaker 07:
If you add them both together,

[02:07:54] Speaker 07:
It's 191 million were actually produced versus 230 million that were predicted, so that's a 17 percent error.

[02:08:04] Speaker 10:
I bring this up only because they have obviously many arguments, some of which are, okay, it didn't work then, but the industry was on the cusp of taking off, and that's why these numbers were still going to work going forward.

[02:08:18] Speaker 10:
We recomputed these numbers.

[02:08:20] Speaker 10:
We had highs and lows and averages, and we did a lot of work in here.

[02:08:24] Speaker 10:
And again, maybe it's illegitimate to peak with hindsight like this, but it sure looks like all these concerns about them being 98 percent off and 100 percent off just don't really apply.

[02:08:37] Speaker 10:
They did a much better job here.

[02:08:39] Speaker 07:
Well, a couple of points in response to that.

[02:08:42] Speaker 07:
They really haven't done a better job on the liquid cellulosic, which they are analyzing separately.

[02:08:49] Speaker 07:
They do that separately, and that's really the original cellulosic category.

[02:08:53] Speaker 07:
The CNG, LNG was meant to be advanced biofuel, EPA using a series of, we would say, questionable assumptions and conclusions said that the CNG, LNG could also be cellulosic

[02:09:08] Speaker 07:
But there's a ceiling on how much of that can be produced.

[02:09:12] Speaker 07:
It comes from, you know, waste.

[02:09:15] Speaker 08:
But if that were true, don't their projections look much better?

[02:09:20] Speaker 07:
Well, their projections for the liquid cellulosic are terrible.

[02:09:24] Speaker 07:
That's where the growth comes from.

[02:09:25] Speaker 08:
Right, but if the overall, if they do use the LNG-CNG, then it becomes more in the zone, correct?

[02:09:33] Speaker 07:
If you add them both together, then the error for 2016 is not as big.

[02:09:39] Speaker 07:
But what this court held, the statute requires, is to take neutral aim and accuracy.

[02:09:46] Speaker 07:
The kind of analysis that the EPA is doing here is they're saying we're going to look at liquid cellulosic and CNG, LNG separately.

[02:09:54] Speaker 07:
We're going to do separate

[02:09:56] Speaker 07:
analyses.

[02:09:57] Speaker 07:
And so each one has to be looked at to see whether it's accurate.

[02:10:02] Speaker 07:
And the, you know, our primary concerns are with the liquid cellulosic.

[02:10:07] Speaker 07:
It's highly inaccurate.

[02:10:10] Speaker 07:
And in fact, EPA itself has not made an argument, as I understand it, either in its final rule or in its brief to this court that,

[02:10:19] Speaker 07:
Okay, the liquid projection was terrible and inaccurate, but it's sort of a rounding error.

[02:10:25] Speaker 07:
And if you think about it, I mean, suppose EPA was predicting liquid cellulosic by throwing darts or spinning a wheel.

[02:10:33] Speaker 07:
That would clearly not be neutrally aiming at accuracy.

[02:10:37] Speaker 07:
It wouldn't be good enough to say, oh, it's only about 10 percent of the total, so anything is good enough.

[02:10:43] Speaker 07:
It's really not.

[02:10:43] Speaker 10:
Yeah, but they weren't throwing darts here.

[02:10:44] Speaker 10:
To be fair, right, they had fairly complicated analysis of information and they had highs and lows and averages.

[02:10:50] Speaker 10:
And as a, if you just take it out of this particular setting here with your client's concerns, it seems like a neutral aim of accuracy.

[02:11:01] Speaker 10:
One way to do that is to, well, what's a high?

[02:11:03] Speaker 10:
What's a low?

[02:11:04] Speaker 10:
Let's take averages.

[02:11:05] Speaker 10:
Let's discount.

[02:11:06] Speaker 10:
Let's collect information from the actual people who are producing it and mix it all up together.

[02:11:11] Speaker 10:
And that sure seems to me like,

[02:11:13] Speaker 10:
What methodology were they supposed to use?

[02:11:17] Speaker 07:
Well, it is very complicated and we're not saying that some sort of complicated methodology is necessarily not aiming at accuracy.

[02:11:27] Speaker 07:
We're really saying that the court, the EPA gave this methodology a tryout and certain specific aspects of it, like how they predict start updates, the use of the sixth month

[02:11:43] Speaker 07:
straight line ramp up.

[02:11:44] Speaker 07:
They've got a lot of experience with it.

[02:11:46] Speaker 07:
It hasn't worked.

[02:11:47] Speaker 10:
No, they had one company that did six-month.

[02:11:50] Speaker 10:
I don't know if I remember the name of it, but they had one that did six-month, and they didn't say we're doing six-month as a standard.

[02:11:55] Speaker 07:
That's the high, and we'll have a low, and we'll... On that, I mean, they claim one out of dozens, and if you look at Joint Appendix 87 and 90, we don't think even that is right, because if you look on those two pages, you'll see that Quad counties

[02:12:12] Speaker 07:
produced less than half a million gallons.

[02:12:16] Speaker 07:
I'm just talking about the six-month start-up date.

[02:12:17] Speaker 07:
But their capacity is two million, so that can't be.

[02:12:19] Speaker 10:
We're just talking about the six-month start-up date here.

[02:12:21] Speaker 07:
It was after the six months, so they should have been running at full capacity.

[02:12:26] Speaker 07:
They should have been producing two million, and yet an EPA's own

[02:12:31] Speaker 07:
final rule.

[02:12:33] Speaker 07:
You can see they were producing less than half a million.

[02:12:35] Speaker 10:
What were they, what do you think they should have, because what I found a little surprising was saying they surely shouldn't have relied on the numbers that my members provided to them.

[02:12:44] Speaker 10:
That was irrational too.

[02:12:46] Speaker 07:
All we are asking really is for this court to say you have to take neutral limit accuracy EPA.

[02:12:52] Speaker 07:
That means

[02:12:54] Speaker 07:
owning up to how your past predictions have worked.

[02:12:57] Speaker 07:
And if you're going to persist with them, you have to explain why you think they'll work in the next year.

[02:13:03] Speaker 07:
They didn't do that here.

[02:13:05] Speaker 07:
I mean, now going beyond that, we think, and we propose this in our comments, that some sort of approach that is more tied to what has happened in the past, and maybe with some adjustments, is a better way to go.

[02:13:19] Speaker 07:
But to be clear, we're not asking the court

[02:13:22] Speaker 07:
to impose that on EPA or even substitute your judgment for EPA's judgment on any technical issues.

[02:13:30] Speaker 07:
We're simply asking you to say, to hold, that as part of taking neutral aim and accuracy, part of what you must do is examine the success of your past predictions.

[02:13:42] Speaker 10:
But they did that.

[02:13:43] Speaker 10:
I guess I read it.

[02:13:44] Speaker 10:
They were aware of that, but they said the problem was then that the industry was still sort of very nascent.

[02:13:50] Speaker 10:
But the reason we don't want to be tied to a backwards-looking number here is because the industry is now in the takeoff stage, and we expect quantitative differences in those amounts.

[02:14:01] Speaker 07:
Well, I mean, a couple of points.

[02:14:02] Speaker 07:
They didn't, they never faced up to, we used this exact methodology in 2014, and it was a disaster.

[02:14:10] Speaker 07:
It, you know, was 95 percent off.

[02:14:14] Speaker 07:
recognize that at all.

[02:14:16] Speaker 07:
And, you know, I think simply saying the industry is going to take off, they've been saying that every year since 2010.

[02:14:24] Speaker 07:
And although there has been gradual improvement, it's not as if it's completely flat.

[02:14:29] Speaker 07:
It has never taken off.

[02:14:31] Speaker 07:
So it's a little bit like those old cartoons where, you know, Charlie Brown would say every year, this year

[02:14:38] Speaker 07:
I'm really going to kick that football and Lucy will not pull it away.

[02:14:41] Speaker 07:
I mean, there needs to be something more than just saying this is going to be the year.

[02:14:45] Speaker 07:
This is, you know, and really that's missing here.

[02:14:49] Speaker 10:
Did they ask your members to provide expected numbers of production?

[02:14:55] Speaker 07:
Did they ask?

[02:14:56] Speaker 07:
I'm sorry, did they ask?

[02:14:57] Speaker 10:
I thought they collected information from the actual companies on their expected production.

[02:15:02] Speaker 10:
They do.

[02:15:02] Speaker 10:
They get that information.

[02:15:03] Speaker 10:
And we're supposed to say that was unreasonable?

[02:15:05] Speaker 07:
Well, they've been following that methodology or variations of it since 2010.

[02:15:12] Speaker 10:
Well, that seemed to be the problem on the part of the companies.

[02:15:15] Speaker 10:
If they keep giving them bad numbers, it's not their fault, right?

[02:15:19] Speaker 10:
If they said, we're now at this takeoff point, and you're saying the source of the bad information here is you.

[02:15:25] Speaker 07:
The way it works, EIA, the Energy Information Agency, provides an estimate that EPA is supposed to base its estimate on.

[02:15:35] Speaker 07:
And EPA has chosen to do an elaborate analysis of its own, which it is allowed to do.

[02:15:42] Speaker 07:
As part of that, it does check with the companies, as EIA does, too.

[02:15:47] Speaker 07:
And that's certainly a valid source of information, but experience has shown, and it's not really surprising, that these startup companies, they're going to be optimistic.

[02:15:56] Speaker 07:
They're going to put the best possible face on what might happen in the next year.

[02:16:01] Speaker 10:
And so simply taking that information at face value would not be... Well, they may be optimistic, but they know they're going to be bound by...

[02:16:12] Speaker 10:
Their numbers are going to factor into what they're bound by.

[02:16:14] Speaker 10:
I think that would be quite a check on them.

[02:16:16] Speaker 07:
I want to be clear.

[02:16:19] Speaker 07:
My clients have not supplied these bad numbers.

[02:16:21] Speaker 07:
I mean, they come from the companies that are trying to produce the cellulosic biofuel, which is not the obligated parties.

[02:16:29] Speaker 07:
So we're not responsible.

[02:16:30] Speaker 10:
But I mean, they're going to the horse's mouth here.

[02:16:33] Speaker 10:
Sorry?

[02:16:33] Speaker 10:
They're going to the horse's mouth.

[02:16:34] Speaker 10:
I'm sorry.

[02:16:36] Speaker 10:
The horse's mouth.

[02:16:36] Speaker 10:
The people that are producing it and saying, what do you think you're going to produce?

[02:16:39] Speaker 07:
Well, I mean, there are, I think,

[02:16:41] Speaker 07:
They're giving the numbers that they're putting in their SEC filings and, you know, putting in press releases.

[02:16:48] Speaker 07:
So I'm not faulting them for doing that, but what EPA must do is take neutral aim at accuracy.

[02:16:54] Speaker 07:
And in fact, the methodology they're using now

[02:16:58] Speaker 07:
does begin to move away from simply taking the word of these companies of what they'll do.

[02:17:03] Speaker 07:
And that is a step in the right direction.

[02:17:05] Speaker 07:
But to take aim and act, it's not enough to say, well, we were way off, and so we've moved in the right direction.

[02:17:14] Speaker 07:
So that's good enough.

[02:17:15] Speaker 07:
They have moved in the right direction.

[02:17:17] Speaker 07:
What we're saying, again, basically in a non-technical way, is they didn't even recognize in their final rule

[02:17:26] Speaker 07:
that when they tried out this methodology in 2014 and the notice of proposed rulemaking, it was a disaster.

[02:17:32] Speaker 08:
But doesn't the CNG, LNG aspect change what they were doing before, and therefore there's this new kind, as you described it, and therefore all the old projections are not necessarily the same kind of thing that they're projecting now?

[02:17:51] Speaker 07:
No, again, because the CNG, LNG is a whole different

[02:17:56] Speaker 07:
fuel from a different technology.

[02:17:58] Speaker 07:
The EPA said we're going to analyze that separately.

[02:18:01] Speaker 07:
We're going to use a whole different analysis.

[02:18:04] Speaker 07:
The liquid cellulosic is just that's proceeded along its own path since 2010 with some changes being made.

[02:18:11] Speaker 07:
And again, you know, we think the liquid has to be considered separately.

[02:18:17] Speaker 07:
If I could, and if there are no further questions about cellulosic, I'd just like to take a minute on the biomass-based diesel deadlines.

[02:18:29] Speaker 07:
there's no dispute that EPA was extremely late, more than three years late for 2014 and years late for some of the other years.

[02:18:40] Speaker 07:
There's no dispute that this is a mandatory requirement.

[02:18:44] Speaker 07:
It says EPA shall

[02:18:47] Speaker 07:
promulgate this requirement at least 14 months before it comes into effect.

[02:18:55] Speaker 07:
So really the argument we have here is that well twice in NPRA versus EPA and Monroe Energy versus EPA when EPA has not met a mandatory deadline in the statute this court has held

[02:19:11] Speaker 07:
There's also a provision that says EPA shall use the proper amounts of renewable fuel and that should take priority over this other shall statute.

[02:19:22] Speaker 07:
So really our submission here is that the court ought to draw a line and treat this situation differently really for three reasons.

[02:19:33] Speaker 07:
this for biomass-based diesel, there is no amount specified in the statute.

[02:19:40] Speaker 07:
In the prior two cases, you could look in the statute and see it was going to be, you know, so many billion gallons.

[02:19:47] Speaker 07:
So there's much more uncertainty.

[02:19:49] Speaker 08:
And I think because of that... You're okay with the prior amount being carried forward, the 1.28, I think it is?

[02:19:57] Speaker 07:
Well, we were, to be honest, we were a little bit coy about that in our brief.

[02:20:04] Speaker 07:
We would be happy with either.

[02:20:05] Speaker 07:
You're welcome to say we're, you know, we would consent either.

[02:20:08] Speaker 07:
I think, honestly, the one billion.

[02:20:11] Speaker 08:
Well, it would be the argument for the one, since that's your, you know.

[02:20:14] Speaker 07:
Well, the one is that's in the statute.

[02:20:16] Speaker 07:
So we did have a, we did have statutory notice

[02:20:19] Speaker 07:
that it would be at least a billion, and I will concede to you that under your holdings in the other two cases, I think we're stuck with a billion.

[02:20:27] Speaker 07:
The 1.28, you could say, look, that had been imposed for 2013.

[02:20:31] Speaker 07:
It was reasonable to think it wasn't going to go down.

[02:20:35] Speaker 07:
It would, you know, stay the same or go up.

[02:20:37] Speaker 07:
It actually was also proposed by EPA for 2014 and 2015, but then they went back on that and said we're going to go up a bit.

[02:20:46] Speaker 07:
So those would be

[02:20:48] Speaker 07:
the arguments for going either way.

[02:20:52] Speaker 08:
Is the argument here rooted in notice?

[02:20:55] Speaker 07:
Sorry?

[02:20:55] Speaker 08:
Is it rooted in notice?

[02:20:57] Speaker 08:
Is that the nature of your argument here, that lack of notice?

[02:21:01] Speaker 07:
Well, I mean, yes, absolutely.

[02:21:03] Speaker 07:
Is that true for all?

[02:21:04] Speaker 07:
We really didn't know how much this was going to be.

[02:21:07] Speaker 07:
The EPA had actually proposed $1.28 billion, so we were assuming that's how much it was going to be.

[02:21:13] Speaker 07:
And then, lo and behold, it turned out to be more.

[02:21:17] Speaker 07:
The third reason I want to mention, in addition to the, you know, the amounts not specified in the statute, it's a much longer lead time.

[02:21:24] Speaker 07:
In this situation, because of the way the biomass-based diesel is nested inside the advanced biofuel requirement, saying that the shall promulgate the rule in time,

[02:21:41] Speaker 07:
mandatory requirement trumps the shall ensure the amount of fuel is really a different calculus because every gallon of advanced renewable fuel is going to be used.

[02:21:53] Speaker 07:
If you agree with this argument, this would reduce the biomass-based diesel requirement, but it would not change the advanced biofuel requirement.

[02:22:03] Speaker 07:
Both of them require there to be a 50 percent

[02:22:06] Speaker 07:
reduction, minimum of a 50 percent reduction in life cycle greenhouse gases.

[02:22:11] Speaker 07:
So it would be just as much renewable fuel as good for the environment.

[02:22:15] Speaker 07:
In the prior cases, there would actually have been less gallons of renewable fuel used.

[02:22:22] Speaker 07:
So it's in a way, it's a much less serious incursion on the shell insurer that the proper amounts of renewable fuel provision

[02:22:33] Speaker 08:
On the notice point though, don't you have sufficient notice for 2017, just to take that as an example?

[02:22:39] Speaker 07:
Well, they were late by a very short time for 2017, less than a month.

[02:22:49] Speaker 07:
You know, our submission is, you know, this was part of the legislative compromise.

[02:22:54] Speaker 07:
You were talking about Congress was trying to, you know, manage a lot of different things here.

[02:23:00] Speaker 07:
They did miss the deadline for 2017, so our submission is... You should say barely missed the deadline, and even if it had no

[02:23:09] Speaker 08:
real-world impact, let's hypothesize, you would still say it has to be 1.28 for 2017.

[02:23:16] Speaker 07:
That's our submission now.

[02:23:17] Speaker 07:
I'd also remind you we're dealing with years where there was more than three years of delight.

[02:23:22] Speaker 07:
Yeah, I know.

[02:23:22] Speaker 08:
I'm just taking it to the example that's best for them.

[02:23:25] Speaker 08:
There are no further questions.

[02:23:30] Speaker 07:
I thank the Court.

[02:23:31] Speaker 07:
Thank you.

[02:23:41] Speaker 09:
Well, my notes say good morning, and I just made it.

[02:23:48] Speaker 09:
I'm Samara Klein, and on behalf of obligated parties, I'm going to shift gears now.

[02:23:54] Speaker 09:
We're going to focus on a legal issue as to which Congress has spoken directly and without ambiguity, and that is EPA's statutory duty in setting annual RFS standards

[02:24:09] Speaker 09:
to consider whether it is applying those standards to appropriate parties.

[02:24:16] Speaker 09:
EPA refused to consider comments demonstrating that it was not obligating appropriate parties and refused to consider them solely on the ground that the issue was beyond the scope of the rulemaking.

[02:24:34] Speaker 09:
This issue is not beyond the scope

[02:24:37] Speaker 09:
And in fact, many of the Court's questions today highlight why that is the case.

[02:24:42] Speaker 09:
And the statute's plain language makes this issue a required element of EPA's annual determination.

[02:24:52] Speaker 09:
I want to focus on the statutory language first and then address why it also was arbitrary

[02:24:59] Speaker 09:
for EPA to remove this issue from consideration in this particular rulemaking.

[02:25:05] Speaker 09:
And in doing so, I hope to correct some misunderstandings and maybe some loose language from earlier in the argument about blending and gluts and high rent prices and get back to what the record is in this case.

[02:25:20] Speaker 08:
What's the remedy you want?

[02:25:22] Speaker 09:
We have asked the court to remand to EPA to fulfill its statutory duty, which is to consider whether it is obligating appropriate parties in connection with this rule.

[02:25:35] Speaker 08:
So remand without vacator of anything.

[02:25:38] Speaker 09:
That is what we have asked.

[02:25:39] Speaker 09:
Obviously, that may be influenced by decisions on other issues in the case.

[02:25:44] Speaker 09:
But with respect to this issue, which is a separate issue and a critical issue, both to the operation of the program and to the transportation fuel industry, we believe that the precedent in the court is if there would be disruptive effects to completely vacate the rule,

[02:26:01] Speaker 09:
And the failure is one of a failure to conduct reason decision making that a remand is appropriate.

[02:26:10] Speaker 11:
We've heard a lot of criticism of the way that EPA has defined inadequate supply.

[02:26:22] Speaker 11:
Does that affect you at all?

[02:26:24] Speaker 11:
In other words, one of the things that EPA has done is to look at constraints on what one might think of as the demand side.

[02:26:34] Speaker 09:
Regardless of how you rule with respect to the general waiver issue, this issue is separate and a remand is required, and this is why.

[02:26:42] Speaker 09:
This is a statutory issue.

[02:26:44] Speaker 09:
It goes to the fundamental process, the fundamental assumptions that we make about administrative rulemaking.

[02:26:52] Speaker 09:
Congress could hardly have spoken more clearly.

[02:26:55] Speaker 09:
In Section 03B,

[02:27:01] Speaker 09:
which is devoted to EPA's annual rulemaking.

[02:27:10] Speaker 09:
In three ways, Congress made clear that this issue not only cannot be beyond the scope, but is a required element.

[02:27:20] Speaker 09:
First, Congress provided in 03B that each calendar year

[02:27:28] Speaker 09:
EPA shall determine a renewable fuel obligation.

[02:27:32] Speaker 09:
Second, Congress provided that that annual determination has three required elements.

[02:27:40] Speaker 09:
Third, the first of those requirements is consideration of who is obligated.

[02:27:48] Speaker 09:
The obligation shall be applicable to refineries, blenders, and importers as appropriate.

[02:27:55] Speaker 09:
Making this issue part of EPA's yearly determination is entirely consistent with the structure and purpose of the statute.

[02:28:04] Speaker 09:
Are you saying it's compelled by the statute?

[02:28:07] Speaker 09:
I am, Your Honor, because... Go ahead.

[02:28:09] Speaker 03:
Go ahead.

[02:28:10] Speaker 09:
Well, there are two things that make this program work, how much and from whom.

[02:28:15] Speaker 09:
And those two issues are addressed annually and need to be addressed annually.

[02:28:20] Speaker 10:
Well, I guess you said this was a nice textual argument.

[02:28:23] Speaker 10:
And look, as I read it, B romenet I is the thing that has the annual obligation.

[02:28:30] Speaker 10:
Each calendar year, as we go look at the numbers, the obligations.

[02:28:39] Speaker 10:
But it doesn't say each calendar year.

[02:28:42] Speaker 10:
In fact, it separates it out into separate romenet two.

[02:28:48] Speaker 10:
Whenever you do that, make sure it has these elements in it.

[02:28:50] Speaker 10:
But that doesn't mean each year you need to revisit to whom it is applicable.

[02:28:56] Speaker 10:
The only thing that has to be textually has to be revisited each year is the numbers.

[02:29:02] Speaker 10:
And then, of course, once you've got the numbers, you've got to figure out who's got it.

[02:29:06] Speaker 10:
You've got to say to whom they apply.

[02:29:07] Speaker 10:
But it seems textually, Congress separated out what has to be done each year.

[02:29:14] Speaker 09:
posturing is EPA's contention that all it has to do is decide the appropriate parties at some point.

[02:29:21] Speaker 09:
The problem with that is it really rewrites the statute and it makes Section 3 be meaningless and here's why.

[02:29:28] Speaker 09:
First of all, you'd have to read, I don't think there's any way to separate each calendar year, you've got to do this, you've got to determine an obligation each calendar year.

[02:29:40] Speaker 09:
And then

[02:29:41] Speaker 09:
that obligation must be applicable to these entities as appropriate.

[02:29:47] Speaker 09:
If you weren't required to look at that every year, it would allow you to obligate inappropriate parties year after year after year.

[02:29:55] Speaker 09:
It also would essentially read required element to mean elective.

[02:30:02] Speaker 09:
It would read child to mean May.

[02:30:05] Speaker 09:
And the other reason it would make this section meaningless is that

[02:30:10] Speaker 09:
Congress used similar language in Section 2A.

[02:30:14] Speaker 09:
If you flip back, when talking about EPA's implementing regulations, if you look at 2A and then little 3I, provisions of regulations,

[02:30:33] Speaker 10:
But it just says it's got to be in the regulation, but it doesn't say, it's saying you can't carry over what you decide.

[02:30:38] Speaker 10:
The only thing that has to be done each year is the numbers.

[02:30:40] Speaker 10:
That's how Congress wrote it.

[02:30:42] Speaker 09:
Well, but what Congress said is in your implementing regulations, you've got to consider appropriate parties.

[02:30:49] Speaker 09:
If there were not an annual obligation, there would be no need to have Section 3B at all refer to obligated parties.

[02:30:57] Speaker 09:
If it has any meaning at all, it must mean that this issue is, at a minimum, not beyond the scope.

[02:31:07] Speaker 09:
All right?

[02:31:07] Speaker 09:
Whether you agree that it's compelled, at a minimum, here the issue is, was it unlawful for EPA to put this issue beyond the scope of this rooming?

[02:31:20] Speaker 10:
if it's part of, within the scope, it should have had some impact.

[02:31:24] Speaker 10:
And so that's where I want to understand.

[02:31:26] Speaker 10:
So what they did here was, we'll go through two things.

[02:31:29] Speaker 10:
First thing is they made this determination to use the waivers.

[02:31:33] Speaker 10:
Is your view that, just to understand it, that they had to first decide whether they could fix this problem by changing the obligated parties, and it was invalid

[02:31:45] Speaker 10:
to use the waiver until they had first decided if they could fix the problem, changing the obligated parties.

[02:31:50] Speaker 10:
So it questions the validity of the waivers.

[02:31:52] Speaker 10:
Is that your position?

[02:31:53] Speaker 09:
Our position is that the necessity to consider the waiver issue only highlighted the relevance and importance

[02:32:05] Speaker 09:
of the information that was provided.

[02:32:08] Speaker 09:
Now, frankly, regardless of whether there had been a waiver consideration at all, there were serious issues that were relevant to the rulemaking, because EPA's duty is to ensure that the statutory requirements are met.

[02:32:24] Speaker 09:
So whatever obligation it sets is a minimum.

[02:32:29] Speaker 09:
This information that was provided to EPA

[02:32:33] Speaker 09:
from numerous stakeholders, economists, executive advisors, showed that the current point of obligation, leaving blenders unobligated, and I want to get back to that because it has a lot to do with questions that you asked earlier, that the current point of obligation is a fundamental market constraint.

[02:32:54] Speaker 10:
on renewable fuel supply and so no matter what obligation does that mean that their decision to do the waivers here is invalid in your view unless and until they address this obligation part.

[02:33:09] Speaker 09:
Our position is based on the record that the waiver was necessary

[02:33:15] Speaker 09:
regardless of the point of obligation.

[02:33:17] Speaker 10:
The waiver... Okay, well then that would seem to say it's not part of the scope of this rulemaking.

[02:33:21] Speaker 09:
Not at all, Your Honor.

[02:33:22] Speaker 10:
They could decide the whole waiver issue without touching this and could have another proceeding, as I take it, they're having on obligations.

[02:33:29] Speaker 09:
Not at all, Your Honor, and this is why, okay?

[02:33:32] Speaker 09:
Because EPA's duty is to ensure that these volumes are met.

[02:33:37] Speaker 09:
And what this information said is you're obligating inappropriate parties, and as a result, you're hindering the ability of the market to meet the obligation that you set, whatever that obligation is.

[02:33:53] Speaker 09:
So are you talking about the fuel standards now?

[02:33:56] Speaker 09:
Yes.

[02:33:57] Speaker 09:
I'm saying that whatever standard, whatever volume requirement EPA chose to set,

[02:34:09] Speaker 09:
the impact, the point of obligation impacts whether that volume requirement can be met, and it's EPA's duty to ensure that it is met.

[02:34:20] Speaker 09:
Because what, let's get to what this information is about, because I think it will help explain why it was so relevant and responsive, and could have changed the scope of that, could have changed the outcome of this rulemaking.

[02:34:35] Speaker 10:
I don't mean to interrupt you, but could have changed which part of the rulemaking, the waiver or the standards?

[02:34:42] Speaker 10:
I think you're talking about the standards now that they set, the volume totals that they set.

[02:34:46] Speaker 10:
Is that what you mean?

[02:34:48] Speaker 09:
Just so I understand.

[02:34:49] Speaker 09:
The consideration of the point of obligation could have affected the number, how much, and it could have affected whether EPA was ensuring that that number would be met.

[02:35:03] Speaker 09:
two critical jobs of EPA are impacted by where it places the obligation.

[02:35:10] Speaker 09:
And you know, you can see that if you look at almost any page of the rule or EPA's brief, it's all about figuring out how is the market going to respond to the standards that we set?

[02:35:23] Speaker 09:
How can you evaluate how the market's going to respond without looking at who's obligated under the standards that are set?

[02:35:33] Speaker 09:
And here, what the evidence showed was, and it's really no secret, the court itself in the API case has observed the asymmetry of incentives that exist by obligating.

[02:35:48] Speaker 09:
Remember, refineries are obligated.

[02:35:52] Speaker 09:
Blenders are not.

[02:35:54] Speaker 09:
And your honor sort of imagined that there's a glut somewhere between post blending

[02:36:01] Speaker 09:
and the gas station.

[02:36:04] Speaker 09:
That's not what the record shows.

[02:36:07] Speaker 09:
What the record shows is that blenders are not blending increased amounts of renewable fuel because they have no incentive to do so because they are not obligated parties.

[02:36:20] Speaker 09:
Now, I heard a lot of talk about high RIN prices and how that's going to drive investment, but the record shows.

[02:36:26] Speaker 09:
And these comments that EPA put beyond the scope of the rule show.

[02:36:31] Speaker 09:
that the effect of the high rim price combined with leaving blenders unobligated has resulted not in forcing investment, but instead in disincentivizing that investment because blenders can hold on to a high priced rim and gain short term profits from that.

[02:36:53] Speaker 09:
Meanwhile, the refiners have no ability to force the blenders to blend fuel that nobody at the gas tank can use.

[02:37:02] Speaker 09:
And the refiners don't blend.

[02:37:04] Speaker 09:
At the refinery, there is no blending.

[02:37:07] Speaker 09:
There is no storage.

[02:37:08] Speaker 09:
And in fact, frankly, ethanol can't be stored.

[02:37:11] Speaker 09:
Just as a practical matter, as a physical matter, it can't be stored.

[02:37:15] Speaker 09:
So that's not really the problem.

[02:37:17] Speaker 09:
The problem that really everybody agrees is there is that blenders aren't doing what they need to do to increase renewable fuel use.

[02:37:32] Speaker 09:
And these comments, again, from noted economists across the board said that by obligating those who can't do anything about this problem and leaving unobligated those with the greatest capability to affect supply, that's inappropriate.

[02:37:55] Speaker 09:
And if nothing else, the statute says that EPA must

[02:38:00] Speaker 09:
obligate the appropriate parties.

[02:38:03] Speaker 09:
And so by putting, you know, in these circumstances, EPA could not rationally have ignored these comments proposing to realign the point of obligation.

[02:38:14] Speaker 11:
If we don't agree with you that consideration of the point of obligation is textually compelled by the statute, if we don't agree with that, is there still an argument that this is not beyond the scope of the rulemaking?

[02:38:30] Speaker 09:
Absolutely, Your Honor, and it just comes back to fundamental principles of administrative law.

[02:38:36] Speaker 09:
This information was highly relevant.

[02:38:39] Speaker 09:
It was responsive.

[02:38:40] Speaker 09:
Remember that EPA in its notice of proposed rulemaking purported to consider all

[02:38:48] Speaker 09:
all constraints on the market, it said that it was going to determine the maximum volume of renewable fuel that could be expected to be achieved and that it was going to consider the ability of the market to respond.

[02:39:01] Speaker 09:
Then it said we invite comments on all aspects of this proposal and any aspect of our rulemaking.

[02:39:07] Speaker 09:
That comes straight from the notice of proposed rulemaking.

[02:39:10] Speaker 09:
If an agency can take this kind of information and say it's off the table,

[02:39:17] Speaker 09:
Or, and I'll get to this in a minute, you've got to bring it up in a collateral proceeding.

[02:39:23] Speaker 09:
That really upsets fundamental assumptions about the nature of agency rulemaking, and that is that the agency is going to consider

[02:39:32] Speaker 09:
all relevant information and respond with a reasoned explanation.

[02:39:36] Speaker 09:
So setting aside the statutory language, there's plenty just in the notice of the proposed rulemaking and the nature of the comments to decide that EPA acted unlawfully and arbitrarily in deciding that this was outside the scope.

[02:39:52] Speaker 09:
Now, another thing- Sorry, just to follow up one thing.

[02:39:54] Speaker 10:
Is part of your position that had they considered this, it could have resulted in

[02:40:01] Speaker 10:
lower volume totals for your clients?

[02:40:07] Speaker 09:
Or not?

[02:40:07] Speaker 09:
Well, what it would have done is realign the obligations so the obligation would be commensurate with the control of fuel at the blending rack, which is

[02:40:19] Speaker 09:
the proper way to line up.

[02:40:21] Speaker 09:
I understand.

[02:40:22] Speaker 09:
Yes.

[02:40:22] Speaker 09:
My clients were harmed.

[02:40:24] Speaker 10:
I get those things.

[02:40:27] Speaker 10:
Were you harmed in this sense and that you think your rates would have been lower?

[02:40:33] Speaker 09:
Yes.

[02:40:34] Speaker 09:
My clients were harmed because the refineries cannot influence the volume and their obligation would have been different should the point of obligation be moved.

[02:40:45] Speaker 09:
Does that answer the question?

[02:40:47] Speaker 09:
So I just want to address another thing that EPA has said is that if stakeholders want to change the point of obligation, then they should just deal with it in a collateral proceeding.

[02:40:57] Speaker 09:
And I want to emphasize why that's wrong, because it negates essential aspects of the statutory scheme, and it doesn't redress EPA's failure in this rulemaking.

[02:41:14] Speaker 09:
For one thing,

[02:41:16] Speaker 09:
collateral proceedings, no time limit.

[02:41:18] Speaker 09:
So the issue could be postponed indefinitely, no consideration in connection with the rules.

[02:41:29] Speaker 10:
In that regard, there are, are there still pending, is there still pending decision on the Ohado petitions?

[02:41:36] Speaker 10:
I'm sorry, is there still pending, has the EPA yet resolved the Ohado petitions that were filed on this issue?

[02:41:44] Speaker 09:
I mean, everything is still pending.

[02:41:50] Speaker 09:
And frankly, if EPA had fulfilled its statutory duty and its duty under administrative law, then we wouldn't be dealing with that.

[02:41:57] Speaker 09:
I feel certain.

[02:42:01] Speaker 09:
There are a lot of differences between those proceedings and what should happen as a matter of the statute and as a matter of administrative law.

[02:42:11] Speaker 09:
One thing, EPA is changing the nature of the question and the burden of proof.

[02:42:16] Speaker 09:
They're obligated to, they have a duty to obligate appropriate parties instead.

[02:42:21] Speaker 09:
They're insisting that stakeholders have to prove why a change is necessary.

[02:42:27] Speaker 09:
The standard of review is far more deferential to EPA in those kind of proceedings than it would be had the proper process been followed.

[02:42:38] Speaker 09:
But I think what all of these things say is it's no secret that if an agency has unlimited discretion

[02:42:47] Speaker 09:
to control the kind and timing of a proceeding in which an issue is going to be decided.

[02:42:54] Speaker 09:
It often controls the outcome.

[02:42:56] Speaker 09:
That is not what Congress intended here.

[02:42:59] Speaker 09:
These are issues that are critically important to the operation of this program, the transportation fuel industry, and frankly, national security.

[02:43:08] Speaker 09:
And they are not ones that should be shuttled off to a collateral proceeding and left to pen indefinitely.

[02:43:15] Speaker 09:
The last issue I think I will save for rebuttal if the court doesn't have any other questions.

[02:43:27] Speaker 11:
Thank you.

[02:43:47] Speaker 06:
Hello again, Your Honors.

[02:43:49] Speaker 06:
These claims by the obligated parties should each be rejected, and I'll take them each in turn.

[02:43:54] Speaker 06:
In API, this Court reversed EPA's cellulosic projections on one basis only, that EPA balanced uncertainties in projections, quote, with the objective of promoting growth.

[02:44:08] Speaker 06:
It was this special tilt

[02:44:10] Speaker 06:
that the court found to be improper because it was effectively deliberately creating a greater risk of overestimation than underestimation.

[02:44:18] Speaker 06:
As the court instructed, the 2014 through 2016 cellulosic projections use an outcome neutral methodology with no special tilt.

[02:44:28] Speaker 06:
The petitioners are wrong that EPA did not improve its past methodologies.

[02:44:34] Speaker 06:
This methodology that was used in this particular rule has several variations that have not existed in any previous version.

[02:44:42] Speaker 06:
For starters, they talk about the 2014 proposed rule which has been withdrawn.

[02:44:48] Speaker 06:
First of all, we don't know what EPA would have finalized in 2014 because that was withdrawn.

[02:44:54] Speaker 06:
We do know that EPA used something called a Monte Carlo simulation in that proposed rule.

[02:45:00] Speaker 06:
I couldn't explain to you what that is, but EPA did not use it again here.

[02:45:04] Speaker 06:
Also, for the first time, EPA used a new methodology for biogas.

[02:45:10] Speaker 06:
That is a new pathway to generate cellulosic RENS.

[02:45:14] Speaker 06:
And EPA has never in the past had an opportunity to project what that would be.

[02:45:19] Speaker 06:
Also, for the first time, EPA separated the different facilities producing cellulosic RENS into separate groups and then aggregated them so that it could balance out the risks for each group.

[02:45:33] Speaker 08:
On the biogas, they say, well, you still have to consider the liquid separately.

[02:45:40] Speaker 08:
What's your response to that?

[02:45:41] Speaker 06:
Well, EPA chose to consider the liquid cellulosic separately and making it... And then it has to be analyzed separately, therefore.

[02:45:51] Speaker 06:
That's how EPA has determined to project it, but what ultimately results is a total projection for cellulosic RINs by having... But if one of the component parts, let's hypothesize, is way off, isn't that a problem in and of itself?

[02:46:11] Speaker 06:
Well, not necessarily, because it's significantly balanced out.

[02:46:14] Speaker 08:
So the bulk of the growth in cellulosic ring generation has been from bio... But doesn't that imply that, I mean, to balance it out is to say, yeah, it's really off, but it all works out in the end, whereas they're saying, well, why don't we get it more precise, at least within a range of reasonableness, even as to that component, and that will make the end product even better.

[02:46:40] Speaker 08:
Put aside our standard of review, and I get your point on that here, but let's just talk about getting the right answer.

[02:46:47] Speaker 08:
If you have something that's way off as to a component part, why not try to do better?

[02:46:53] Speaker 06:
Well, I think EPA has tried to do better.

[02:46:56] Speaker 06:
What EPA has acknowledged is that it's very difficult to predict the future, and that's what it's been instructed to do, is to predict the future.

[02:47:04] Speaker 06:
So in every component that EPA goes through, it has to say, well, what do I know based on past data?

[02:47:09] Speaker 06:
Should I tweak this particular component one way or another?

[02:47:12] Speaker 08:
And what it knows is that on this particular component, it's been way off, correct?

[02:47:17] Speaker 06:
Well, it's also been improving and the liquid cellulosic generation has been improving and growing exponentially.

[02:47:23] Speaker 06:
I mean, the petitioners have a point that it has not grown as Congress expected, but it has also grown significantly since it first started being produced at the commercial scale.

[02:47:36] Speaker 06:
The first commercial scale generation of liquid cellulosic RENs occurred in March of 2013.

[02:47:42] Speaker 06:
That year, the market produced 40 times, or I'm sorry, in 2013 it was 36 times what had been generated in 2012.

[02:47:52] Speaker 06:
In 2014, the market generated 40 times the number of liquid cellulosic RENs that had been generated in 2013.

[02:47:59] Speaker 06:
And so for the first time, EPA had data to say, okay, how long does it take to ramp up a facility?

[02:48:08] Speaker 06:
Is the industry getting better with technology?

[02:48:11] Speaker 06:
It was able to identify red flags to exclude certain facilities from consideration.

[02:48:18] Speaker 06:
So for example, just because a facility said, well, I think I'm going to generate cellulosic RINs this year, EPA didn't necessarily include that in its calculation.

[02:48:29] Speaker 06:
If there were red flags that said they were not likely to actually do so, EPA now had data to push them out.

[02:48:36] Speaker 06:
and to not consider them at all.

[02:48:38] Speaker 06:
So EPA has gone through this rigorous method in order to, like you said Judge Kavanaugh, get

[02:48:44] Speaker 06:
as accurate a number as possible in this component for these liquid cellulosic facilities.

[02:48:51] Speaker 06:
But when you add that up with the biogas facilities, you also see that biogas is the most of the growth right now, which means that when you wind up with your total projection, which is what the cellulosic waiver is based on, your percentage of being off, even if one component is off, they're being balanced out by the rest of it.

[02:49:15] Speaker 06:
I would like to answer your question from earlier, Judge Mallette, about what do we know now?

[02:49:21] Speaker 06:
This is, of course, non-record material, but the numbers for actual cellulosic REN generation in 2015 was 140 million gallons, which was 17 million

[02:49:34] Speaker 06:
Uh, rents higher than projected and for 2016, uh, the actual generation was 190 million gallons, which was 40 million less than projection.

[02:49:44] Speaker 06:
So EPA was ultimately low for 2016 and it was high for 2015, which is the first time that that has ever happened.

[02:49:51] Speaker 06:
And so if you were to go and break down those numbers and say, well, which part was high and which part was low, that certainly will give EPA more data for its next projections, but it's clearly getting much better at this.

[02:50:07] Speaker 11:
Can we go back to the point of obligation discussion?

[02:50:11] Speaker 11:
Yes, certainly.

[02:50:15] Speaker 11:
Okay.

[02:50:17] Speaker 11:
This looks to be relevant both to the way EPA is defining supply and to the calculation of volume.

[02:50:28] Speaker 11:
So how is it beyond the scope of this rulemaking?

[02:50:34] Speaker 06:
So I have a few answers to that.

[02:50:36] Speaker 06:
What EPA was doing in this rule was setting volumes and setting standards.

[02:50:45] Speaker 06:
In doing so, it had to look at its pre-existing implementing regulations.

[02:50:52] Speaker 06:
EPA set the point of obligation in an implementing regulation back in 2010.

[02:50:58] Speaker 06:
EPA did not take up that question again here.

[02:51:01] Speaker 06:
And so to further answer your question, you said, well, how does this relate to supply?

[02:51:08] Speaker 06:
The biofuel industry petitioners, they are asking for an interpretation of supply that says, well, this is what happens at the, you count it at blending, which by the way, often happens at the retail station.

[02:51:19] Speaker 06:
But here, first of all, there's no finding that this was a constraint on supply, whether you count it at the point of blending or you count it at the point at which it's made available to the consumer.

[02:51:39] Speaker 06:
EPA never found that.

[02:51:40] Speaker 06:
And it's also worth noting that the biofuel industry petitioners who have an incentive to have EPA not use the waiver, they also, as interveners, do not think that EPA should have reconsidered the point of obligation in this rule, suggesting they don't think that's gonna make a difference.

[02:51:58] Speaker 06:
There is a separate rulemaking process where EPA is considering precisely this issue, this preexisting regulation,

[02:52:06] Speaker 06:
The proper place to look at that is in a petition to the agency to revise or revisit the pre-existing regulation.

[02:52:15] Speaker 06:
Most of these petitioners have done that, and that process is ongoing.

[02:52:19] Speaker 10:
How long has it been ongoing?

[02:52:22] Speaker 06:
The EPA proposed to deny the petition in November-ish.

[02:52:28] Speaker 06:
When was the petition filed?

[02:52:30] Speaker 06:
I'm sorry, I don't know the answer to that question.

[02:52:32] Speaker 06:
It certainly took them

[02:52:35] Speaker 06:
number of months as it typically does to respond.

[02:52:37] Speaker 06:
I can't tell you the exact number of months.

[02:52:39] Speaker 06:
The comment period closed in February, so they're now in the process of reviewing comments and considering, again, whether to deny the petition as they've proposed or to propose a change in that rulemaking definition.

[02:52:57] Speaker 06:
It's all out of record

[02:52:58] Speaker 06:
what's in there, but it is worth noting that the comments were 50-50 on both sides.

[02:53:05] Speaker 06:
Some obligated parties wanted to change and some don't.

[02:53:10] Speaker 06:
And not everyone agrees with these particular petitioners about exactly how that factors in.

[02:53:16] Speaker 10:
I'm just responding to their concern about time frame.

[02:53:20] Speaker 10:
There is no real time frame here.

[02:53:21] Speaker 10:
And so how do you respond to their concerns about this open-ended time frame on responding to the pending petitions?

[02:53:31] Speaker 06:
If they felt that their petition was not being responded to quickly enough, their remedy would be an unreasonable delay claim.

[02:53:41] Speaker 10:
Nothing short of that.

[02:53:43] Speaker 06:
I mean, they can always ask the EPA to move quicker.

[02:53:45] Speaker 06:
But the deadline in the statute was to pass implementing regulations by a certain time.

[02:53:57] Speaker 06:
And EPA has issued its implementing regulations.

[02:54:00] Speaker 06:
And in fact, and I would like to talk about this statutory point that petitioners raise.

[02:54:05] Speaker 06:
They talk about the provisions in 75-4503B.

[02:54:14] Speaker 06:
B1 says EPA shall determine the renewable fuel obligations every calendar year.

[02:54:20] Speaker 06:
We don't deny that.

[02:54:21] Speaker 06:
B2 says it has this required elements language.

[02:54:25] Speaker 06:
First of all, they're reading in the word consider.

[02:54:29] Speaker 06:
It doesn't say anywhere in here consider.

[02:54:31] Speaker 06:
It says the renewable fuel obligations shall be applicable to refineries, blenders, or importers as appropriate.

[02:54:39] Speaker 06:
There are also these terms.

[02:54:41] Speaker 08:
Determined for a calendar year.

[02:54:43] Speaker 08:
under clause one shall be?

[02:54:47] Speaker 06:
No, the renewable fuel obligations are determined for a calendar year.

[02:54:51] Speaker 08:
No, I know, I'm just reading the language you skipped over.

[02:54:54] Speaker 06:
Yes, yes, yes.

[02:54:56] Speaker 08:
That's the language, that's the linchpin of their argument, I think.

[02:55:00] Speaker 06:
Well, right, so then it says shall be applicable to, and then it says it shall be expressed in terms of shall be subject to.

[02:55:09] Speaker 06:
These other provisions under here, EPA has also passed

[02:55:13] Speaker 06:
implementing regulations dealing with each of those, right?

[02:55:18] Speaker 06:
EPA had to go through and specify, you know, what are all the details of this program?

[02:55:22] Speaker 06:
Who needs to expect what?

[02:55:24] Speaker 06:
Who needs to expect to be obligated?

[02:55:26] Speaker 06:
Who needs to be expect to plan for this program?

[02:55:33] Speaker 10:
Petitioners' opportunity to challenge... Can I just ask, when you're reading the statute, are you saying, just as a Chevron step one reading of the statute, or are you saying that it's ambiguous and the agency has reasonably...

[02:55:48] Speaker 06:
It's a Chevron step one question there is nothing in here that says When that says that EPA has to revisit it annually There's nothing in here that says EPA can't make that determination in a rule that remains in place until modified It'd be very simple to do it annually though, correct?

[02:56:11] Speaker 06:
EPA strongly disagrees with that.

[02:56:14] Speaker 08:
Really?

[02:56:14] Speaker 08:
Well, then why?

[02:56:16] Speaker 08:
That's interesting.

[02:56:18] Speaker 06:
Because it's simply impractical.

[02:56:19] Speaker 06:
I mean, this is a multi-year rulemaking process to reconsider it.

[02:56:24] Speaker 06:
There's a, I think, just the proposed petition.

[02:56:27] Speaker 08:
Just to determine whether it's applicable?

[02:56:30] Speaker 08:
To make a decision every year?

[02:56:34] Speaker 06:
Because there are a lot of stakeholders who should comment on it because it's a complicated question because Because it's difficult enough to get the annual volumes and percentage standards out on time That would become an impossible task if they were also considering revisiting their prior

[02:56:57] Speaker 06:
rulemaking every year.

[02:56:59] Speaker 11:
So leaving aside whether the statute requires you to do that, and I know you don't think that it does, but here in this rulemaking, EPA actually requested comments on whether their proposed volumes appropriately reflect constraints on supply.

[02:57:16] Speaker 11:
And I thought that petitioners were arguing

[02:57:21] Speaker 11:
that altering the point of obligation would in fact remove supply constraint.

[02:57:28] Speaker 11:
So why wouldn't that just under regular administrative law rules make this relevant to this rulemaking?

[02:57:37] Speaker 06:
I think that's a correct characterization of petitioner's argument.

[02:57:41] Speaker 06:
The reason why that's wrong is because EPA didn't ask about how to fix what

[02:57:49] Speaker 06:
commenters believed was a constraint.

[02:57:52] Speaker 06:
EPA asked for information that should be taken into account in setting the renewable fuel standard volumes and percentage standards.

[02:58:02] Speaker 06:
So even if this is a constraint, which EPA does not agree with, even if it was, then that's a pre-existing constraint that might factor into the volumes themselves.

[02:58:15] Speaker 06:
EPA didn't propose in this rule to go back to pre-existing regulations and revisit them in the context of this rule.

[02:58:23] Speaker 06:
The petitioners could have challenged the pre-existing regulation back in 2010.

[02:58:28] Speaker 06:
That's when EPA passed that rule.

[02:58:30] Speaker 06:
They were on notice then that it was a prospective definition.

[02:58:34] Speaker 06:
I mean, you even have in the CFR, later in the definition provision, this is 40 CFR 80 14.06 G, it says that the requirements of this section, quote, apply to the following compliance periods, beginning in 2010 and every year thereafter.

[02:58:52] Speaker 06:
Petitioners knew then that this was a prospective definition, and their opportunity to challenge that has passed.

[02:59:01] Speaker 08:
Can I ask you about the diesel volumes?

[02:59:04] Speaker 08:
Yes.

[02:59:05] Speaker 08:
On those, you missed the deadline and there's no pre-existing statutory specification, so why aren't they correct that 1.28 should be the number for those years?

[02:59:23] Speaker 06:
for several reasons.

[02:59:25] Speaker 06:
First you have the instructions from NPRA in Monroe which say how EPA should

[02:59:32] Speaker 06:
analyze its obligations when it's late.

[02:59:35] Speaker 06:
The court said in those cases that EPA should look at its statutory obligations and the goals of the statute and should also look at hardship to the parties and consider whether there are ways to deal with them and whether the hardship is acceptable based on what EPA is trying to do.

[02:59:52] Speaker 08:
So isn't it a hardship to impose an obligation when it's too late for them to have planned for that obligation?

[02:59:58] Speaker 06:
Well, it's not too late for them to have planned for it.

[03:00:01] Speaker 06:
The answer to that question changes a little bit on which year we're talking about.

[03:00:06] Speaker 06:
So let's start with 2014 and 2015, which had passed or mostly passed.

[03:00:12] Speaker 06:
For 2014 and 2015,

[03:00:14] Speaker 06:
The RINs had already been generated and the fuel had already been used.

[03:00:19] Speaker 06:
So the only thing obligated parties have to plan for is to reallocate the RINs.

[03:00:24] Speaker 06:
Some of them have already complied already and then there was some reallocation.

[03:00:29] Speaker 08:
But some haven't.

[03:00:31] Speaker 08:
I mean, to say some have, some haven't.

[03:00:32] Speaker 06:
That's probably true.

[03:00:33] Speaker 06:
And so what EPA looked at was, well, is it relatively easy to reallocate the rents and how long do you need to do that?

[03:00:40] Speaker 06:
So EPA gave them these drastically extended compliance deadlines to do that.

[03:00:46] Speaker 06:
Some petitioners, I mean, I'm sorry, some commenters actually had asked EPA to impose higher standards than what had actually been generated and to draw down the rent bank.

[03:00:57] Speaker 06:
EPA said, no, that's not suitable under the circumstances because of this hardship question and for other reasons.

[03:01:05] Speaker 06:
EPA also found that setting the volumes below actual use would chill the biofuel industry.

[03:01:12] Speaker 06:
That was something that EPA looked at under its

[03:01:15] Speaker 08:
But isn't this EPA's own problem to begin with by not meeting the deadline?

[03:01:20] Speaker 08:
So why should, I guess why isn't EPA meeting the deadline?

[03:01:25] Speaker 08:
I think I know the answer to that.

[03:01:27] Speaker 08:
But then the question is why should these obligated parties suffer the consequences of EPA's failure to do something it's statutorily required to do?

[03:01:38] Speaker 06:
The answer to your first question, Judge Kavanaugh, as to why EPA missed the deadline.

[03:01:42] Speaker 06:
There was a tremendous amount of controversy back in 2014 that had to do with the reduced overall fuel supply and EPA's need to exercise its general waiver for the first time.

[03:01:55] Speaker 06:
That's the reason for the lateness.

[03:01:57] Speaker 06:
As to your second question, I would challenge the premise.

[03:02:01] Speaker 06:
I don't believe

[03:02:02] Speaker 06:
And EPA did not find that the obligated parties are unfairly harmed.

[03:02:07] Speaker 06:
The RINS are available for use.

[03:02:09] Speaker 06:
And in fact, they had notice.

[03:02:11] Speaker 06:
EPA specifically looked at the notice that they had of what these volumes would be.

[03:02:16] Speaker 06:
In that 2014 proposed rule that was later withdrawn, EPA specifically requested comment on

[03:02:23] Speaker 06:
increasing the biomass-based diesel volumes above the 2013 levels and said production could be as high as 1.7 billion gallons.

[03:02:34] Speaker 06:
Then, in the June 2015 proposal to this rule, EPA proposed the precise volumes that are ultimately finalized for 2014, the approximate volumes for 2015 for what were compromised,

[03:02:51] Speaker 06:
And the amount of time they had between then and the compliance deadlines, which EPA extended, was tremendous.

[03:02:59] Speaker 06:
For the 2014 volumes, between proposal and compliance deadline is 14 months.

[03:03:05] Speaker 06:
For the 2015 volumes, the time between proposal and compliance deadline is 18 months.

[03:03:13] Speaker 06:
And it just goes up as you go.

[03:03:14] Speaker 08:
For the 2017... So as long as EPA gives them additional compliance time,

[03:03:19] Speaker 08:
your theory is, and I understand this, that it's reasonable for it's reasonable.

[03:03:31] Speaker 06:
I would hesitate to draw such a clear line.

[03:03:33] Speaker 06:
EPA did a number of things here to ensure that it was reasonable.

[03:03:45] Speaker 06:
They gave them a lot of time, extended the compliance deadlines.

[03:03:48] Speaker 06:
They did not raise these volumes for 2014 and 2015 higher than actual use, which some commenters asked them to do.

[03:03:58] Speaker 06:
And they took into account the role of these fuels in the industry, and they looked at

[03:04:06] Speaker 06:
Another thing they looked at, for example, was the statutory notice of advanced biofuel volumes.

[03:04:13] Speaker 06:
The biomass-based diesel industry knows that biomass-based diesel is one of the primary ways that obligated parties comply with their advanced biofuel obligations.

[03:04:24] Speaker 08:
That's a little bit of a bank shot, but I'll leave you on this issue.

[03:04:28] Speaker 06:
Okay, that works for me.

[03:04:31] Speaker 06:
So I guess to respond to your question, we simply think there's no equitable reason here, even if we're going to equity, there's no equitable reason why 1.28 billion gallons from 2013 should be the number here.

[03:04:45] Speaker 06:
There were actually more RINs used in these years.

[03:04:49] Speaker 06:
And in 2016 and 2017, while, yes, EPA was late, EPA also found that this is pretty easy to meet these standards.

[03:04:59] Speaker 06:
The industry is meeting these standards.

[03:05:01] Speaker 06:
And it's not difficult to do so.

[03:05:03] Speaker 06:
So EPA took into account all the hardship questions that EPA was instructed to take into account from NPRA in Monroe.

[03:05:13] Speaker 06:
Unless the court has further questions, we would ask that you deny these petitions as well.

[03:05:18] Speaker 06:
Okay, thank you.

[03:05:29] Speaker 04:
As the EPA has indicated, and I actually think that the petitioners have also indicated, we agree with EPA.

[03:05:40] Speaker 04:
We have no position on whether the

[03:05:42] Speaker 04:
point of obligation has been correctly placed or not.

[03:05:47] Speaker 04:
We disagree, and we have no position on whether they have an annual requirement to reconsider this.

[03:05:54] Speaker 04:
Our point is simply this, that the obligated parties are wrong to argue on the merits, and I think Judge Brown, this goes to a number of your questions, that EPA had to relocate the point of obligation

[03:06:10] Speaker 04:
in order to set standards that would effectively drive growth.

[03:06:14] Speaker 04:
The premise of their substantive argument, and this is an argument by those refiners that don't also blend.

[03:06:22] Speaker 04:
There are refiners that also blend.

[03:06:24] Speaker 04:
These are refiners that achieve their blending obligations by contracting with contract blenders.

[03:06:31] Speaker 04:
The premise of their argument is that, well, if you look at their balance sheets or if you look at their P&Ls,

[03:06:39] Speaker 04:
The refine – it is the refiners that are bearing the express costs of the renewable fuel standards while the blenders, the contract blenders, are reaping the express benefits.

[03:06:54] Speaker 04:
But EPA itself and their own experts

[03:06:59] Speaker 04:
concluded that that simplistic analysis ignores the fact that both costs and benefits are passed through the market as needed in order to achieve equilibrium.

[03:07:11] Speaker 04:
And so refiners and the refiners who don't blend pass their RIN costs, that is what they have to pay in order to buy RINs from blenders through to blenders in the form of higher blend stock pricing or

[03:07:29] Speaker 04:
to the renewable fuel producers in terms of lower costs for the renewable fuel.

[03:07:35] Speaker 04:
And the blenders pass the value that they earn on the rins that they sell.

[03:07:40] Speaker 04:
And recall, these rins have to be sold by contract blenders that year or the next year in order to demonstrate compliance.

[03:07:51] Speaker 04:
Otherwise, they become valueless.

[03:07:53] Speaker 04:
The value that these contract blenders earn on

[03:08:00] Speaker 04:
the sale of the rins to the refiners that aren't blending is either used to, depending on where the market constraint is in the system, either to build more blending or transportation or storage or whatever infrastructure needs to happen or

[03:08:22] Speaker 04:
to pass it on to retailers and ultimately consumers, depending on what the most efficient way is to reach an equilibrium that meets the mandated levels.

[03:08:34] Speaker 04:
And so as a result,

[03:08:43] Speaker 04:
But as the data shows and as even their experts agree, there is some dispute in the record over what percentage of the RIN prices that blenders charge refiners gets passed on to consumers.

[03:08:58] Speaker 04:
As our brief explains, that will depend on whether it is in the refiner's interest to pass it on to consumers or to create more facilities that will allow them more cheaply.

[03:09:10] Speaker 04:
to produce and distribute the transportation fuel that includes renewable fuel, the EPA found, and the interveners here don't dispute, that historically the blenders have passed on 44 percent of the RIN price to the consumers.

[03:09:35] Speaker 04:
That very fact alone

[03:09:37] Speaker 04:
defeats EPA's conclusion that the E85 discount over E10 can only be 22 percent.

[03:09:46] Speaker 04:
But the obligated parties, their argument basically is, well, this is all fine as a matter of economics, but in the real world this doesn't work, and that's why the point of obligation has to change.

[03:09:58] Speaker 04:
Contrary to their argument, it's not surprising that for the past year, that in the 2011-12-13,

[03:10:08] Speaker 04:
As RIN prices have occasionally increased, the number of E85 stations may have stayed the same or decreased or E85 prices in those past periods haven't dropped as much as they could.

[03:10:23] Speaker 04:
The renewable fuel standard level has never been set high enough to force increased E85 usage beyond what would have happened anyway.

[03:10:35] Speaker 04:
And absent a binding RFS level, which we have been at for several years, E85 station owners, most of whom are owned by refiners, make their best profits by charging monopoly prices to price-insensitive customers.

[03:10:55] Speaker 04:
Government fuel fleets are obligated to buy E85, even if it is no cheaper than and much more expensive than E10.

[03:11:05] Speaker 04:
And it is only when, and hopefully we will reach that day, when the renewable fuel standard is set to force increased E85 production, would you expect to see E85 prices decline significantly or the number of E85 stations increase

[03:11:29] Speaker 04:
if additional statements are necessary.

[03:11:31] Speaker 04:
And so our bottom line submission is if the argument is that you can only set standard – if the market will only effectively drive growth if the point of obligation has been changed from refiners who don't blend to blenders who don't refine.

[03:11:53] Speaker 04:
That argument as a matter of economics and as a matter of the historical record is incorrect.

[03:11:59] Speaker 04:
Thank you.

[03:12:14] Speaker 09:
Mr. Waxman and I have substantial disagreements about what the record says, but I'm not going to take a lot of the Court's time, because I don't think those disagreements are relevant to the legal issue that's presented, which is whether EPA should have considered all of these arguments in connection with moving the point of obligation.

[03:12:32] Speaker 09:
I can't let some of it go unrebutted, because I did spend an awful long time reading a lot of economist reports, and it's not fun.

[03:12:40] Speaker 09:
But the most simple way to respond is to say that the vast majority of the sites in the Intervener's brief is to a preliminary assessment that was done before the final rule was issued, and I think before the notice of proposed rulemaking, and that there was an updated assessment.

[03:12:57] Speaker 09:
And the preliminary assessment was all about theory.

[03:13:00] Speaker 09:
This is what should happen, theoretically.

[03:13:02] Speaker 09:
This is what should happen.

[03:13:04] Speaker 09:
And the updated report is this is what is happening.

[03:13:07] Speaker 09:
And what the updated report showed and what our comments amplified voluminously is that higher RIN prices were not resulting in more E85 getting to gas stations.

[03:13:23] Speaker 09:
And it wasn't resulting in that because the high RIN price was incentivizing blenders to profit from RINs that obligated refiners had to buy

[03:13:35] Speaker 09:
And the higher the RIN, the shorter we are on renewable fuel, the less we are meeting congressional obligations.

[03:13:43] Speaker 09:
It's bad when RIN prices are high.

[03:13:46] Speaker 09:
That final report was out before the final agency rule in this case?

[03:13:51] Speaker 09:
It was, I believe, yes.

[03:13:54] Speaker 09:
But it was not considered in connection with our comments.

[03:13:57] Speaker 09:
We have to be out before the final rule issued to be relevant to whether they would be part of the consideration here.

[03:14:04] Speaker 09:
Right, I believe it was.

[03:14:06] Speaker 09:
I'll double check if I'm wrong.

[03:14:07] Speaker 09:
I'll advise the court.

[03:14:09] Speaker 09:
You know, Mr. Waxman sort of made a casual reference to rent prices occasionally increased.

[03:14:14] Speaker 09:
Well, actually, what our comments showed was there was wild volatility in the rents market.

[03:14:21] Speaker 09:
Wild volatility and fraud.

[03:14:24] Speaker 09:
Because what was happening was anybody can buy a rent.

[03:14:27] Speaker 09:
You don't have to be an obligated party.

[03:14:29] Speaker 09:
You don't have to be a blender.

[03:14:29] Speaker 09:
You can call JP Morgan and buy a rent.

[03:14:32] Speaker 09:
And what the record shows is that people were speculating in rents, totally contrary to the purpose or intent of the statute, but allowable because of this misalignment in incentives.

[03:14:49] Speaker 09:
Blenders had, instead of being obligated, instead of needing those rents to comply with their obligations, they were incentivized to sell the JP Morgan in profit.

[03:14:59] Speaker 08:
We don't need to solve this to resolve the legal issue.

[03:15:01] Speaker 09:
No, you don't.

[03:15:02] Speaker 09:
And I'm not going to spend any more time on it, but I just couldn't let it go without response.

[03:15:12] Speaker 09:
The other question I wanted to answer was Judge Millett's question about timing.

[03:15:18] Speaker 09:
You know, many of these petitions were born of desperation because EPA refused to consider this issue in the rule.

[03:15:25] Speaker 09:
Many of them have been pending for well over a year, and it wasn't really until this appeal started that EPA acted on them, and the action was to propose to deny a rulemaking.

[03:15:38] Speaker 09:
So, like, how can that be a substitute for the rulemaking that's supposed to occur?

[03:15:43] Speaker 09:
It's just, it's all backward.

[03:15:46] Speaker 09:
And lastly, you obviously had a lot of questions about the waiver.

[03:15:51] Speaker 09:
And should those questions result in a change, it would be especially anomalous to leave the point of obligation

[03:16:03] Speaker 09:
without remand.

[03:16:04] Speaker 09:
You know, you use the phrase Judge Millett, we're scraping the bottom of the barrel.

[03:16:08] Speaker 09:
I think

[03:16:09] Speaker 09:
everybody here agrees that whatever standard is set, because of these constraints in the market, it's going to be very, very, very difficult to meet.

[03:16:18] Speaker 09:
And so the fact that the RIN market is not functioning adequately, the fact that there's all this evidence that constraints could be removed if the point of obligation were shifted just emphasizes the importance of this issue being considered on remand.

[03:16:34] Speaker 09:
Any further questions?

[03:16:36] Speaker 09:
Thank you.

[03:16:38] Speaker 09:
Thank you very much.

[03:16:40] Speaker 09:
Thank you to all counsel.

[03:16:41] Speaker 11:
The case will be submitted.