[00:00:04] Speaker ?:
Thank you.

[00:00:56] Speaker 10:
OEA, OEA, OEA, all persons having business before the Honorable, the United States Court of Appeals for the District of Columbia Circuit are admonished to draw near and give their attention for the Court is now sitting.

[00:01:11] Speaker 10:
God save the United States and its Honorable Court.

[00:01:13] Speaker 10:
Be seated, please.

[00:01:20] Speaker 10:
finding crack springs ink petitioner versus environmental protection agency case number

[00:01:38] Speaker 02:
Good morning, Mr. Killian.

[00:01:40] Speaker 02:
Just for Mr. Killian and all council, for the recording and the listening public, when you come forward, if you would each just announce your name and who you're representing.

[00:01:51] Speaker 04:
Sure thing, Your Honor.

[00:01:52] Speaker 04:
Good morning.

[00:01:53] Speaker 04:
I'm Brian Keely, and I represent the National Biodiesel Board.

[00:01:57] Speaker 04:
EPA purposefully set the 2018 biomass-based diesel volume below expected production, in fact, hundreds of millions of gallons lower than expected production, even though EPA found that a higher volume would have the same or better impacts on jobs, the environment, and other statutory factors.

[00:02:14] Speaker 04:
EPA based that decision on two primary considerations.

[00:02:17] Speaker 04:
First, EPA thinks that the advanced volume is and should be the sole driver of BBD production, and EPA wants to promote competition between biomass-based diesel and other advanced biofuels.

[00:02:30] Speaker 04:
Those two key considerations are nowhere to be found in O2B2, which is the statutory provision at issue, and EPA's approach to that section is contrary to the text, structure, and purpose of the renewable fuel statute.

[00:02:42] Speaker 04:
So, EPA's claims that the advanced volume matters more to production of BBD than the BBD volume does because of nesting, which is the feature in the renewable fuel standard that says that there's a portion of the advanced that's reserved for biomass-based diesel and cellulosic, and there's a portion of the total that's reserved for advanced.

[00:03:02] Speaker 04:
In other words, these fuel volumes relate to one another.

[00:03:06] Speaker 04:
But EPA's conception of this nesting flips it on its head because the manifest purpose, the reason why Congress separated BBD from the total advanced volume was to send a distinct market signal to the BBD industry.

[00:03:21] Speaker 04:
Congress wanted to encourage growth separate from the incentive that would otherwise be sent by just having an advanced volume or just having a total volume.

[00:03:30] Speaker 04:
And that conclusion, Your Honors, is confirmed by the timing that the statute prescribes for the setting of all of these volumes.

[00:03:36] Speaker 04:
The BBD volume is to be set 14 months before the year that it applies to, and then almost a year later, just a month before the same year, is EPA to set the advanced volume for that particular year.

[00:03:50] Speaker 04:
That shows that the advanced volume is supposed to be derived from the BBD volume, which is one of its components, and it's also derived from the cellulosic volume, which is another of its components.

[00:04:01] Speaker 04:
In other words, the BBD volume is an input into the advanced, and EPA has switched it and made the advanced the key part of developing the BBD industry.

[00:04:10] Speaker 04:
If EPA were correct, this view of nesting were correct, then all of the volumes could be collapsed by the agency into just one total volume that sends a signal to the entire renewable fuel market and encourages all renewable fuels just to compete with each other.

[00:04:24] Speaker 04:
But again, Congress's approach was to have distinct volumes for distinct types of fuels and to send distinct.

[00:04:31] Speaker 09:
What do you do with the statutory factors O2B2?

[00:04:36] Speaker 09:
Yes, Your Honor.

[00:04:37] Speaker 09:
I'm particularly thinking of Roman 1.

[00:04:40] Speaker 04:
Sure.

[00:04:41] Speaker 04:
So Roman won on the production and use of renewable fuel on the environment.

[00:04:47] Speaker 04:
So what EPA did with the factors in this case was it claims that the O2B2 factors support its view that the volume, the BBD volume, is less important than the advanced volume.

[00:04:59] Speaker 04:
And EPA erred because it asked the wrong question for each of these factors and then analyzed the wrong impacts.

[00:05:06] Speaker 04:
So what EPA said for each of these is,

[00:05:09] Speaker 04:
Does the biomass-based diesel volume have an impact on the production and use of renewable fuels?

[00:05:15] Speaker 04:
Does the biomass-based diesel volume have an impact on energy security of the United States?

[00:05:20] Speaker 04:
And it concluded that there is no impact on these characteristics because EPA analyzed the impacts not just of BBD, but of the advanced volume.

[00:05:31] Speaker 04:
If I give your honor an example, which I think is helpful,

[00:05:34] Speaker 04:
When EPA analyzed the air quality impact, which is part of Roman 1 for impact on the environment, EPA said it doesn't matter where we set the BBD volume because air quality is driven by advanced.

[00:05:47] Speaker 04:
And whether the BBD volume is low, then more other advanced will fill in up to the advanced volume.

[00:05:53] Speaker 04:
And if the BBD volume is relatively high, then less or fewer other advanced biofuels will come in.

[00:05:59] Speaker 04:
But at the end of the day, according to EPA,

[00:06:01] Speaker 04:
the same impact on the environment will obtain because it was looking at the impact of all advanced biofuels as an aggregate, rather than just the impact of the BBD industry, just the impact of BBD as a fuel.

[00:06:13] Speaker 06:
Right.

[00:06:13] Speaker 06:
So as I understand your position, the only assessment the agency is permitted to make is a comparison between BBD and fossil fuels.

[00:06:28] Speaker 06:
Right.

[00:06:28] Speaker 03:
Yes.

[00:06:29] Speaker 06:
As opposed to BBD versus other kinds of renewable fuels.

[00:06:33] Speaker 06:
Correct.

[00:06:35] Speaker 06:
So how do you reconcile that with two features of the statute in particular?

[00:06:41] Speaker 06:
One is the retrospective assessment, which is the review, is review of the program.

[00:06:49] Speaker 06:
Correct.

[00:06:50] Speaker 06:
And program is a term of art encompassing the renewable fuels program.

[00:06:56] Speaker 06:
And then the prospective analysis, which is in these factors, refers to future impact on renewable fuels, plural, with an S. And all of that would seem to at least make it permissible for the agency to assess

[00:07:16] Speaker 06:
Intra renewable fuel comparisons no less than renewable fuel versus fossil fuel.

[00:07:23] Speaker 04:
So if I could take those in the opposite order, Your Honor.

[00:07:25] Speaker 04:
First off, all of O2B2 speaks in the plural.

[00:07:29] Speaker 04:
And as we know from the Dictionary Act, when Congress uses the plural, it includes the singular and vice versa.

[00:07:34] Speaker 04:
And so in this instance, it's useful to start, the sentence is the applicable volumes of fuels, and it's speaking in the plural throughout all of this, and thus the reference to, we believe, renewable fuels in each of those six factors is appropriately read and can only be read as the renewable fuel that is the volume for which, the single volume for which is being set.

[00:07:57] Speaker 04:
You know, EPA was not setting multiple.

[00:07:59] Speaker 06:
So the Dictionary Act compels a conclusion that plural means singular?

[00:08:04] Speaker 04:
No.

[00:08:07] Speaker 04:
Well, yes and no.

[00:08:08] Speaker 04:
It says that you're allowed to look at these plurals and read them as singulars.

[00:08:14] Speaker 04:
And EPA must be reading them as singular here, because it is setting just a single volume, although the opening of the sentence is plural.

[00:08:21] Speaker 04:
That doesn't follow at all.

[00:08:23] Speaker 09:
different volumes with respect as different types of renewable fuels and reason that different mixes of mandate are best in terms of the industry prospering and there being new opportunities and so forth, with a beneficent effect on the environment.

[00:08:45] Speaker 04:
To that, Judge Williams, our position is that EPA is here setting just one volume.

[00:08:54] Speaker 04:
It's setting the BBD volume.

[00:08:56] Speaker 04:
If EPA wants to set the total advanced volume when it gets time to do that, which it does, as I was explaining, 12 months afterwards, then it would be at that time is the more appropriate time to consider the impacts of other advanced molecules.

[00:09:10] Speaker 02:
Are you reading fuels to mean the relevant fuel or fuels?

[00:09:15] Speaker 04:
that for which a volume is being set under O2P2.

[00:09:17] Speaker 02:
And so if it's advanced overall, then it would be fuels, otherwise it would be the one that's on the agenda for the decision.

[00:09:24] Speaker 04:
After the year 2022, when all statutory volumes end, then every renewable fuel will be subject to this provision.

[00:09:33] Speaker 04:
BBD is unique right now because it's the only biofuel that's off of the statutory table.

[00:09:39] Speaker 04:
And so you have references to all these plurals, but EPA is setting just a single volume and should be.

[00:09:44] Speaker 04:
from just sort of a rational perspective, also considering the impacts of that particular biofuel, because the conclusion it is trying to draw is, what is the appropriate volume?

[00:09:54] Speaker 04:
Now, EPA did not even ask the correct questions, though, and this is an important point.

[00:10:01] Speaker 04:
EPA assessed the impact of BBD by analyzing it against, analyzing the impacts of all advanced biofuels, and drew a conclusion from that that the BBD volume doesn't matter.

[00:10:14] Speaker 04:
The whole point of these factors is to help EPA come up with the number for the BBD volume, not for EPA to use it to reject Congress's decision that there should be a separate signal sent to the BBD industry.

[00:10:29] Speaker 04:
Now, when EPA took its analysis and tried to hang it onto the statutory text, Judge Katz, you asked about both parts of O2B2.

[00:10:39] Speaker 04:
We disagree with EPA on the scope of this retrospective review, but our position is that the text here, review and implementation, both require a backward-looking analysis.

[00:10:52] Speaker 04:
The fundamental point of disagreement .

[00:10:53] Speaker 04:
.

[00:10:53] Speaker 04:
.

[00:10:53] Speaker 06:
Of implementation of the entire program.

[00:10:55] Speaker 04:
Well, we believe, though, also that this is in the context of setting just a single volume.

[00:11:00] Speaker 04:
It should be the implementation of the program for that fuel.

[00:11:03] Speaker 04:
That's the one that makes the most sense.

[00:11:05] Speaker 04:
And what Congress is asking there is asking for EPA to check Congress's plan.

[00:11:10] Speaker 04:
Congress wrote the statute in 2007.

[00:11:12] Speaker 04:
It provided numerical volumes for many years forward.

[00:11:17] Speaker 04:
And so the review is supposed to be a review that looks backward.

[00:11:24] Speaker 04:
a backward-looking review of how was Congress's plan, did it actually meet?

[00:11:29] Speaker 04:
Did the reality match up with Congress's plan?

[00:11:34] Speaker 04:
What is not a part of that review, though, is the 2018 advanced biofuel volume.

[00:11:38] Speaker 04:
That is a future volume.

[00:11:40] Speaker 04:
That is a volume that was un-finalized even at the time EPA set the BBD volume.

[00:11:45] Speaker 04:
Yet throughout the rule-making document, throughout the final rule, EPA says, that's the volume that we want to use to send a signal to the BBD industry.

[00:11:53] Speaker 04:
And that cannot be part of a review of the implementation because that is the future volume that has not been set.

[00:12:00] Speaker 09:
You're out of time, but I just point out that the, I don't see anything in the language after specified in the tables.

[00:12:11] Speaker 09:
In other words, the language beginning and an analysis of factors one through six.

[00:12:17] Speaker 09:
That's the least bit retrospective.

[00:12:20] Speaker 09:
It's all about impacts.

[00:12:22] Speaker 09:
Impacts sound very forward-looking to me.

[00:12:24] Speaker 04:
Well, the impacts are certainly prospective, Your Honor, but the review of the implementation before the end.

[00:12:30] Speaker 04:
Yeah.

[00:12:30] Speaker 04:
So there's the retrospective part of the review plus the prospective part of the review.

[00:12:35] Speaker 04:
Right.

[00:12:36] Speaker 04:
Yes.

[00:12:36] Speaker 04:
I'm out of time, Your Honors.

[00:12:37] Speaker 04:
I guess I'll save the remainder for rebuttal unless there's particular questions that you have.

[00:12:40] Speaker 02:
All right.

[00:12:40] Speaker 02:
We'll give you a little bit of time for rebuttal.

[00:12:50] Speaker 08:
Good morning, your honors, and may it please the court.

[00:12:53] Speaker 08:
My name is Samara Spence.

[00:12:54] Speaker 08:
I'm here on behalf of EPA.

[00:12:56] Speaker 08:
With me at council's table is Patrick Jacoby, who you'll hear from later this morning, and Ryland Lee from EPA's Office of General Counsel.

[00:13:04] Speaker 08:
I think it's important to start here with what EPA did.

[00:13:06] Speaker 08:
EPA set the 2018 biomass-based diesel volume in a manner that would continue to support growth for the BBD industry by increasing the volume over the previous year.

[00:13:18] Speaker 08:
while at the same time not setting it so high that it would crowd out opportunities for other types of advanced biofuel.

[00:13:28] Speaker 08:
This decision was based on the statute.

[00:13:31] Speaker 08:
It was based on a review of implementation of the program and a review of the six factors.

[00:13:37] Speaker 08:
The key mistake that Petitioners is making is that

[00:13:41] Speaker 08:
These were not additional factors that EPA stuck in.

[00:13:44] Speaker 08:
These were facts in the record that advanced biofuel is the primary driver behind BBD use, advanced biofuel requirements rather than the BBD volume set here.

[00:13:56] Speaker 08:
And that as the higher EPA sets the mandatory BBD floor, the more that crowds out opportunities for these other kinds of advanced biofuels to come up.

[00:14:09] Speaker 08:
These underlying facts played into the six factor analysis.

[00:14:14] Speaker 08:
Both of them did.

[00:14:15] Speaker 02:
Can you just explain a little bit more when you say the advanced biofuel level is the primary driver and the biofuel board, biodiesel board does not seem to agree with you.

[00:14:29] Speaker 02:
I mean clearly a more targeted, for them a more targeted number for their industry drives more forcefully.

[00:14:37] Speaker 08:
Certainly, yes.

[00:14:40] Speaker 08:
So what EPA has seen in their review is that every year that they look back, more biomass-based diesel RINs have been retired than were required by the biomass-based diesel volumes.

[00:14:55] Speaker 08:
So a biomass-based diesel RIN satisfies three things at one time.

[00:14:59] Speaker 08:
The biomass-based diesel requirement, the advanced biofuel requirement, and the total renewable fuel requirement.

[00:15:06] Speaker 08:
And so what EPA has seen is that these RINs are being retired to satisfy the advanced biofuel requirement, even above what the biomass-based diesel requirement is.

[00:15:19] Speaker 08:
What EPA is also seeing is that

[00:15:22] Speaker 08:
As these other types of advanced biofuel are coming into the market, the higher the percentage of advanced biofuel that has to be BBD, the less opportunity there is for these other types of biofuel to come up in order to satisfy this advanced biofuel requirement.

[00:15:45] Speaker 08:
So if you look at how this played into the six factors, we cited the memo where EPA really goes through this in detail.

[00:15:54] Speaker 08:
It's the memo at JA 524.

[00:15:56] Speaker 08:
And then EPA also kind of summarizes it in the preamble.

[00:16:00] Speaker 08:
What they said was over time more diverse fuels, more diverse advanced biofuels specifically improves energy security and it has the potential to reduce fuel cost.

[00:16:15] Speaker 08:
They also looked at, Judge Williams you asked about the impact on the environment factor.

[00:16:21] Speaker 08:
That factor in the memo is sort of broken down into different types of environmental impacts and two of them are especially relevant here.

[00:16:29] Speaker 08:
Certain types of advanced biofuels like ethanol from food waste have lower greenhouse gas emissions over their life cycle than BBD and have lower impacts on things like habitat and wetlands than BBD.

[00:16:48] Speaker 08:
And so what EPA said was, well, over time, if you leave room for these other types of fuels to come up, this could have a positive impact on the environment.

[00:16:58] Speaker 06:
So can I just ask, as I understand it, the cellulosic biofuels have to be 60% friendlier than the fossil fuels.

[00:17:10] Speaker 06:
Yes.

[00:17:10] Speaker 06:
And the overarching biofuel, advanced biofuel category has to be 50%.

[00:17:17] Speaker 08:
That's correct.

[00:17:18] Speaker 06:
What is the associated number for BBD?

[00:17:23] Speaker 08:
It's also 50%.

[00:17:24] Speaker 08:
But keep in mind that that is a statutory minimum.

[00:17:28] Speaker 08:
So something within that category can be higher.

[00:17:31] Speaker 08:
I believe what the EPA's memo says as to, for example, ethanol from food waste.

[00:17:37] Speaker 06:
Does the record have information one way or the other?

[00:17:41] Speaker 06:
on the question whether, in fact, BBD as a category is more environmentally friendly than advanced biofuels that are not BBD?

[00:17:54] Speaker 08:
Yes, Your Honor, there's a whole discussion of that in the memo at JA524.

[00:17:58] Speaker 08:
And in some ways, not necessarily, but in some ways, maybe.

[00:18:04] Speaker 08:
And so if you look at what EPA is doing, they're saying, well, there are these other kinds of biofuels here.

[00:18:10] Speaker 08:
They listed them.

[00:18:11] Speaker 08:
They discussed them generally.

[00:18:12] Speaker 08:
And they said, well, some of them do have a potential to have a better, for example, greenhouse gas benefit.

[00:18:18] Speaker 08:
And so Mr. Killian is right that EPA concluded that in the short term, right now,

[00:18:23] Speaker 08:
the difference that biomass-based diesel is going to make, I'm sorry, the difference that the volume set here is going to make is going to be marginal.

[00:18:33] Speaker 08:
For all of these factors, the difference one way or the other is probably going to be marginal.

[00:18:37] Speaker 08:
But in the long term, we might see something else.

[00:18:41] Speaker 08:
And that's why EPA is maintaining this space for incentives.

[00:18:45] Speaker 08:
And that was really the only fact in the record that tended

[00:18:50] Speaker 08:
to push the use of this balancing test in one way or another.

[00:18:55] Speaker 08:
So, Ms.

[00:18:56] Speaker 02:
Spence, you're relying really on the nestedness, the whole sort of structure of the relationship between these different fuels, and also on the consideration of the six factors.

[00:19:06] Speaker 08:
Well, so the nested structure of the statute, EPA sort of treated that as

[00:19:12] Speaker 08:
It's looking at the background facts.

[00:19:14] Speaker 08:
This was the review of implementation of the program.

[00:19:16] Speaker 08:
How is the program functioning?

[00:19:18] Speaker 08:
How are these fuels relating to one another in the market?

[00:19:22] Speaker 08:
And these are just facts found in the record.

[00:19:26] Speaker 08:
And then those things were part of this factor analysis.

[00:19:30] Speaker 08:
We don't think EPA can just ignore known facts when going through these factors.

[00:19:38] Speaker 08:
They have to ask, well, how does this impact the factors?

[00:19:43] Speaker 08:
And finally, I want to point out before I conclude, yes.

[00:19:48] Speaker 09:
You're simply saying that the requirement to look at, I'm missing the phrase, but the

[00:19:58] Speaker 09:
the past, the one clause informs the application of the next clause with the six factors.

[00:20:07] Speaker 08:
Yes, absolutely.

[00:20:08] Speaker 08:
That's precisely correct, yes.

[00:20:14] Speaker 08:
One final thing I would like to put out there before I conclude is that the way EPA did this is entirely consistent with the structure of the statute.

[00:20:23] Speaker 08:
If you look at the statutory tables, up through 2012, EPA had mandatory increasing BBD volumes.

[00:20:30] Speaker 08:
And then as of 2012, that minimum has been 1 billion gallons, and it stayed that way.

[00:20:35] Speaker 08:
But during that same period of time, the advanced volume has continued to go up.

[00:20:40] Speaker 08:
The mandatory advanced volume has continued to go up.

[00:20:42] Speaker 08:
So the gap between what the statute requires between those two numbers, it's a little complicated math because you have to subtract cellulosic out of it.

[00:20:51] Speaker 08:
But it's basically, it was 0.5 billion gallons in 2012, and it's four billion gallons in 2008.

[00:20:57] Speaker 08:
So you have to look at there and say, well, Congress was thinking there might be other advanced biofuels in there.

[00:21:04] Speaker 08:
And these factors are all relevant to that.

[00:21:08] Speaker 02:
And nonetheless, the demand poll is continuing to create some incentives for BBD.

[00:21:14] Speaker 08:
That's absolutely correct.

[00:21:15] Speaker 08:
The mandatory 2.1 billion gallons ensures that they have at least 2.1 billion gallons of the advanced category.

[00:21:25] Speaker 08:
And they may also fulfill more than that.

[00:21:28] Speaker 08:
And in fact, there's still demand pressure from the advanced biofuel volume that was later set in 2008.

[00:21:34] Speaker 08:
And that's just by design of the statute.

[00:21:38] Speaker 08:
So if you have no further questions, we ask that these claims be denied.

[00:21:50] Speaker 07:
Good morning, Your Honors.

[00:21:56] Speaker 07:
No, that's as high as it goes.

[00:21:57] Speaker 07:
Thomas Lorenzen on behalf of the obligated party interveners in support of EPA on the biomass-based diesel issues.

[00:22:04] Speaker 07:
I was going to start with standing, but I want to just follow up on a couple things that Ms.

[00:22:08] Speaker 07:
Spence said before I turn to that, which is that I think EPA has the construction of the statute right here.

[00:22:15] Speaker 07:
Yes, the statute does require a retrospective evaluation of the implementation of the program.

[00:22:23] Speaker 07:
Judge Katz, I already had the word program underlined in my notes before you spoke, but I'm glad you pointed to that, because it really is about looking back at the whole program.

[00:22:33] Speaker 07:
And as EPA looks backwards at the program's implementation, what they see is, first of all, Congress did cease to raise the mandatory volumes for biomass-based diesel

[00:22:44] Speaker 07:
in 2012 at one billion gallons.

[00:22:48] Speaker 07:
But they also continued to raise the annual volumetric requirements every year, and every year biomass-based diesel volumes have exceeded that.

[00:22:57] Speaker 07:
So what is driving that?

[00:22:59] Speaker 07:
I think EPA rationally concludes that it's being driven by the advanced biofuel volumes and by the total renewable fuel volumes because BBD RINs can be used to satisfy any of those things.

[00:23:13] Speaker 07:
Now, looking forward... But their position is it would be more effectively driven if it was focused on... Well, but now, and that turns to the standing question.

[00:23:22] Speaker 07:
I don't think that they have demonstrated standing here.

[00:23:24] Speaker 07:
Remember, under Sierra Club, it is the obligation of a petitioner to demonstrate its standing at the earliest point in the litigation, which is its opening brief.

[00:23:31] Speaker 02:
If it's not self-evident in the record, and the record reflects that they represent the entire industry, and it's regulated by this rule that affects it vis-a-vis its competitors.

[00:23:43] Speaker 07:
It's not regulated.

[00:23:45] Speaker 07:
We are the obligated parties who have obligations under this regulation.

[00:23:49] Speaker 07:
They benefit, they argue, from the regulation and the volumes that are set.

[00:23:53] Speaker 07:
But what the record shows is that the volumes they produce every year in fact exceed the volumes EPA has set.

[00:24:00] Speaker 07:
They're not constrained by this rule in any way and in fact the market drives production.

[00:24:04] Speaker 07:
So one thing that they don't have in their brief or any declarations from any members showing that this negative feedback loop that they

[00:24:13] Speaker 07:
talk about is a real thing.

[00:24:15] Speaker 07:
It's entirely speculative.

[00:24:17] Speaker 06:
But our competitor standing cases seem to recognize the ability of a competitor in one industry to argue that the government is not sufficiently regulating competitors.

[00:24:38] Speaker 07:
understood but I think again this is a failure of proof that they're actually injured here rather than could they demonstrate standing under competitor standing principles possibly but they haven't tried to make that case so what would they need they would need declarations from members saying of the

[00:24:56] Speaker 07:
of their, yes, members of the National Biodiesel Board saying our production is in fact constrained by this rule.

[00:25:04] Speaker 07:
In fact, every year, however, production has exceeded the volumes that EPA has set, which in fact are far beyond the volumes that Congress has mandated.

[00:25:14] Speaker 09:
Now, as for, I said, it's a general matter that beneficiaries of a government mandate to have other people buy their product

[00:25:25] Speaker 09:
have no standing because at the particular moment of the suit, they're not clearly dependent on the mandate for them.

[00:25:35] Speaker 07:
Well, I think if they could have shown that at some point they could have shown that they were injured by the mandates, if their volume was constrained by them, that would have been something.

[00:25:48] Speaker 07:
Or if they could show, such as through economic analysis, that they could have submitted, that in fact there is this negative feedback loop that will operate in the future, but they haven't done that.

[00:25:58] Speaker 02:
I may be wrong, but as I understand it, they're relying on just a basic economic logic that if a higher proportion of the targets were limited to BBD,

[00:26:17] Speaker 02:
they would be more advantaged than when they are generally applied to the broader category of advanced.

[00:26:24] Speaker 07:
Again, I think that is that speculation because they have not shown at any point that they've been constrained by the volumes that EPA has actually mandated.

[00:26:31] Speaker 07:
Every year their production has exceeded that.

[00:26:34] Speaker 02:
Do you have any case in which we have failed to recognize standing because of a failure to more concretely document the kind of competitive phenomenon that BBD appears to be relying on?

[00:26:47] Speaker 07:
Well, I think there's plenty of cases, and I don't have a specific one in mind.

[00:26:50] Speaker 07:
But in the competitor kind of area?

[00:26:52] Speaker 07:
I have not seen one like this, no.

[00:26:54] Speaker 07:
But I think this is a somewhat unique circumstance.

[00:26:56] Speaker 07:
They could have made this case, they didn't.

[00:26:59] Speaker 07:
I am well over my time if your honors have any more questions, otherwise I think the Department of Justice has adequately represented our views as well on how the statute should be implemented in red.

[00:27:10] Speaker 07:
Thank you, your honors.

[00:27:15] Speaker 02:
Mr. Killian will give you two minutes.

[00:27:17] Speaker 04:
Thank you, Judge Pillard.

[00:27:20] Speaker 04:
We agree that there's a retrospective and a prospective part of the analysis in O2B2.

[00:27:24] Speaker 04:
The question is, what is EPA examining?

[00:27:27] Speaker 04:
And EPA here was examining not what should the volume be, but whether the volume, the BBD volume, is significant.

[00:27:34] Speaker 04:
It says on page 53 of the Joint Appendix in the heart of the analysis, our primary assessment

[00:27:40] Speaker 04:
of the statutory factors for the final 2018 BBD volume is that because the BBD requirement is nested within the advanced biofuel volume requirement,

[00:27:50] Speaker 04:
We expect that the final 2018 advanced volume requirement, when set next year, will largely determine the level of BBD production.

[00:27:58] Speaker 04:
Our objection is that EPA failed to do what it was supposed to do under O2B2 and set a BBD volume that encourages the growth of the BBD industry.

[00:28:08] Speaker 04:
The government argued a moment ago that

[00:28:11] Speaker 04:
that BBD is crowding out other advanced biofuels because we've been exceeding the target.

[00:28:16] Speaker 04:
But what the government is failing to acknowledge is that the government is lowering the advanced biofuel volume every year, enforcing this tension between the two.

[00:28:26] Speaker 02:
But it seems like you would have an argument if this was a cap, but it's not.

[00:28:30] Speaker 04:
No, but the government is assuming that the 2018 advanced biofuel volume is a cap, and that's what I'm trying to... No, if the BBD amount were a cap, then it would be restricted.

[00:28:41] Speaker 04:
That would be a different case completely.

[00:28:43] Speaker 04:
I agree.

[00:28:44] Speaker 04:
Our point is that the floor is higher based on the BBD production and BBD impacts that will continue to encourage growth.

[00:28:51] Speaker 04:
of the BBD industry.

[00:28:53] Speaker 04:
What EPA complains about here is the impacts on other advanced biofuels.

[00:28:57] Speaker 04:
And our, I guess the heart of our analysis is that 12 months later, after EPA sets the BBD volume, EPA will set the advanced volume.

[00:29:06] Speaker 04:
And it is at that time that EPA, it is appropriate for EPA to consider other advanced biofuels.

[00:29:12] Speaker 04:
It could take the BBD volume it set at the end of 2016, add the cellulosic volume that it's required to set, and then

[00:29:19] Speaker 04:
add an additional component that promotes the growth of other advanced biofuels.

[00:29:24] Speaker 09:
Just to be clear, going back to a colloquy between you and Judge Katzis, does your argument depend on the proposition, two propositions, that in O2B2R1, the reference to renewable fuels means only the renewable fuel in question?

[00:29:47] Speaker 04:
That is, yes, that is a part of our argument.

[00:29:49] Speaker 04:
And an essential part of it.

[00:29:51] Speaker 04:
Correct.

[00:29:51] Speaker 04:
And our view is that it would be irrational for EPA to set the BBD volume based on the impacts of ethanol.

[00:29:58] Speaker 04:
Ethanol is good for the environment, therefore we'll set the BBD volume at 2 billion.

[00:30:01] Speaker 04:
That would not logically follow as a conclusion.

[00:30:04] Speaker 04:
Why is it irrational?

[00:30:06] Speaker 06:
I mean that statute, the data point we have from Congress is a billion barrels in 2012 as the floor.

[00:30:16] Speaker 06:
They're giving you 2.1 billion and then they're adjusting for the fact that some other kinds of advanced biofuels might be as good if not better in terms of environmental impacts.

[00:30:32] Speaker 04:
If I may answer your question, Judge Katz, it's that those impacts would be appropriate to consider when setting the volume that those fuels are covered by.

[00:30:43] Speaker 04:
Those fuels are covered by the total advance volume.

[00:30:46] Speaker 04:
They're not covered by the BBD volume.

[00:30:48] Speaker 04:
And that once the BBD volume is set based on BBD production and BBD impacts,

[00:30:52] Speaker 04:
Then, 12 months later, EPA can consider how large to make the rest of the advanced volume in order to accommodate whatever growth it wants to encourage for those other biofuels.

[00:31:03] Speaker 04:
Thank you very much, Your Honors.

[00:31:04] Speaker 02:
Thank you.

[00:31:06] Speaker 02:
All right.

[00:31:07] Speaker 02:
We next address the obligated party petitioners' volumetric claims.

[00:31:12] Speaker 02:
And in this one, I think Mr. Lorenzen is first.

[00:31:25] Speaker 07:
Good morning again.

[00:31:26] Speaker 07:
Thomas Lorenzen on behalf of the obligated party petitioners this time.

[00:31:31] Speaker 07:
Your honors, I had reserved two minutes for rebuttal.

[00:31:36] Speaker 07:
I noticed the clock is showing 10.

[00:31:40] Speaker 07:
Very good.

[00:31:40] Speaker 07:
Thank you.

[00:31:42] Speaker 07:
Two points I'd like to address today, and then Ms.

[00:31:45] Speaker 07:
Klein will be addressing point of obligation issues in the case.

[00:31:48] Speaker 07:
The points that I would like to address are first,

[00:31:51] Speaker 07:
that as this court held in the American Petroleum Institute case a number of years ago, EPA is required in setting the cellulosic fuel volumes to take a neutral aim accuracy.

[00:32:02] Speaker 07:
when it is projecting those volumes.

[00:32:04] Speaker 07:
Now, the methodology that EPA has been using for the past years is biased in favor of overestimation because it simply takes no account of.

[00:32:14] Speaker 09:
Which years are we talking about that seems critical in this context?

[00:32:18] Speaker 07:
In prior years, while we're talking about, EPA says that they've been sort of

[00:32:24] Speaker 07:
using the methodology they used in 2015 and 2016.

[00:32:27] Speaker 07:
2016, they substantially over predicted how much cellulosic biofuel would be produced.

[00:32:35] Speaker 07:
I believe it was 39 million gallons.

[00:32:38] Speaker 07:
2015 was the one year where they under-projected, but they used nine months of the year it was actual production.

[00:32:45] Speaker 06:
What was the first year governed by the new methodology after they tried to fix the bias

[00:32:55] Speaker 07:
Well, they use that methodology in part in 2015 for that last quarter.

[00:33:00] Speaker 07:
And then they've used it again in 2016.

[00:33:02] Speaker 06:
So you have a year and a quarter.

[00:33:06] Speaker 07:
You have a year and a quarter, but what the methodology.

[00:33:08] Speaker 06:
So the claim of chronic underestimation seems like a bit of an overstatement.

[00:33:14] Speaker 07:
Well, I think there is a fundamental flaw that goes back even further, which is that the methodology that they use takes no account of the possibility of failure.

[00:33:25] Speaker 07:
by producers in the industry, that people may not continue to produce cellulosic biofuels.

[00:33:33] Speaker 02:
But they do explicitly recognize that.

[00:33:35] Speaker 02:
I mean, it's a bumpy, you know, it's a new-ish industry, and EPA does recognize that there's some failures, there's some spurts forward.

[00:33:44] Speaker 07:
Well, they do recognize that that's out there, but they say, we're not going to take account of it because we don't want the experience of one or two producers to be affecting this thing.

[00:33:52] Speaker 07:
But I would say that's when the industry is in its nascency is exactly when you have to contemplate that people may fail.

[00:34:02] Speaker 07:
I mean, during 2016, two producers on which EPA based its volumetric projections failed.

[00:34:10] Speaker 07:
The methodology that EPA uses, on the other hand, assumes that every producer in the industry will at minimum produce what they produced the prior year.

[00:34:19] Speaker 09:
That's not quite true.

[00:34:20] Speaker 09:
That's not quite true because the assumption is only one of averages.

[00:34:25] Speaker 09:
And within averages, there can be some that go bankrupt and some that flourish.

[00:34:31] Speaker 09:
So it's not an assumption that every firm

[00:34:34] Speaker 09:
will expand.

[00:34:35] Speaker 07:
Well, but the base figure that they use, the bottom end of the range, is actual production during the previous 12 months.

[00:34:42] Speaker 07:
There is no contemplation that production might actually go down during the next year.

[00:34:49] Speaker 09:
And that's the flaw.

[00:34:50] Speaker 09:
In fairness to EPA, I couldn't say there's a contemplation of it, but I believe that it is outweighed by the probability of expansion.

[00:35:03] Speaker 07:
Well, but the volumes don't show that there are these new entrants each year.

[00:35:07] Speaker 07:
I mean, what they do show and what EPA's methodology takes account of is people who are out there in business but they haven't produced in commercial volumes.

[00:35:15] Speaker 07:
They don't take account of people who haven't entered into the business yet because the lead time is too long.

[00:35:21] Speaker 07:
And that I think is correct.

[00:35:23] Speaker 07:
But everything assumes that volumes will increase every year.

[00:35:26] Speaker 07:
And indeed, you know, for 2018, EPA has abandoned the methodology they used in 2017 precisely because it over predicts.

[00:35:35] Speaker 07:
All their methodologies have over predicted.

[00:35:37] Speaker 07:
So now instead of using the 50th

[00:35:40] Speaker 07:
and 25th percentiles, they're using the 10th and 12th.

[00:35:44] Speaker 07:
And I think that still poses a danger of over-projection.

[00:35:47] Speaker 02:
We're talking about 2017 levels.

[00:35:49] Speaker 07:
We are.

[00:35:50] Speaker 02:
Will these claims be moot by the end of the year, given that?

[00:35:53] Speaker 07:
No, they will not be moot.

[00:35:55] Speaker 07:
Because, well, first of all, I should note that for every gallon by which EPA over-projects, obligated parties are required to purchase

[00:36:07] Speaker 07:
cellulosic biofuel rins or credits at a cost of about $2 per gallon.

[00:36:14] Speaker 07:
So there's 161 million, I'm sorry, there's 61 million gallon shortfall.

[00:36:19] Speaker 07:
That's $122 million penalty.

[00:36:22] Speaker 07:
to this industry for EPA's failure to get this right.

[00:36:25] Speaker 07:
Now, EPA can remedy this by providing refunds of those credits or providing compliance mechanisms for future years that give credit for that.

[00:36:35] Speaker 07:
So the court can remedy this.

[00:36:36] Speaker 07:
Otherwise, we have a situation where each year

[00:36:40] Speaker 07:
EPA's analysis is really not subject to review, because it's too late by the time we get to your honors to correct it, because we're into the next year.

[00:36:49] Speaker 02:
So you're arguing capable of repetition yet evading review?

[00:36:52] Speaker 07:
Well, no, it's not capable of repetition yet evading review.

[00:36:55] Speaker 07:
I think your honors can remedy this.

[00:36:58] Speaker 07:
You can remedy it by remanding this to EPA and directing them, A, to correct the methodology they use for this year, and B, to use their statutory mechanisms to provide relief

[00:37:09] Speaker 07:
for the overestimation that they engaged in.

[00:37:13] Speaker 07:
So I think there is the ability for this court and for EPA to remedy that wrong.

[00:37:18] Speaker 07:
So it's not capable of repetition yet evasion review.

[00:37:21] Speaker 07:
It's just that this program happens once a year.

[00:37:25] Speaker 07:
And by the time it's done and by the time it's through the court, we're into the next year.

[00:37:29] Speaker 07:
So you have RINS that you don't retire.

[00:37:33] Speaker 07:
Is that what you're claiming?

[00:37:35] Speaker 07:
No, no, no.

[00:37:38] Speaker 07:
there are not enough cellulosic biofuel RINs to actually cover the RIN volume they're obligated to purchase.

[00:37:45] Speaker 07:
So the EPA issues cellulosic biofuel credits that cost an additional amount.

[00:37:51] Speaker 07:
So you have to buy another RIN and then pay this additional fee on top of it to make up for the fact that there are inadequate cellulosic biofuel RINs.

[00:38:00] Speaker 07:
And that is a significant burden on the industry.

[00:38:03] Speaker 07:
Now, this is why EPA is supposed to be taking a neutral aim at accuracy here and not putting its thumb on the scale in favor of overproduction.

[00:38:10] Speaker 07:
I mean, what we're seeing is that the percentage by which EPA is overshooting is actually increasing.

[00:38:18] Speaker 07:
It was about 16% in 2016.

[00:38:21] Speaker 07:
It was 19% in 2017.

[00:38:24] Speaker 06:
The 2016 was all they had at the relevant time for this year, correct?

[00:38:33] Speaker 07:
Well, they had the... And a little bit of 2015.

[00:38:37] Speaker 06:
Yes, and a little bit of 2015, but we pointed out to them the problems with their methodology, which is... So you have one year where the prediction is off by something on the order of 15%.

[00:38:51] Speaker 06:
Is there any case that says it's arbitrary and capricious to continue using an estimate which has that sort of track record?

[00:39:03] Speaker 07:
I would say your honor's opinion in the American Petroleum Institute case, which says the longer you continue to use a methodology that is about projections, the more likely it is to be arbitrary and capricious.

[00:39:15] Speaker 06:
That was a case where the agency explicitly said we're being result oriented.

[00:39:21] Speaker 06:
We're coming up with a number that is higher than what we think is the expectation in order to create incentives.

[00:39:29] Speaker 06:
This is a case where they say this is their best neutral judgment and your argument against that is that the metrics they're using were off in one year by 15%.

[00:39:46] Speaker 07:
Yes, but the methodology, again, simply takes no account of the possibility of failure of entities in this industry, which has been shown, and it's understandable you would have failures as an industry as in its nascency.

[00:40:00] Speaker 02:
It is, but that's precisely why your argument is a little bit perverse.

[00:40:03] Speaker 02:
I mean, if you consider the kindergarten teacher who has a small class and, you know, there's a big fail or two.

[00:40:11] Speaker 02:
Is it required that that teacher should then radically lower the standards for everybody?

[00:40:17] Speaker 02:
I would think not.

[00:40:18] Speaker 07:
No, but I think that it doesn't affect others the way it affects industry here.

[00:40:24] Speaker 07:
Again, for every gallon the EPA overestimates here, there's a $2 penalty to the industry.

[00:40:29] Speaker 07:
And what EPA should be striving for, and they say this in their brief, they say, hey, we're over sometimes, we're under sometimes.

[00:40:36] Speaker 07:
The only instance in which they were over was 2015, where they based nine years or nine months of the year on actual data.

[00:40:42] Speaker 07:
But every year, other than that, they have significantly overshot.

[00:40:46] Speaker 07:
What you'd like to see is something that looks like a little bell curve around neutral aim and accuracy.

[00:40:51] Speaker 07:
A little bit over one year, a little bit under the next.

[00:40:53] Speaker 09:
It's hard to get a bell curve out of one and a quarter years.

[00:40:56] Speaker 07:
I'm sorry, your honor, I missed it.

[00:40:57] Speaker 09:
It's hard to get a bell curve out of one and a quarter years.

[00:41:01] Speaker 07:
Well, they have now

[00:41:03] Speaker 07:
They have now rejected the methodology that they used in 2016 and 2017.

[00:41:09] Speaker 09:
It seems a little unfair for you to use that, because that shows an EPA learning process, at least as described by you.

[00:41:16] Speaker 07:
Well, and we think they should have learned from 2016.

[00:41:18] Speaker 07:
It's not as if we didn't point this out to them.

[00:41:20] Speaker 07:
We did show them what was happening in 2016 and why we believe they had overshot.

[00:41:25] Speaker 07:
And we suggested that they look instead at actual production.

[00:41:29] Speaker 07:
You can adjust that, of course.

[00:41:31] Speaker 07:
But continuing to use this percentile method where you're assuming production will always increase from the baseline is, we believe, not what this court expected EPA to do under the cellulosic biofuel provisions.

[00:41:47] Speaker 07:
I have clean used up my time and I haven't addressed my second issue.

[00:41:51] Speaker 07:
I don't know if I might take a second or a minute to... Why don't you take a minute to do that?

[00:41:55] Speaker 07:
Thank you.

[00:41:56] Speaker 07:
And this just has to do with

[00:41:59] Speaker 07:
the remainder of the volumes, and there are lots of flaws with the remainder of the volumes, but the main problem with them is that we're talking now about exercise of EPA's Cellulosic Waiver Authority, not the General Waiver Authority where you only look at constraints on production of biofuels, renewable fuels.

[00:42:17] Speaker 07:
You're looking at constraints on the ability of the market to use that, and thus the availability of excess volumes for other biofuels to fill in.

[00:42:26] Speaker 07:
And what EPA does here is they ignore

[00:42:29] Speaker 07:
critical facts in doing things like estimating the E0 volume.

[00:42:34] Speaker 07:
They say that they believe use of E0 is going to decline from 700 million gallons in 2015 to 200 million gallons in 2017.

[00:42:45] Speaker 07:
That 200 million gallons is less than the amount of E0 that was used in Iowa.

[00:42:53] Speaker 07:
in 2015, where they used 220 million gallons.

[00:42:57] Speaker 07:
And E0 is used primarily in marine vessels, boats, recreational boats.

[00:43:02] Speaker 07:
The fact that they're using more than 200 million gallons in one state that actually doesn't have a whole lot of lakes is indicative of the fact that they're likely way off.

[00:43:11] Speaker 07:
The EIA estimate

[00:43:12] Speaker 07:
of E0 is over 5 billion gallons and has been.

[00:43:17] Speaker 07:
Similar problems with sugarcane ethanol.

[00:43:22] Speaker 07:
They assume the same level of production in 2016, even though they say there's been no changes in the industry and even though actual production has been far below that.

[00:43:32] Speaker 02:
Okay, I have used my time.

[00:43:33] Speaker 02:
Thank you.

[00:43:33] Speaker 07:
Thank you, Mr. Lawrence.

[00:43:47] Speaker 08:
Hello again, this is Samara Spence on behalf of EPA again.

[00:43:51] Speaker 08:
I'd like to very quickly talk about these cellulosic projection claims, but I don't want to belabor the point.

[00:43:58] Speaker 08:
The key case for the court to look at here for the standard, I believe the best case is going to be rural cellular, which is cited in our brief.

[00:44:07] Speaker 08:
What that case holds is that when an agency's task is predictive, arbitrary and capricious review is even more deferential.

[00:44:16] Speaker 08:
What the agency has to do is acknowledge uncertainties and explain what it found to be persuasive.

[00:44:21] Speaker 08:
The court is absolutely correct.

[00:44:24] Speaker 08:
API, the only thing it held was that EPA cannot tilt cellulosic projections in favor of one direction or the other.

[00:44:34] Speaker 08:
The methodology has to be neutral.

[00:44:37] Speaker 08:
I think the court seems to understand the history of this particular methodology.

[00:44:41] Speaker 08:
And as we explained in the brief, EPA went into detail sort of assessing the accuracy of that.

[00:44:49] Speaker 08:
How did it fare in 2015 and 2016 insofar as it had data?

[00:44:55] Speaker 08:
EPA said it needed another year worth of data before tweaking it.

[00:44:58] Speaker 08:
And while this isn't in the record, my counsel did bring up the 2018 methodology, and EPA

[00:45:07] Speaker 08:
tweak this methodology further based on data it found later.

[00:45:11] Speaker 02:
And isn't it the case that this is a, it's not just predictive, but that it's trying to push the creation of or the growth of an industry as opposed to predicting, let's say, you know, a natural phenomena.

[00:45:27] Speaker 02:
It seems like it's actually a very, in a way, by its nature, kind of counterfactual thing to be predicting.

[00:45:34] Speaker 02:
It seems like a particularly difficult kind of prediction.

[00:45:36] Speaker 08:
So it's an interesting question you raise.

[00:45:39] Speaker 08:
As a whole, the RFS program is supposed to push growth of an industry.

[00:45:44] Speaker 08:
This is a brand new industry.

[00:45:45] Speaker 08:
But what this case held in API was that when resolving uncertainties, EPA may not

[00:45:53] Speaker 08:
put its thumb on the scale of over projecting because the statute treats cellulosic production differently.

[00:46:00] Speaker 08:
So EPA does have to attempt to get the best estimate that it can.

[00:46:06] Speaker 08:
But as this court held in rural cellular, it's impossible to be certain about what will happen in the future.

[00:46:14] Speaker 02:
When EPA was calculating the E0, E15, and E85, was it seeking to determine general waiver authority or cellulosic waiver authority?

[00:46:31] Speaker 08:
I'm so glad you asked that question, because that goes to the heart of the problem with the cellulosic waiver claims.

[00:46:37] Speaker 08:
So let's move to those, because I think those are very different from the cellulosic projection claims.

[00:46:47] Speaker 08:
What EPA did, they first looked at exercising the cellulosic waiver.

[00:46:54] Speaker 08:
They analyzed how much advanced biofuel could backfill for the shortfall in cellulosic.

[00:47:00] Speaker 08:
And then they used what they call their equal reductions interpretation, which they've been using for a number of years.

[00:47:07] Speaker 08:
And they lowered total to match what they got to with advanced.

[00:47:11] Speaker 08:
That whole analysis in the record, to answer your question,

[00:47:16] Speaker 08:
about E0, E15, E85.

[00:47:19] Speaker 08:
This was all a demand side analysis considering whether to exercise the general waiver.

[00:47:25] Speaker 08:
This language is very, very clear.

[00:47:27] Speaker 08:
I think the best, the easiest part of the record to understand this is to read 81 Federal Register 89773, which is in the record at JA 28.

[00:47:39] Speaker 08:
EPA says very clearly, having determined that we should establish the advanced biofuel at a particular level and applying equal reductions yields a particular number.

[00:47:51] Speaker 08:
If we were to determine that there's an inadequate domestic supply, then we can exercise the general waiver.

[00:47:57] Speaker 08:
However, we find no supply problem.

[00:48:00] Speaker 08:
So what EPA was doing in the ethanol blend analysis was this demand side,

[00:48:08] Speaker 08:
analysis of whether to exercise the general waiver.

[00:48:11] Speaker 08:
You have to keep in mind that this analysis was done before this court's opinion in ACE came out.

[00:48:17] Speaker 08:
So I see that the obvious next question is, would this have been permissible under ACE?

[00:48:23] Speaker 08:
The answer is no, and EPA admits that, but it doesn't matter because EPA ultimately didn't exercise the waiver.

[00:48:29] Speaker 08:
What ACE holds is that EPA may not invoke the general waiver based on these demand side factors.

[00:48:35] Speaker 06:
So when you.

[00:48:38] Speaker 08:
That's absolutely correct.

[00:48:40] Speaker 08:
And so on the cellulosic waiver, you have to look at what EPA actually did.

[00:48:45] Speaker 08:
They did their analysis of advanced biofuel, lowered advanced biofuel, and then lowered total to match.

[00:48:52] Speaker 08:
That interpretation is based on how EPA views the statute.

[00:48:58] Speaker 08:
Going back to the structure of these nested biofuels, well, cellulosic has

[00:49:06] Speaker 08:
60% lower greenhouse gas emissions.

[00:49:09] Speaker 08:
And what EPA said is, well, if you're going to backfill for cellulosic, you should do it with the next best thing, which is advanced.

[00:49:16] Speaker 08:
And so that's where that equal reduction comes in.

[00:49:19] Speaker 08:
If you lower advanced in total by the same amount, the backfilling is happening.

[00:49:25] Speaker 08:
with that higher greenhouse gas benefit fuel type.

[00:49:30] Speaker 08:
That's in the record, I'm happy to point you to the site's EPA explains that, but that's not being challenged and that's what I think is key to understanding why you don't need to go into these ethanol blends because that's all demand side stuff that was being considered as part of whether to exercise the general waiver.

[00:49:51] Speaker 08:
On the.

[00:49:53] Speaker 06:
Could I ask you about the sugarcane ethanol.

[00:49:56] Speaker 06:
That's the one that bothered me a little bit.

[00:50:00] Speaker 06:
And as I understand it.

[00:50:01] Speaker 06:
The estimate.

[00:50:04] Speaker 06:
The estimate in the record is 200 million for 2016 and your, I'm not sure how to get the right word here, prediction or whatever is 76 million.

[00:50:20] Speaker 06:
That's not 15%.

[00:50:23] Speaker 06:
That's a pretty substantial.

[00:50:26] Speaker 08:
Okay, so yes, let's look at the sugarcane ethanol estimate.

[00:50:31] Speaker 08:
So that was part of EPA's analysis of advanced biofuel.

[00:50:36] Speaker 08:
Sugarcane ethanol is an advanced biofuel.

[00:50:39] Speaker 08:
For complicated reasons, it's treated as an advanced biofuel because of the greenhouse gas levels, and it's not a corn-based ethanol.

[00:50:45] Speaker 08:
So the sugarcane ethanol analysis.

[00:50:49] Speaker 08:
First of all, there's no requirement in the statute to have this exacting prediction for advanced biofuel.

[00:50:55] Speaker 08:
The statute requires that for cellulosic, it does not require that for advanced.

[00:51:00] Speaker 08:
The way EPA has treated the cellulosic waiver is when considering whether to allow advance to backfill, it does this sort of factor-based general look at, well, what's out there?

[00:51:13] Speaker 08:
What can backfill?

[00:51:15] Speaker 08:
And yeah, these are estimates.

[00:51:16] Speaker 08:
They're predictive in nature.

[00:51:17] Speaker 08:
But it's not meant to be the kind of exacting prediction of this is my exact number.

[00:51:23] Speaker 08:
So EPA acknowledged in the record that 200 million gallons

[00:51:28] Speaker 08:
It was treated as a midpoint, right?

[00:51:31] Speaker 08:
So the previous three.

[00:51:32] Speaker 06:
You're saying the methodology with respect to advanced doesn't have to be neutral in the same way that the methodology with regard to cellulosic.

[00:51:42] Speaker 08:
I mean, that's absolutely true, but also it doesn't have to be exacting, and EPA hasn't treated it as exacting.

[00:51:48] Speaker 08:
In fact, EPA said plainly in the record that sugarcane ethanol imports might be a little higher, might be a little lower.

[00:51:55] Speaker 08:
We're not sure, but we think 200 million gallons is a reasonable midpoint benchmark to do this analysis.

[00:52:00] Speaker 08:
And they did that because in the past three years, actual imports have been a little lower,

[00:52:06] Speaker 08:
less than 100 million gallons.

[00:52:08] Speaker 08:
But the year before that, 2013, it was much higher.

[00:52:11] Speaker 08:
It was in the 435 million gallons range.

[00:52:14] Speaker 08:
And so EPA said, well, we have to take these historical things into account.

[00:52:17] Speaker 08:
We think this is a good estimate.

[00:52:20] Speaker 02:
And I was just going to say, it's a relatively small part of a bigger mix.

[00:52:25] Speaker 08:
Yes, it's a very small part of a bigger mix.

[00:52:28] Speaker 02:
Or a bigger category, I should say, since we're talking about things that are blended.

[00:52:31] Speaker 08:
I don't mean in that sense.

[00:52:34] Speaker ?:
Right.

[00:52:35] Speaker 08:
When EPA exercised the cellulosic waiver to lower the advanced biofuel volumes, they lowered them by 4.72 billion gallons.

[00:52:44] Speaker 08:
The only part of their authority that they left on the table was about 469 million gallons.

[00:52:52] Speaker 08:
Sure, it's possible that these 200 million gallons of sugarcane ethanol could have made a difference in there, but we're talking about a very small component.

[00:53:00] Speaker 08:
And I think for the rest of these challenges to the various components of the advanced volumes, there are few things to keep in mind.

[00:53:11] Speaker 08:
There's no volumetric requirement.

[00:53:13] Speaker 08:
There's no specific factor that EPA has to consider to exercise the cellulosic waiver.

[00:53:18] Speaker 08:
So to the extent petitioners think EPA should have considered some thing that they think is a constraint that EPA doesn't think is a constraint,

[00:53:26] Speaker 08:
The act doesn't require that.

[00:53:27] Speaker 08:
Monroe was very clear that there are no specific factors EPA has to consider.

[00:53:31] Speaker 08:
And these are technical judgments based on a lot of data that's exactly the kind of thing that this court defers to the agency on.

[00:53:42] Speaker 02:
Do the infrastructural constraints that apply to total biodiesel and renewable diesel also apply to advanced biodiesel and advanced renewable?

[00:53:51] Speaker 08:
EPA didn't think it did.

[00:53:52] Speaker 08:
EPA said that the primary constraint from the demand side for advanced was feedstocks because at some point you start turning feedstocks for something else like food into feedstock for advanced biofuel and EPA said, well, we're not going to raise it so high that

[00:54:09] Speaker 08:
that's going to become a requirement.

[00:54:11] Speaker 08:
But infrastructure, no, that was not really something that they thought was a constraint.

[00:54:17] Speaker 08:
So if you don't have any further questions, we ask that these petitions be denied.

[00:54:21] Speaker 02:
Did Mr. Lorenzen have any time for rebuttal?

[00:54:30] Speaker 02:
Ms.

[00:54:30] Speaker 02:
Lorenzen will give you a minute.

[00:54:36] Speaker 07:
Thank you very much.

[00:54:37] Speaker 07:
I appreciate the minute.

[00:54:39] Speaker 07:
First, I actually do appreciate that Ms.

[00:54:41] Speaker 07:
Spence got the right standard for the setting of the cellulosic biofuel.

[00:54:46] Speaker 07:
It is not intended to be a demand driver the way that setting other renewable fuel volumes is.

[00:54:54] Speaker 07:
As this court said in the American Petroleum Institute case, it is supposed to be to take this neutral aim at accuracy.

[00:55:01] Speaker 07:
So intentional over predictions or a bias in favor of over prediction is a problem here.

[00:55:06] Speaker 07:
Now briefly, let me just turn to sugarcane ethanol.

[00:55:08] Speaker 07:
Yes, Ms.

[00:55:09] Speaker 07:
Spence said there's only another 470 million gallons available in the amount of the total statutory cellulosic waiver that EPA could have exercised here, assuming it got the cellulosic volumes, right?

[00:55:21] Speaker 07:
And as you've already heard about that.

[00:55:23] Speaker 07:
But that 200 million gallons of sugarcane ethanol is problematic, because actual production has been under half of that.

[00:55:33] Speaker 07:
in past years.

[00:55:34] Speaker 07:
Yes, in early years there was more sugarcane ethanol production, but what has happened, and this is reflected in the rulemaking, is that demand for that fuel in Brazil has grown.

[00:55:45] Speaker 07:
They're simply exporting less of it to this country.

[00:55:48] Speaker 07:
So EPA's assumptions are based on

[00:55:52] Speaker 07:
facts that just no longer support it, which is that there will be this available volume for import into the US, and it's just not there.

[00:56:00] Speaker 07:
Your honors, I've used my time.

[00:56:01] Speaker 07:
Unless you have questions, I thank you.

[00:56:03] Speaker 02:
Thank you.

[00:56:03] Speaker 02:
All right, and now we're hearing from the obligated party petitioners on the point of obligation claim.

[00:56:23] Speaker 01:
I'd like to be 5'10", or not.

[00:56:46] Speaker 01:
Good morning, and may it please the court.

[00:56:48] Speaker 01:
My name is Samara Klein.

[00:56:51] Speaker 01:
And I am speaking today on behalf of independent refiners from around the country and a trade industry association that represents them.

[00:57:01] Speaker 01:
These are obligated parties under the Renewable Fuel Standard Program, but they lack control over the physical means to comply with the program obligations.

[00:57:16] Speaker 01:
I was thinking about your analogy to the school room.

[00:57:22] Speaker 01:
Five years ago, this court referred to refiners as captive consumers under the program.

[00:57:31] Speaker 01:
Today, they're more like hostages.

[00:57:34] Speaker 01:
It's as if that kindergarten teacher had told the class to read but prohibited them from having any books.

[00:57:46] Speaker 01:
By misaligning the point of obligation,

[00:57:52] Speaker 01:
EPA has fundamentally upset free market economics of the refining industry that have been long settled.

[00:57:59] Speaker 09:
The entire statute upsets free market economics from the first word to the last.

[00:58:05] Speaker 01:
In this case, this program has been dramatically affected by EPA's choice for administrative ease

[00:58:16] Speaker 01:
to separate the point of obligation from the means of compliance.

[00:58:21] Speaker 01:
The only program under the Clean Air Act that I can find in which they have chosen to do that.

[00:58:27] Speaker 01:
But what I'm here to talk about today, in this case, we simply ask that the court hold that EPA must consider and respond to comments regarding placement of the RFS annual obligations

[00:58:45] Speaker 01:
among refiners, importers, and blenders.

[00:58:48] Speaker 09:
The key thing is your reading versus EPA's reading of 03B21, right?

[00:59:00] Speaker 01:
I'm with you.

[00:59:04] Speaker 01:
Yes, sir.

[00:59:05] Speaker 01:
And what I'd like to focus on to begin with.

[00:59:07] Speaker 06:
And your statement of the question presented, it's not whether they have any obligation in the abstract.

[00:59:17] Speaker 06:
It's whether they have an obligation under this provision to make this assessment every year as part of the volume determination.

[00:59:28] Speaker 01:
Your Honor, we rely both on the plain language of the statute and on basic principles of administrative law given the nature of the underlying rulemaking and the history and structure of what came before it.

[00:59:45] Speaker 01:
So I'd like to start with the statute but also cover the separate ground.

[00:59:50] Speaker 01:
In terms of statutory interpretation, as in Michigan versus EPA,

[00:59:57] Speaker 01:
EPA's interpretation here is unreasonable and deserving of no deference for several reasons.

[01:00:07] Speaker 01:
This program, as you've said several times already this morning, is a new and novel one, and it is set up around an annual setting of obligations.

[01:00:24] Speaker 01:
Everything in the statute is based on annual projections, estimations, waiver determinations, and the purpose of this annual activity is to incentivize market behavior.

[01:00:39] Speaker 09:
Let's assume everything you say in terms of the basic need to get this right.

[01:00:47] Speaker 09:
But you're making an argument about a particular clause.

[01:00:51] Speaker 01:
Yes.

[01:00:52] Speaker 09:
And so you have to entertain alternative readings of that clause.

[01:00:57] Speaker 01:
And I assume that, yes, the language of the statute is clear.

[01:01:04] Speaker 01:
The obligation.

[01:01:07] Speaker 09:
The EPA thinks it's clear the other way.

[01:01:10] Speaker 01:
Well, if you look, EPA's duty

[01:01:14] Speaker 01:
To apply the annual obligation appropriately among refineries, blenders and importers is embedded

[01:01:21] Speaker 01:
In the statutory provision you identified, that's paragraph 3B.

[01:01:26] Speaker 09:
Yeah, but if I understand EPA, its view is, well, that's just a cross-reference back to what we did under the thing they did in 2010 at the outset of the program.

[01:01:39] Speaker 09:
And there it is.

[01:01:39] Speaker 01:
So again, this is very much like Michigan versus EPA.

[01:01:43] Speaker 01:
They say, well, this

[01:01:46] Speaker 01:
Obligation to apply appropriately is also referenced in a separate provision in paragraph two.

[01:01:52] Speaker 01:
But they concede that paragraph two is something different, distinct, separate, and therefore a different purpose.

[01:02:00] Speaker 01:
And just as in Michigan versus EPA, the fact that Congress emphasized the need to, in implementing regulations and broad compliance provisions,

[01:02:13] Speaker 01:
apply to these categories appropriately.

[01:02:17] Speaker 06:
Do you think EPA acted unlawfully when they set the point of obligation through the separate grant of authority to enact compliance regulations?

[01:02:34] Speaker 01:
So how, the way we look at these two- Is that lawful?

[01:02:37] Speaker 06:
Just at the moment of enactment in, I guess it's 2010, was that unlawful, making that determination through the other statutory grant of rulemaking authority?

[01:02:51] Speaker 01:
The 2010 rule set a default

[01:02:58] Speaker 01:
definition of obligated parties to be used prospectively.

[01:03:02] Speaker 01:
Under the statute, EPA has a duty annually to decide whether applying that default rule is appropriate given the circumstances.

[01:03:13] Speaker 06:
And if you think about it that- Why is it unreasonable to read as appropriate in the volume grant of authority as just meaning as determined under the compliance regulations?

[01:03:26] Speaker 01:
It's unreasonable for several reasons.

[01:03:29] Speaker 01:
First of all, these are two distinct provisions, and if you don't give effect to the first required element in paragraph 3B2, it is meaningless.

[01:03:42] Speaker 01:
Second, it leads to absurd results.

[01:03:46] Speaker 02:
And that is... They're giving effect though, and I think their argument is they're giving effect to it.

[01:03:50] Speaker 02:
They're making determinations under clause one applicable to refineries, blenders, and importers as appropriate.

[01:04:00] Speaker 02:
They're doing that every year.

[01:04:01] Speaker 01:
But that's not what they did.

[01:04:03] Speaker 01:
In fact, they refused to consider or respond to any comments about whether... About changing the point of obligation.

[01:04:11] Speaker 01:
No, about whether it was appropriate in

[01:04:14] Speaker 01:
for the annual rule for 2017, we're talking about an annual obligation.

[01:04:20] Speaker 01:
All these numbers translate into a requirement to blend renewable fuels.

[01:04:26] Speaker 01:
In this rule, EPA said it is beyond the scope of our annual rulemaking to give any consideration to application of these annual obligations among refiners, importers, and blenders.

[01:04:39] Speaker 02:
To reconsider who are the obligated parties.

[01:04:43] Speaker 02:
So I actually, just backing up, you sort of focused on the market and how this scheme interacts with the market.

[01:04:50] Speaker 02:
I find it remarkable, and you're in the best position to help me out with this, that if there's a program that's trying, in fact, to harness market actors and give them an ability to plan and act consistently and set up this secondary market in RINS,

[01:05:10] Speaker 02:
It's hard for me to really envision how the scheme could operate and operate to the benefit of your clients if in different years EPA changed who were the obligated parties.

[01:05:25] Speaker 02:
Wouldn't that drive the RIN market into just total dysfunction?

[01:05:31] Speaker 01:
Not at all, Your Honor, and we are not saying that EPA must change the obligated parties every year.

[01:05:37] Speaker 01:
What we're saying is they cannot take that issue off the table.

[01:05:40] Speaker 01:
If you think about why it's unreasonable, it leads to a situation where no matter what changes happen in the market.

[01:05:48] Speaker 01:
That's not at all their position.

[01:05:50] Speaker 02:
Their position is if there is new information showing a need to revisit, they will.

[01:05:57] Speaker 01:
Your Honor,

[01:05:59] Speaker 01:
As what they have defined their position in their brief, they have said, quote, nothing requires reconsideration of the obligated party's definition at all, much less at any particular time.

[01:06:15] Speaker 01:
And when you've got the largest refiner on the East Coast going bankrupt as a result of this misalignment, it's absurd

[01:06:24] Speaker 01:
for EPA to say that it can continue to apply a definition it chose for administrative ease year after year after year.

[01:06:33] Speaker 06:
So if appropriate does not mean a de novo redo every year by operation of law of point of obligation, which I think you just said, it means something like

[01:06:51] Speaker 06:
You may have some duty to reconsider depending on the facts, depending on, right, why, what is?

[01:07:05] Speaker 01:
I think maybe you've mischaracterized my position.

[01:07:07] Speaker 01:
Okay.

[01:07:08] Speaker 01:
The statute requires, it is quote a required element, that when EPA applies each year annual obligations

[01:07:20] Speaker 01:
Those obligations must be applied appropriately among these three groups, refineries, blenders, and porters.

[01:07:27] Speaker 06:
Your position in this case has to be that they have to make that determination in the context of the annual volume determination.

[01:07:40] Speaker 01:
If they're going to have a default rule, then they have to at least consider and respond

[01:07:47] Speaker 01:
to comments that applying the default rule given the record in that rulemaking is appropriate.

[01:07:55] Speaker 06:
Why can't they do what they did here, which is say, we're not going to do this in the context of the annual volumetric determination, but we are going to do this in the context of a separate rulemaking docket

[01:08:13] Speaker 06:
Submit your comments in that proceeding.

[01:08:17] Speaker 06:
Let's assume for purposes of this discussion that you prevail in ALON and you get judicial review of the denial to reconsider.

[01:08:25] Speaker 06:
Why isn't it perfectly appropriate that they channel you into a proceeding that is outside the scope of these annual volume determinations?

[01:08:38] Speaker 01:
So we'll talk more about that in the next case.

[01:08:40] Speaker 01:
But the answer here is that that is not what the statute requires.

[01:08:45] Speaker 01:
That by shuttling this into a collateral proceeding that is divorced from all of these estimations and projections and waiver determinations and assessment of the market, that is not what Congress intended.

[01:09:00] Speaker 01:
Congress put this provision embedded in with the annual rulemaking.

[01:09:07] Speaker 01:
And what you'll see when we get up for the next case is that when you allow EPA to divorce what Congress put hand in glove, what you end up with are fundamentally inconsistent

[01:09:23] Speaker 01:
decisions based on the same information and resolving the same issues.

[01:09:28] Speaker 09:
I'm sorry, what's the inconsistency you're pointing to?

[01:09:31] Speaker 01:
Well, I may need a little extra time because I've got, but there are a number of inconsistencies.

[01:09:37] Speaker 01:
For example, in the collateral proceeding, EPA denied administrative petitions

[01:09:52] Speaker 01:
on the grounds that refiners were not disproportionately harmed because these rent costs were just passed through.

[01:10:03] Speaker 01:
When you look in the context of annual rule makings and implementation of these volume requirements, what you find is that EPA had before it some 50 petitions for exemption

[01:10:20] Speaker 01:
from refiners all over the country who claimed disproportionate hardship under paragraph 09, and the EPA granted them.

[01:10:32] Speaker 01:
So you have EPA on the one hand saying, we don't need to reconsider, no disproportionate harm, these are just passed through, and on the other hand saying, we've gotta grant these refiner petitions because there's disproportionate hardship.

[01:10:48] Speaker 01:
Now, that's not up to you to resolve, but the reason Congress put this provision in the annual rulemaking is that the question of how much is inextricably intertwined with the question of from whom.

[01:11:06] Speaker 02:
To some extent, although they're making those judgments, and it seems like they're making them on a more structural basis,

[01:11:14] Speaker 02:
looking in a very Cosian way at which actors are going to be those who can most efficiently bear the point of obligation because in their judgment, in the market, the costs of doing so are going to ultimately be passed to the consumer.

[01:11:31] Speaker 01:
Your Honor, I wish that were true, but if you look at the record,

[01:11:35] Speaker 01:
The obligated party's definition was justified by one thing and one thing alone, and that was administrative ease.

[01:11:42] Speaker 02:
Is that not encompassing the notion of the cozy and least cost avoider?

[01:11:47] Speaker 02:
I mean, that's all about administrative ease at some level.

[01:11:49] Speaker 01:
No.

[01:11:49] Speaker 01:
It was about EPA's administration of the program.

[01:11:53] Speaker 01:
And it was done at a time when EPA believed that rents would be low cost and abundantly available.

[01:12:01] Speaker 01:
And at the time, EPA said, if this becomes a problem, we will reconsider.

[01:12:07] Speaker 01:
And then, I'm sorry.

[01:12:12] Speaker 01:
I have a lot to say.

[01:12:14] Speaker 01:
I'm glad I get to get back up.

[01:12:16] Speaker 09:
Finish your sentence.

[01:12:17] Speaker 01:
Well, I mean, the fact is that in 2010, when EPA made that decision, it said,

[01:12:23] Speaker 01:
We expect these rents to be low cost and abundantly available.

[01:12:28] Speaker 01:
Okay.

[01:12:28] Speaker 01:
And if it becomes a problem, we'll fix it.

[01:12:30] Speaker 01:
We'll look at it.

[01:12:31] Speaker 01:
We'll reconsider.

[01:12:33] Speaker 01:
And then what happened was a shell game.

[01:12:35] Speaker 01:
We had the 2016 rulemaking in which EPA said we're not going to consider this.

[01:12:40] Speaker 06:
But, I mean, now you're getting into the merits of your argument for reconsideration, which are arguments that you could have made and to some extent did make in the ancillary proceeding.

[01:12:56] Speaker 06:
I mean, the shell game aspect of this is when they say no review through this regulation and no review on a petition to reconsider in the other case.

[01:13:07] Speaker 01:
And that's another reason.

[01:13:10] Speaker 06:
But that's why I asked you to assume we find review in the other means, which solves.

[01:13:17] Speaker 01:
Right, although that's really another answer to the question that I really didn't get to finish answering before, which is that

[01:13:26] Speaker 01:
It's not hard to figure that if EPA controls the forum, it often controls the outcome.

[01:13:34] Speaker 01:
The process and procedure that it used or purported to use over here in Elan is not the kind of rulemaking that happens every year and that the statute paragraph 3B requires.

[01:13:48] Speaker 01:
So there are different

[01:13:49] Speaker 01:
procedural issues as well that compelled the statutory construction issue.

[01:13:54] Speaker 01:
But back to your question, I think it's germane to this case because when you're looking at basic principles of administrative law and you see how we got to where we got in the 2017 rulemaking underlying this case,

[01:14:13] Speaker 01:
The fact that EPA chose to exclude the most critical of the three groups that Congress identified for regulation is significant in terms of its duty to consider and respond to comments in the rulemaking that that is no longer appropriate, particularly given the fact that in the proposed rule for 17, EPA was proposing to use the general waiver.

[01:14:42] Speaker 01:
But we can talk more about that.

[01:14:43] Speaker 01:
I don't want to overstay my welcome, but I appreciate the extra time, and I would like to come back for rebuttal.

[01:15:00] Speaker 05:
I'm going to raise it.

[01:15:01] Speaker 05:
Sorry.

[01:15:04] Speaker 02:
Take your time.

[01:15:09] Speaker 05:
I guess that's the end of the raising.

[01:15:15] Speaker 05:
Good morning.

[01:15:16] Speaker 05:
My name is Patrick Jacoby.

[01:15:17] Speaker 05:
I am here on behalf of EPA.

[01:15:21] Speaker 05:
Your honors, I think some of your questions to opposing counsel are getting at the fundamental argument that I'd like to make here, which is that Petitioner's argument is an administrative law paradox.

[01:15:32] Speaker 05:
EPA's 2010 regulation identified which entities would be subject to the renewable fuel standard obligations, namely refiners and importers.

[01:15:43] Speaker 05:
After that, EPA accordingly applied its annual rule makings to refiners and importers going forward.

[01:15:49] Speaker 09:
The question is the meaning of 3B21.

[01:15:58] Speaker 09:
Can we focus on that?

[01:15:59] Speaker 05:
Sure, Your Honor.

[01:16:00] Speaker 05:
So to go right to the context of 3B21, it seems like petitioners are trying to say there's no relation between O2A31 and O3B21.

[01:16:09] Speaker 05:
And in fact, in their reply... That's the compliance regs.

[01:16:15] Speaker 06:
What's that?

[01:16:16] Speaker 06:
That's the authority for the compliance regs.

[01:16:18] Speaker 05:
Yes, O2A31 is the authority for the compliance regs.

[01:16:23] Speaker 05:
That's the part that says that EPA shall promulgate regulations.

[01:16:29] Speaker 05:
And then after that in Roman 1 under small Roman 3, it says that shall contain compliance provisions applicable to refiners, blenders, et cetera.

[01:16:40] Speaker 05:
And then it has the as appropriate language as well.

[01:16:43] Speaker 09:
So as appropriate means just

[01:16:47] Speaker 09:
Once you did it, it's done, right?

[01:16:50] Speaker 09:
It's all over.

[01:16:50] Speaker 09:
So, I mean, normally Congress doesn't say go out and do this as appropriate when it means you're not supposed to do it.

[01:16:59] Speaker 05:
I agree, Your Honor.

[01:17:01] Speaker 05:
I think the main thing that as appropriate means here is that EPA gets to decide who is obligated.

[01:17:08] Speaker 05:
And... Well, I thought that was the issue.

[01:17:11] Speaker 05:
Right.

[01:17:12] Speaker 05:
So it means it has discretion to decide who is obligated.

[01:17:16] Speaker 05:
And petitioners concede in their brief that as appropriate typically means that there's some discretion and then they try to... They're going to have to speak out of discretion.

[01:17:28] Speaker 09:
It seemed to me in the colloquy with Judge Katzis, counsel invited a reading of the statute to allow EPA to say, okay, we've adopted a policy on this, and our inclination is to stick with that policy, which seems like a good one, unless new

[01:17:53] Speaker 09:
claims are made.

[01:17:56] Speaker 09:
And that means that this has not become an incredible festival of administrative law with thousands of petitions and so forth.

[01:18:08] Speaker 09:
It's limited to people claiming

[01:18:12] Speaker 09:
evidence from the recent past shows your prior decision doesn't work, which actually fitted with something EPA said, but that's the next case.

[01:18:24] Speaker 05:
Well, Your Honor, I want to address your question, but I want to pull back a little bit, and that's why I was going at what's in 02A31.

[01:18:31] Speaker 05:
EPA set the point of obligation in the 2010 regulation.

[01:18:37] Speaker 05:
Now, in this case, Coffeeville,

[01:18:39] Speaker 05:
The petitioners concede that they are not trying to reopen that regulation, but they are simultaneously arguing under 03B2 that EPA must reconsider or somehow reevaluate the existing point of obligation in the 2017 rule or annually.

[01:18:57] Speaker 05:
But EPA cannot do it in a vacuum, Your Honor.

[01:19:00] Speaker 05:
They would have to undo or reopen

[01:19:03] Speaker 05:
the 2010 regulation.

[01:19:04] Speaker 05:
There's an entire body of cases that this court has issued, decisions that this court has issued that says that's not how this works.

[01:19:11] Speaker 05:
If there's an existing regulation, that regulation governs.

[01:19:14] Speaker 06:
So your position in the other case is no review at all when they

[01:19:25] Speaker 06:
assess the kind of argument Judge Williams noted, which is recent facts support a case for change, no review at all in that context, and no review at all in the context of the annual volume determinations when the agency has this obligation to make those applicable as appropriate.

[01:19:55] Speaker 05:
Your Honor, first of all, I would defer to my co-counsel, Ms.

[01:19:59] Speaker 05:
Greenfield, on the other case.

[01:20:02] Speaker 05:
I think you're referring to the after-rising question.

[01:20:04] Speaker 05:
Have they demonstrated after-rising?

[01:20:05] Speaker 05:
Right, which you just put on the table.

[01:20:07] Speaker 06:
Well, I didn't intend to put it on the table, Your Honor.

[01:20:10] Speaker 06:
I mean, I'm not criticizing you for it.

[01:20:13] Speaker 06:
To me, it's a relevant consideration, because if your position in the other case prevails and there's no review, I would think that's

[01:20:25] Speaker 06:
not a bad argument for reading as appropriate to permit review in this case so that there is some mechanism

[01:20:35] Speaker 06:
in which a party can say, you ought to change the regulation because of recent developments.

[01:20:43] Speaker 06:
And they will have a high burden to meet to make that argument.

[01:20:48] Speaker 06:
But normal administrative law principles is there is some mechanism in which someone gets to make an argument like that.

[01:20:57] Speaker 06:
Okay.

[01:20:59] Speaker 05:
I think I understand your point.

[01:21:01] Speaker 05:
So let's come back again to 02A31 and 03B2 and how this is supposed to work under administrative law.

[01:21:08] Speaker 05:
2007, EPA issues a regulation that sets out the point of obligation.

[01:21:13] Speaker 05:
60-day comment period, their comments received, nobody challenges it in court.

[01:21:18] Speaker 05:
2010, EPA does the same thing.

[01:21:22] Speaker 05:
Comments, 60-day period, there's no challenge in court.

[01:21:24] Speaker 05:
So there was an opportunity then, with a full understanding, and petitioner just conceded it up here, that they knew it was a prospective regulation that would apply going forward in the annual rulemaking.

[01:21:35] Speaker 05:
So they knew that it was going to stay that way, at least until it was reopened or revisited.

[01:21:41] Speaker 05:
So then the question becomes how does the Clean Air Act or does the Clean Air Act allow it to be reopened or revisited?

[01:21:47] Speaker 05:
So one way they can try to reopen it is what they did in the petition, the administrative petition.

[01:21:52] Speaker 05:
They went to the agency and said, we want to have this reopened, here's our basis, the agency

[01:21:58] Speaker 05:
took its time, received 18,000 comments, that's a complicated issue, spit out an 87 page denial that is fairly robust.

[01:22:07] Speaker 05:
Whether that's reviewable or not is a fundamental subject matter jurisdiction question under the Clean Air Act that Congress has already decided.

[01:22:15] Speaker 05:
Okay, so I want to just set that aside and then come back to where we are in this case.

[01:22:19] Speaker 05:
So they now are trying to shoehorn the prefix RE into 03B2.

[01:22:26] Speaker 05:
It is not there.

[01:22:28] Speaker 05:
It does not say reconsider.

[01:22:29] Speaker 05:
It does not say reevaluate.

[01:22:30] Speaker 05:
It does not say reassess.

[01:22:31] Speaker 05:
It says shall be applicable.

[01:22:33] Speaker 05:
And it is applicable to the obligated parties.

[01:22:37] Speaker 05:
It's just one element of how the rule is supposed to be structured.

[01:22:41] Speaker 06:
So, your position is there is no way to get judicial review of an argument that the predicate regulation should be changed because of new factual circumstances that arose after the regulation was promulgated.

[01:23:02] Speaker 05:
No review.

[01:23:03] Speaker 05:
That's not quite our argument, Judge Katz.

[01:23:06] Speaker 05:
Our argument is that EPA would have discretion under 03B21 to decide whether, when, and how to reconsider the point of obligation, but it would have to be .

[01:23:17] Speaker 05:
.

[01:23:17] Speaker 03:
.

[01:23:17] Speaker 05:
Reviewable for abusive discretion or not?

[01:23:20] Speaker 05:
Well, the agency cannot act arbitrarily, so there would have to be, there is definitely some limit on the agency's discretion.

[01:23:28] Speaker 05:
So I think, are you asking me is there a set of facts that exist by which EPA under this statute would say, look, things have gotten to a point where we have to go back and look at this in the annual rule?

[01:23:39] Speaker 02:
almost I think we're asking is there a point at which it's no longer discretionary with EPA because the circumstances show a problem.

[01:23:49] Speaker 02:
Such a dramatic change.

[01:23:52] Speaker 02:
Where does that get raised?

[01:23:54] Speaker 02:
And I understand that you don't want to make co-counsel's argument, which is really in the next case.

[01:23:59] Speaker 02:
So maybe for you the appropriate thing is to say if there's review

[01:24:04] Speaker 02:
She's going to have to answer that.

[01:24:06] Speaker 02:
For your purposes, for me it would be helpful.

[01:24:08] Speaker 02:
What would it entail?

[01:24:11] Speaker 02:
And you've hinted at this.

[01:24:13] Speaker 02:
Petitioners have conceded that the default rule was set under 02, and you're making an argument that it just doesn't

[01:24:21] Speaker 02:
seem to be Congress's intent that that should be revisited in 03.

[01:24:25] Speaker 02:
What would it entail?

[01:24:26] Speaker 02:
Would we have to have 18,000 comments every year?

[01:24:29] Speaker 02:
Or would it just be, let's just check that it's all going okay with the allocation of the obligated parties, with identification of the obligated parties and move on from here.

[01:24:43] Speaker 02:
So I think it's partly a question of

[01:24:45] Speaker 02:
How would it change the annual determinations for the fuel amounts to have to also look under the hood and make sure that that default was purring along?

[01:24:58] Speaker 05:
So there are two questions on the table.

[01:25:00] Speaker 05:
I'm going to try to answer them.

[01:25:02] Speaker 05:
And then if I may, I sit them over time.

[01:25:04] Speaker 05:
I want to just make one small extra point about something the petitioner said before I sit down.

[01:25:08] Speaker 05:
And I have a question for you.

[01:25:10] Speaker 05:
Fantastic.

[01:25:12] Speaker 05:
So I think I would handle it this way, Your Honor, which is to say that you've sort of made my point for me on one level.

[01:25:23] Speaker 05:
This would be a very difficult determination to make annually and EPA has a footnote, I think it's footnote 10 on JA779 of the record and that's in the administrative petition denial which says, look, this would be a big burden for us to do every year.

[01:25:41] Speaker 05:
The timing of it is such.

[01:25:46] Speaker 05:
EPA has been late on this rule before when they haven't taken up the point of obligation.

[01:25:50] Speaker 05:
They struggle to get this done on time every year.

[01:25:53] Speaker 05:
It is a lot.

[01:25:54] Speaker 05:
It's a very difficult thing to do.

[01:25:55] Speaker 05:
So if you were to add on the burden of doing this every year, receiving 18,000 comments, having this robust analysis, it would be a significant burden.

[01:26:04] Speaker 05:
So I think EPA's general position is that, yes, the proper place to raise this issue, to raise up the facts that might suggest that EPA should revisit this

[01:26:12] Speaker 05:
is in a petition to the agency.

[01:26:15] Speaker 05:
And I think that makes sense under everybody's understanding of administrative law, especially where we have not reopened the issue, which I think is quite clear, in the annual rulemaking.

[01:26:24] Speaker 05:
So then the second question becomes, well, if they can't review that, is there a scenario under which the annual rulemaking would become the proper place to broach this?

[01:26:33] Speaker 05:
And I think there's two problems there.

[01:26:35] Speaker 05:
One, I don't think the set of facts has been demonstrated.

[01:26:39] Speaker 05:
If you look at EPA's administrative petition denial, they go through all the arguments that have been made by the petitioners.

[01:26:44] Speaker 05:
It's not just that they conclude it would be administrative ease.

[01:26:47] Speaker 05:
They address all these things.

[01:26:49] Speaker 06:
There is not the kind of... It's a very thorough treatment.

[01:26:53] Speaker 05:
Right.

[01:26:53] Speaker 06:
It's not the kind of situation where... But that goes to the merits, which we can discuss in the other case.

[01:27:01] Speaker 06:
I think what we're probing is whether .

[01:27:04] Speaker 06:
.

[01:27:05] Speaker 06:
.

[01:27:05] Speaker 06:
I mean, the government's position is all of those determinations are not reviewable in either this case, a case like this, or a case like Alon.

[01:27:16] Speaker 05:
Judge Katz, you're getting at, I think, where I'm trying to go with this, is that because 03B21

[01:27:22] Speaker 05:
is just says shall be applicable and then says as appropriate.

[01:27:29] Speaker 05:
I think the as appropriate means look, if EPA determines that there is something going on in the marketplace that requires a structural shift in how the program works, which was gonna complicate how all the annual volumes work.

[01:27:43] Speaker 05:
It's gonna make the annual volume determination much, much more complex and much more difficult.

[01:27:48] Speaker 05:
And it's going to lead to things that cut against the structure and purpose of the act.

[01:27:53] Speaker 05:
The carryover RIN issue.

[01:27:55] Speaker 05:
So parties are allowed to carry over RINs from one year to another.

[01:27:58] Speaker 05:
If the obligated party changes, then what happens to those?

[01:28:02] Speaker 05:
The credit problem.

[01:28:03] Speaker 05:
You can carry over 20% credit under EPA's interpretation.

[01:28:08] Speaker 05:
So it would cause some serious structural problems.

[01:28:11] Speaker 05:
But if EPA became convinced based on what's going on in the market,

[01:28:14] Speaker 05:
that it needed to go ahead under its discretion and reconsider this in the annual rule.

[01:28:20] Speaker 05:
This provision allows for that.

[01:28:22] Speaker 05:
What it does not do, it does not in any form require it.

[01:28:25] Speaker 05:
There's nothing approaching the language of something like a non-discretionary duty that would show that the government had waived its sovereign immunity and it had no choice but to reconsider that here.

[01:28:35] Speaker 05:
That's not what this says.

[01:28:37] Speaker 05:
And that's why it's appropriately beyond the scope here.

[01:28:41] Speaker 05:
So there could be a set of factors.

[01:28:43] Speaker 05:
But I would also add, I don't know what the scenarios that we're all imagining that would lead to that.

[01:28:50] Speaker 05:
I don't think we're there yet.

[01:28:51] Speaker 05:
But remember that there's also a general waiver provision in this statute that says in cases of extreme economic harm, EPA can lower the volumes.

[01:28:59] Speaker 05:
So if we were in a situation, let's say a depression, then obviously EPA would do everything it could to reduce the burden here.

[01:29:07] Speaker 05:
And the statute allows for that in other forms.

[01:29:09] Speaker 05:
So I'm not saying, what I'm trying to,

[01:29:13] Speaker 05:
explain here is that I think the statute allows EPA to take the action you're envisioning in a different set of circumstances.

[01:29:20] Speaker 05:
I think the point is those circumstances are not met here, and that's the problem with trying to shoehorn a requirement into 03B21 that is simply not there.

[01:29:31] Speaker 09:
First, I'd like to suggest the real way you seem to be reading 03-2 as a whole, which is that

[01:29:42] Speaker 09:
Roman one drops out and then Roman three, renumbered to two, has to be slightly changed because instead of being a cross-reference back to sub-clause one, where in fact nothing has been specified,

[01:30:01] Speaker 09:
to all categories of persons specified under O2A3, right?

[01:30:09] Speaker 09:
Isn't that essentially what you're saying?

[01:30:11] Speaker 09:
In other words, that a three-part provision is simply reduced to

[01:30:17] Speaker 09:
And the only thing we need to know is for obligated parties, we have a cross-reference back to 02A3, right?

[01:30:28] Speaker 09:
Is there anything that one does that contributes anything?

[01:30:36] Speaker 05:
Sorry, Judge Williams, just so I understand the question, are you referring to 03B, Roman 1, the last clause there, or are you referring to something else?

[01:30:46] Speaker 02:
I think he's referring to 03B to Roman 1.

[01:30:52] Speaker 09:
Roman 2, required elements.

[01:30:58] Speaker 05:
If I can jump in Judge Williams, I think you're asking the question that I actually wanted to raise.

[01:31:09] Speaker 05:
In our brief, we made clear that yes, we think that 03B21 has independent meaning.

[01:31:15] Speaker 05:
It requires and sets out that one of the pieces of the annual rule is that it must apply to the obligated parties as appropriate.

[01:31:25] Speaker 05:
It does echo the same language as appropriate, so one could say that's a reference to 02, but it is not an explicit reference.

[01:31:31] Speaker 05:
And petitioners make quite a bit of hay in this in the reply, saying, well, there's no reference between these two things.

[01:31:36] Speaker 05:
If they were supposed to work like this, there would be a reference.

[01:31:38] Speaker 05:
There is a reference between these two provisions, and so what they say in the reply is frankly false.

[01:31:44] Speaker 05:
If you go back to 03B1, that is under B, it says determination of applicable percentages in the header.

[01:31:51] Speaker 05:
B1 is in general.

[01:31:54] Speaker 05:
And I want to draw your attention to what comes after the comma at the end of 03B1.

[01:32:00] Speaker 05:
It says the renewable fuel obligations, so it's referring to what must be done here, that ensures that the requirements of paragraph 2 are met.

[01:32:12] Speaker 05:
Paragraph 2 is O2.

[01:32:16] Speaker 05:
Okay, so there is a reference.

[01:32:17] Speaker 05:
Now, it goes even further than that, Your Honor.

[01:32:20] Speaker 05:
The reference is extremely explicit.

[01:32:23] Speaker 09:
If I understand what you're saying, there's already been a cross-reference to a determination under 02A3.

[01:32:31] Speaker 09:
I have to say to me that strengthens the position that poor old 2-1 has been absolutely stripped of meaning.

[01:32:43] Speaker 05:
In what sense, Your Honor?

[01:32:45] Speaker 05:
I'm not sure I follow.

[01:32:46] Speaker 09:
Well, because there's nothing to do.

[01:32:48] Speaker 09:
Everything's been determined under 02A3, everything in respect to who are obligated parties.

[01:32:56] Speaker 05:
Well, Your Honor, 03B2, it says required elements, okay, and it cannot exist in a vacuum.

[01:33:05] Speaker 05:
It has to exist

[01:33:08] Speaker 05:
It has to come after EPA has already set out the implementing regulations, which it did in 2010.

[01:33:14] Speaker 05:
So this is not a unique provision.

[01:33:16] Speaker 05:
If you look at these three things together, it says that there will be an obligation expressed in terms of a volume percentage in 03B to two.

[01:33:26] Speaker 05:
So there has to be a component that's a volume percentage.

[01:33:29] Speaker 05:
And then it says in three, it'll consist of a single applicable percentage that applies to the parties in one.

[01:33:35] Speaker 05:
So it's describing what the pieces of the rule have to be.

[01:33:40] Speaker 05:
It doesn't say that EPA has to invoke the cellulosic waiver.

[01:33:45] Speaker 05:
It doesn't say that EPA has to set reasonably attainable volumes.

[01:33:49] Speaker 05:
It very generally says, this is what has to be in the rule.

[01:33:52] Speaker 05:
And part one says, OK, these pieces of the rule have to apply to these parties.

[01:33:57] Speaker 05:
It has to be applicable to somebody.

[01:33:59] Speaker 05:
And those somebody's are these refiners, blenders, and importers as appropriate.

[01:34:03] Speaker 05:
It can't exist in a vacuum when EPA has already been tasked in 02A321 with making a determination of who those obligated parties are unless Congress intended to reopen this thing every year, which I don't think they did.

[01:34:16] Speaker 02:
I think the point is that it might have been clear that your meaning is the meaning that Congress meant here if it said applicable to obligated parties expressed in terms of volume percentage and a single applicable percentage

[01:34:30] Speaker 02:
to all the obligated parties, with obligated parties being a shorthand that refers back to where those have been chosen under 02.

[01:34:37] Speaker 02:
And here, because it's bulkier and talks about appropriateness, again, it raises at least the suggestion that some determination of appropriateness is called for here.

[01:34:50] Speaker 05:
Okay, so I think I understand what you're saying, and I didn't actually finish describing the reference, so let me take it a step further.

[01:34:57] Speaker 05:
Sorry.

[01:34:57] Speaker 05:
Maybe this will make it clear.

[01:34:59] Speaker 05:
So there's the reference in 03B1 to paragraph 2, and it says, renewable fuel obligations that ensures the requirements of paragraph 2 are met.

[01:35:08] Speaker 05:
Then if you look at 02A, okay, the same phrase or almost the exact same phrase in the middle of the paragraph, it's one, two, three, four, five, I think five lines down in my copy.

[01:35:21] Speaker 05:
So it says under this paragraph to ensure that transportation fuels sold or introduced into commerce in the United States

[01:35:27] Speaker 05:
On an annual average basis contains the at least applicable volume.

[01:35:29] Speaker 05:
So there's the to ensure language again in the general provisions, but it's even more specific than that.

[01:35:35] Speaker 05:
If you go down to 2A31, okay, and that's the provision I've been pointing to.

[01:35:40] Speaker 05:
The shell contain compliance provisions.

[01:35:43] Speaker 05:
If you get to the as appropriate, it again says to ensure.

[01:35:48] Speaker 05:
Okay, so this is not a unique provision.

[01:35:51] Speaker 05:
There's plenty of statutes where an agency sets out the general implementing regulations, says who's gonna be forced to comply with them, and then later on it describes how it's gonna issue certain regulations and who they're gonna apply to.

[01:36:04] Speaker 05:
That's all this is doing.

[01:36:05] Speaker 05:
It has meaning, but the meaning is relatively, it means what it says.

[01:36:09] Speaker 05:
It shall be applicable.

[01:36:10] Speaker 06:
Could I just put one more textual feature of this on the table, which is the first rulemaking provision for the compliance regs includes distributors among the universe of people on whom obligations could be placed.

[01:36:30] Speaker 06:
The volume provision with required elements does not contain distributors, which suggests that in the context of obligated party determinations, the second provision is doing some independent work.

[01:36:50] Speaker 06:
It would have been lawful on the front end to include distributors.

[01:36:54] Speaker 06:
It's not lawful when you come to the volume determination.

[01:36:58] Speaker 06:
So doesn't that cut against the idea that this is just some cross-reference back and all the work is done in the first provision?

[01:37:07] Speaker 05:
Well, Your Honor, again, that goes to the structure of the statute.

[01:37:10] Speaker 05:
I understand your point, I think.

[01:37:12] Speaker 05:
So O2A31 is the general compliance provision.

[01:37:18] Speaker 05:
So this provision addresses more than just the annual obligation.

[01:37:22] Speaker 05:
And so there are pieces of the RFS that do apply to distributors sort of independent of the annual volumes.

[01:37:28] Speaker 05:
So I think that's why that word is in there.

[01:37:32] Speaker 05:
And I think if anything, what 03B2 is clarifying is that distributors cannot be the subject of the annual obligations.

[01:37:42] Speaker 05:
I think that's the best reading of it.

[01:37:44] Speaker 05:
I just want to turn back to one other issue.

[01:37:46] Speaker 05:
I think we're getting at sort of what does this statute mean.

[01:37:49] Speaker 05:
And I think it's pretty clear that there's no non-discretionary duty.

[01:37:52] Speaker 05:
And we're struggling with what it seems to me you're struggling.

[01:37:57] Speaker 09:
within the words as appropriate.

[01:38:00] Speaker 09:
But the discretion you seem to acknowledge is virtually unbounded.

[01:38:05] Speaker 09:
It sounds virtually unbounded from your account.

[01:38:08] Speaker 05:
Your Honor, I do think it's relatively broad.

[01:38:10] Speaker 05:
I don't think it's unbounded.

[01:38:11] Speaker 05:
I think this Court could conclude in other circumstances that the agency had acted arbitrarily by not reconsidering in the annual volume.

[01:38:20] Speaker 05:
I think that's, there's some set of circumstances that could exist.

[01:38:23] Speaker 05:
I just don't think we're anywhere close to it.

[01:38:26] Speaker 05:
I guess what I wanted to say is, to the extent that this court thinks that the provision is ambiguous, and we explain in our brief why we think our reading of it is reasonable, et cetera, but the point I would make is, if it's ambiguous, there's no requirement.

[01:38:41] Speaker 05:
That means it's not specific enough to form a non-discretionary duty.

[01:38:45] Speaker 05:
That has to be a clear-cut statutory mandate from Congress.

[01:38:50] Speaker 05:
That would be, I guess, the last point I would like to make, unless there are other questions, Your Honor.

[01:38:55] Speaker 06:
Would you object to a disposition that says government has a substantial amount of discretion to make the appropriateness determination in the volume regulation?

[01:39:14] Speaker 06:
It doesn't come anywhere close to an automatic obligation to do a redo every single year.

[01:39:23] Speaker 06:
There may be circumstances in which there is an abuse of that discretion, judicially correctable on review, and this case isn't one of them because A, you undertook the review in the separate docket, and B, you did a pretty careful and persuasive analysis.

[01:39:48] Speaker 05:
I'm going to sit down, Your Honor.

[01:39:51] Speaker 05:
I think you've got it exactly the way I would.

[01:39:53] Speaker 06:
Well, but we would be saying that there's some degree of judicial review for appropriateness in the context.

[01:40:01] Speaker 05:
I think there could be, but I think it would have to be a different set of circumstances here, and that's not demonstrated for all the reasons stated.

[01:40:09] Speaker 05:
And of course, in our brief, we ask that the petition be denied.

[01:40:12] Speaker 05:
Thank you.

[01:40:13] Speaker 02:
Thank you.

[01:40:16] Speaker 02:
Ms.

[01:40:16] Speaker 02:
Klein, have remaining time.

[01:40:20] Speaker 02:
This time we'll give you two minutes.

[01:40:45] Speaker 01:
A lot of the questions were about how this works in the real world and matters of practicality.

[01:40:52] Speaker 01:
What we heard mostly was it's just too hard to do it every year.

[01:40:56] Speaker 01:
But this is the largest government intrusion ever into the refining industry.

[01:41:06] Speaker 01:
If we are driving refiners into bankruptcy, we are certainly not serving the purpose of this statute, which is to increase the energy independence of the country.

[01:41:17] Speaker 01:
However, Judge Pillard asked about what would this look like every year, and certainly the scope of the inquiry would vary depending on the market factors that were presented.

[01:41:33] Speaker 01:
If EPA finds itself resorting to safety valves year after year after year, that's a strong indication that something is wrong with the fundamental structure of the program.

[01:41:46] Speaker 01:
These kinds of inquiries are commensurate with all of the other kinds of inquiries that EPA concedes it must undertake annually under the statutory requirements, things like

[01:42:08] Speaker 01:
all of the projections, estimations and determinations, looking at things like tariffs and infrastructure constraints and tax credits and disproportionate harm.

[01:42:25] Speaker 01:
It does all of these things routinely on an annual basis.

[01:42:29] Speaker 01:
And examining the appropriateness of the placement of the point of obligation goes hand in glove with those because what they're trying to do, they say, is to influence changes in the market.

[01:42:44] Speaker 01:
They're trying to increase the blending of renewable fuel, but they are obligating parties that do not and cannot blend renewable fuel.

[01:42:57] Speaker 01:
That is central to all of the determinations that EPA is purporting to make in these annual rule makings.

[01:43:08] Speaker 01:
And it is central to the structure of the nation's transportation fuel industry.

[01:43:17] Speaker 01:
Some of the statutory construction arguments we heard have never been made before today.

[01:43:23] Speaker 01:
I would direct the court to EPA's brief at 67, 68, 75, and 76 where they went to pains to distinguish paragraph 02 from paragraph 03.

[01:43:39] Speaker 01:
And I think that the questions from the bench adequately, more than adequately, reflect the arguments that we've raised in our brief with respect to the differences between those two provisions and the effect, the unreasonable effect of not giving weight to the required element in paragraph 03.

[01:44:08] Speaker 01:
that Judge Williams was focused on.

[01:44:13] Speaker 01:
Okay.

[01:44:14] Speaker 01:
I have one, this is quick, but I'll sit down if you want to.

[01:44:20] Speaker 02:
Wrap up your point.

[01:44:21] Speaker 02:
We don't want to cut anybody off.

[01:44:22] Speaker 01:
There was a question about remedies, like what would happen if things changed.

[01:44:26] Speaker 01:
I did want to point out that in ACE, we had actually asked to stay the rule pending the court's determination.

[01:44:35] Speaker 01:
EPA filed an opposition to that.

[01:44:38] Speaker 01:
and said, we don't need a stay because if there are changes, it's no problem.

[01:44:43] Speaker 01:
We can reallocate rents.

[01:44:45] Speaker 01:
We can give credit for rents.

[01:44:46] Speaker 01:
So that is a problem that EPA has already conceded is not a problem.

[01:44:51] Speaker 01:
Thank you so much for your indulgence on time.

[01:44:54] Speaker 02:
Thank you.

[01:44:56] Speaker 02:
So we're going to take a brief break, just about five minutes.

[01:45:01] Speaker 02:
And then we'll reconvene and hear from the parties in Alon refining.

[01:51:12] Speaker 10:
Stand, please.

[01:51:24] Speaker 10:
This honorable court is again in session.

[01:51:26] Speaker 10:
Be seated, please.

[01:51:37] Speaker 02:
All right, so we'll hear again from Ms.

[01:51:39] Speaker 02:
Klein.

[01:51:45] Speaker 01:
Thank you, Your Honor.

[01:52:00] Speaker 01:
This case is about a determination that is plagued by inconsistency, the hallmark of arbitrary agency action.

[01:52:13] Speaker 01:
As we talked about a little bit in the last case, this determination was issued in a vacuum.

[01:52:20] Speaker 01:
It was divorced from all the other RFS activities that EPA undertakes annually.

[01:52:27] Speaker 01:
And there's a fundamental disconnect between what EPA is saying to avoid grappling with the point of obligation and what it is doing in implementing the program.

[01:52:41] Speaker 01:
There's just a mismatch on the same issues in the same time period and no reasoned explanation for that mismatch.

[01:52:52] Speaker 09:
I think as before, you've got to wrestle with the language you're coming into us on, namely D7B and B1.

[01:53:06] Speaker 09:
of whatever it is.

[01:53:07] Speaker 01:
Right.

[01:53:08] Speaker 01:
So this case falls squarely within the court's precedent, finding jurisdiction in cases that present grounds arising after the initial period of review.

[01:53:22] Speaker 01:
You've said in El Hado and cases like Group Against Smog versus EPA at 665F, 2nd, 1284, that Congress intended

[01:53:33] Speaker 01:
to provide a legal mechanism to assure that standards were revised when necessary and to provide for challenges when significant new information becomes available.

[01:53:45] Speaker 01:
And that's what we have here.

[01:53:46] Speaker 09:
If I understand your argument under B1, it's a little unusual in that

[01:53:53] Speaker 09:
The new fact, the new grounds are not facts on the ground.

[01:54:02] Speaker 09:
They are something that EPA said in the 2015 rulemaking.

[01:54:11] Speaker 09:
Right.

[01:54:11] Speaker 01:
Said and did, yes.

[01:54:13] Speaker 01:
These are the very grounds that EPA said in 2010 would require reconsideration

[01:54:20] Speaker 01:
happened in what I'm just going to call for ease the 2016 rule.

[01:54:25] Speaker 01:
In that rule, EPA for the first time took final action determining that market constraints made the statutory volumes impossible to reach.

[01:54:40] Speaker 01:
And at that point, the RIN market was not working as intended.

[01:54:47] Speaker 01:
Instead of being abundantly available,

[01:54:50] Speaker 01:
Rends were now in short supply.

[01:54:52] Speaker 09:
One argument that I think is made by EPA is that, well, look, these were things that were happening.

[01:55:02] Speaker 09:
That's the new ground.

[01:55:03] Speaker 09:
You should have moved as soon as you saw those.

[01:55:06] Speaker 09:
So you can't bring yourself within the 60-day requirement of B1.

[01:55:12] Speaker 01:
They say that.

[01:55:13] Speaker 01:
But as we know, the statutory time bar doesn't begin to run until those claims ripen.

[01:55:20] Speaker 01:
And back in 2010, EPA had said, look, we realize there's misalignment, but there's no harm from it.

[01:55:29] Speaker 01:
And we're going to watch it.

[01:55:31] Speaker 01:
And should the RIN market not function as intended, we will revisit it.

[01:55:36] Speaker 01:
So at the time.

[01:55:37] Speaker 02:
But we will revisit what?

[01:55:38] Speaker 02:
We will revisit the point of obligation.

[01:55:41] Speaker 02:
And in what way is the new information, the choice by EPA to exercise its general waiver authority,

[01:55:47] Speaker 02:
You knew after arising evidence about point of obligation.

[01:55:52] Speaker 02:
What change in the point of obligation would obviate or correct the kinds of problems you're pointing to as the basis for jurisdiction?

[01:56:03] Speaker 01:
The objection that became ripe when the 2016 rule issued

[01:56:12] Speaker 01:
was that it was no longer appropriate to exclude the most critical of the three groups that Congress identified for regulation.

[01:56:25] Speaker 01:
You're talking about Blenders?

[01:56:27] Speaker 02:
Blenders.

[01:56:27] Speaker 02:
Can you talk about how, if the point of obligation were put on them only or on them and your clients, why would that have forestalled the problems that we see here?

[01:56:40] Speaker 01:
The volumes that we heard about in the last case translate into a mandate to blend renewable fuel.

[01:56:50] Speaker 01:
Refineries cannot store or blend renewable fuel as a technical matter.

[01:56:57] Speaker 01:
It can't go in the pipelines that come from the refineries.

[01:57:01] Speaker 01:
So EPA knew when it misaligned the point of obligation that it was putting a compliance obligation on parties who had no physical means to comply.

[01:57:13] Speaker 01:
That made the RIN market front and center to the operation of this program.

[01:57:20] Speaker 01:
And at the time, back in 2010, EPA intended that these RINs would be abundant and freely available at low cost.

[01:57:29] Speaker 01:
to facilitate compliance because, of course, the RIN market was set up pursuant to authority in 05 that talked about facilitating compliance.

[01:57:40] Speaker 01:
That was true for a number of years.

[01:57:45] Speaker 01:
With the advent of the 2016 rule, it was no longer true.

[01:57:51] Speaker 01:
And obligated parties, particularly independent refiners who had no means to comply with these obligations,

[01:58:00] Speaker 01:
became entirely dependent on blenders.

[01:58:03] Speaker 01:
But the blenders had no obligations, nor any incentive to invest in the kind of development and infrastructure that EPA has said in the 2016 rule and in every rule since.

[01:58:15] Speaker 09:
Well, to the extent that the circumstances drove up the price of rins, which you say it did, wouldn't that give the blenders incentive?

[01:58:25] Speaker 01:
What it gave them incentive to do was maximize their profits by holding on to the RIN value rather than doing what the program was intended to do.

[01:58:37] Speaker 01:
Think about it.

[01:58:38] Speaker 01:
The RIN value, the whole idea was that the value of the RINs would be passed through to retail to incentivize consumers to purchase

[01:58:53] Speaker 01:
a higher renewable fuel blend.

[01:58:57] Speaker 01:
So if that wasn't happening, if renewable fuel blends were not advantageously priced, it would not spur increased renewable fuel use.

[01:59:13] Speaker 01:
And in fact, that's what we've seen.

[01:59:15] Speaker 01:
EPA has now said

[01:59:19] Speaker 01:
in several annual rule makings that no matter how high the rent price goes, it is not driving higher use of renewable fuel at the pump.

[01:59:28] Speaker 01:
And so to get back to your question, Judge Pollard, the objection was you've got the incentives in all the wrong places and it's now causing us

[01:59:36] Speaker 01:
actual and imminent harm that was only speculative in 2010.

[01:59:41] Speaker 06:
Right.

[01:59:42] Speaker 06:
And you said the new factual circumstance is that the RIN market is working badly.

[01:59:51] Speaker 06:
Exactly.

[01:59:52] Speaker 06:
Prices are unpredictable.

[01:59:54] Speaker 06:
blenders instead of selling or hoarding, this is causing distortion as between refiners who were vertically integrated or not, right?

[02:00:07] Speaker 06:
You made all those arguments.

[02:00:09] Speaker 01:
All of those things and more.

[02:00:11] Speaker 06:
And EPA's response, they had a proceeding, they considered all those arguments and they said, look, there are going to be a lot of

[02:00:23] Speaker 06:
disruption costs if we restructure the program, and the concerns that you've identified while perhaps real ones are not ultimately traceable to the point of obligation.

[02:00:39] Speaker 01:
Let's get to what's wrong with that determination.

[02:00:40] Speaker 06:
Why is that arbitrary and capricious?

[02:00:44] Speaker 06:
At least at first glance, it seems like a pretty reasonable explanation.

[02:00:50] Speaker 01:
That's the problem with first glances.

[02:00:53] Speaker 01:
When you look at the determination, it is rife with fundamental inconsistencies.

[02:00:59] Speaker 01:
Let me talk about one.

[02:01:03] Speaker 01:
A principle pillar of the denial is the idea that the program is working and there's no disproportionate harm to my clients.

[02:01:13] Speaker 01:
These rent costs are no big deal and they're passed through.

[02:01:18] Speaker 01:
EPA does not reckon with, doesn't even acknowledge, let alone explain that more than 50 refineries from around the country petitioned for exemption from all RFS obligations based on disproportionate economic harm, the same harm that EPA in the denial says doesn't exist.

[02:01:48] Speaker 01:
EPA subsequently granted some 50 exemptions, exempting some two and a quarter billion gallons of obligations for 2016 and 2017.

[02:02:04] Speaker 01:
This is above and beyond the waivers that you were talking about.

[02:02:08] Speaker 06:
But doesn't all of that cut against you insofar as EPA can solve a problem of individual hardships through those exemptions and can solve a problem to the extent there's no cellulosic fuel because the technology just isn't there.

[02:02:28] Speaker 06:
They can solve that problem through the waiver, the waiver we were talking about before.

[02:02:34] Speaker 01:
What it does is undermine EPA's fundamental rationale for not moving the point of obligation.

[02:02:42] Speaker 01:
The point of moving the point of obligation is that EPA is obligated, statutorily obligated to ensure that these volume requirements are met.

[02:02:53] Speaker 01:
Instead, what it is doing is tweaking the tweaking.

[02:02:59] Speaker 06:
Subject to the waiver authority.

[02:03:02] Speaker 01:
But here, we're not talking about the waiver authority.

[02:03:05] Speaker 01:
We're talking about are there harms and costs to the nation's infrastructure and fuel system that are unnecessary and that are not advancing the goals of the program?

[02:03:17] Speaker 01:
Where you have, I'm sorry.

[02:03:19] Speaker 06:
You're going to EPA with an argument that the facts have changed so dramatically that they need to fundamentally restructure this program.

[02:03:31] Speaker 06:
And their answer is there'd be very substantial costs associated with doing that, and we can solve a lot of the problems you're talking about through other means.

[02:03:44] Speaker 01:
That's not what they said.

[02:03:45] Speaker 01:
They said the problems don't exist.

[02:03:47] Speaker 01:
On the one hand, they said the problems don't exist, while over here,

[02:03:51] Speaker 01:
they said that they do.

[02:03:53] Speaker 01:
Then there are more examples of this.

[02:03:55] Speaker 02:
You're characterizing their use of the exemption authority as an acknowledgement that the problem as you identify it exists, but they're saying, no, that's a different problem and we're dealing with it with a more narrowly targeted approach.

[02:04:10] Speaker 01:
It's not different.

[02:04:11] Speaker 01:
It's exactly the same because the statute, they can only grant

[02:04:16] Speaker 01:
these small refinery exemptions based on disproportionate economic harm.

[02:04:20] Speaker 01:
It's the exact same issue.

[02:04:23] Speaker 01:
The issue is that independent refiners cannot blend.

[02:04:30] Speaker 01:
They must acquire these RINs.

[02:04:34] Speaker 01:
And EPA is relying on theories, academic theories, rather than real world facts.

[02:04:42] Speaker 01:
and even the academic theories on which they rely are suspect.

[02:04:46] Speaker 01:
And this placement of the obligation is suspect, inherently suspect in the first place because they have chosen, EPA chose for administrative ease to exclude the most critical of the three groups that Congress identified for regulation.

[02:05:04] Speaker 01:
There are other inconsistencies in the determination.

[02:05:07] Speaker 01:
Another foundational one

[02:05:09] Speaker 01:
is the idea that these extraordinarily high and volatile rent prices are necessary and intentional.

[02:05:18] Speaker 01:
That is dramatically inconsistent with what EPA said when it adopted the obligated parties definition, which is that rents were intended to be low cost.

[02:05:31] Speaker 01:
and abundantly available.

[02:05:33] Speaker 01:
There's no reckoning with that inconsistency or reasoning.

[02:05:38] Speaker 01:
This is a failure of reasoning.

[02:05:42] Speaker 01:
They also said that the waivers were necessary.

[02:05:47] Speaker 01:
They also said in the denial, on the one hand, that RINS are incentivizing increased use of renewable fuel.

[02:05:54] Speaker 01:
But in the annual rule makings, as you pointed out, they're saying waivers are necessary because the RIN prices are not.

[02:06:02] Speaker 01:
occasioning higher blending rates.

[02:06:07] Speaker 01:
They say in the denial that changing the point of obligation won't help, to your point Judge Katzis, but if you look at both the 2016 rule that was the subject of ACE and in the 2010 proposed rule, in both cases they say

[02:06:25] Speaker 01:
that obligating blenders would distribute costs more evenly, decrease program costs, and help ensure that the RIN market functions as intended.

[02:06:34] Speaker 01:
The idea that they can just keep doing it wrong, fundamentally wrong, and will fix it on the back end is of cold comfort to refiners that are declaring bankruptcy because of massive

[02:06:52] Speaker 01:
Ren costs hundreds of millions of dollars.

[02:06:57] Speaker 01:
That is not serving the purposes of the statute.

[02:07:02] Speaker 01:
Also, most of the theories on which EPA relies are based on ideas of a perfectly competitive market.

[02:07:10] Speaker 01:
If you look at the Burke Holder report, which EPA relies on heavily,

[02:07:18] Speaker 01:
The beginning of that report says if fuel prices are fully flexible and markets are perfectly competitive, then these RIN prices will just pass right through.

[02:07:28] Speaker 01:
This is not such a market.

[02:07:32] Speaker 01:
RINs are traded by Yahoo instant messenger text.

[02:07:38] Speaker 01:
They're traded in a

[02:07:41] Speaker 01:
totally unregulated market.

[02:07:44] Speaker 09:
That sounds really competitive.

[02:07:46] Speaker 09:
That sounds like a market with very low transaction costs.

[02:07:50] Speaker 01:
The problem, Your Honor, is they're also traded by people who have no connection

[02:07:57] Speaker 01:
with the renewable fuel standard program.

[02:08:00] Speaker 09:
And remember... That makes it more liquid, right?

[02:08:03] Speaker 01:
No, Your Honor.

[02:08:04] Speaker 01:
It is a highly illiquid and opaque market.

[02:08:08] Speaker 01:
And think about it.

[02:08:09] Speaker 01:
My clients are required to purchase a government-mandated commodity, a publicly known quantity.

[02:08:18] Speaker 01:
The people who have the means to produce those wrens have no obligation to sell them.

[02:08:25] Speaker 01:
This is not a traditional market in any sense of the word.

[02:08:32] Speaker 01:
And it is costing refiners.

[02:08:34] Speaker 01:
If you look at the harms at joint appendix 822, 891, 836, 969 to 70,

[02:08:45] Speaker 01:
These refiners have had to limit growth and investment, reduce workforce expansion.

[02:08:51] Speaker 01:
They've suffered decreased market value.

[02:08:53] Speaker 01:
If you look at, there's a Goldman Sachs report in the record that downgrades recommendations on refiners that are RIN short, that depend on the RIN market, that cannot do their own blending.

[02:09:11] Speaker 01:
Whereas blenders and others who

[02:09:15] Speaker 01:
as you say, have rents, the value of their companies have increased.

[02:09:22] Speaker 01:
This is not a market that is working to further the goals of the statute.

[02:09:29] Speaker 01:
It is not working to further energy independence or security.

[02:09:35] Speaker 01:
To believe that there is no harm, as EPA says in the denial, you would have to believe that

[02:09:45] Speaker 01:
All of these refiners are misreading their own books and all of the financial analysts are misreading the market.

[02:09:58] Speaker 06:
You've made a series of forceful arguments on this point.

[02:10:06] Speaker 06:
Are there other arguments that you couldn't have made here, but could have made had the agency proceeded under the yearly volume regulation?

[02:10:21] Speaker 01:
Yes.

[02:10:22] Speaker 01:
I mean, I think you see lots of examples of EPA telling the court.

[02:10:26] Speaker 06:
It seems like a pretty fulsome case you're making.

[02:10:30] Speaker 01:
Well, Your Honor, think about it.

[02:10:31] Speaker 01:
Even in this court, EPA has said, oh, you can't look at the bankruptcy of the largest refiner on the East Coast because that happened after the denial.

[02:10:42] Speaker 01:
And that's exactly the problem with not requiring EPA to look at this issue annually.

[02:10:49] Speaker 01:
It allows them to cherry pick.

[02:10:52] Speaker 01:
the data that they wish to consider or wish to exclude and to pick.

[02:10:57] Speaker 01:
But that wasn't EPA's only response to that.

[02:11:00] Speaker 02:
They also said, look, there's a robust market of other refiners.

[02:11:04] Speaker 02:
That's one, and there are many, many others.

[02:11:05] Speaker 02:
And overall, the growth is high.

[02:11:12] Speaker 01:
What they did was they took a retrospective look to see whether refineries had closed.

[02:11:18] Speaker 01:
And that is exactly contrary to what the 10th Circuit in the Sinclair case said.

[02:11:26] Speaker 01:
You can't judge disproportionate economic harm by deciding whether it's going to put the refiner out of business.

[02:11:33] Speaker 01:
That is not the way to preserve energy independence.

[02:11:40] Speaker 01:
What we're talking about is the impact

[02:11:45] Speaker 01:
of this dysfunctional market, both on the refiners and on the goals of the program.

[02:11:52] Speaker 01:
And if you look at all of the costs that are caused by the misalignment, what you see is that all of those costs would be unnecessary were the point of obligation aligned with the means of compliance.

[02:12:13] Speaker 01:
those costs are not driving the goals of the program.

[02:12:19] Speaker 01:
They are not increasing the use of renewable fuel.

[02:12:24] Speaker 01:
So the issue is, is there a reasoned basis for EPA to say we're not going to do what we said we would do in 2010?

[02:12:36] Speaker 01:
And that is to revisit.

[02:12:38] Speaker 01:
The other point that we haven't talked about here is that under 7607D7B,

[02:12:46] Speaker 01:
EPA was required to conduct a proceeding for reconsideration.

[02:12:52] Speaker 01:
That is not what they did.

[02:12:53] Speaker 09:
I think your alliance on D7B is misplaced.

[02:12:57] Speaker 09:
That is clearly looking to something that happened between the close of the comment period and the close of the review period in the proceeding itself.

[02:13:10] Speaker 09:
And you're using it to try to get back to the 2010 proceeding.

[02:13:15] Speaker 01:
With all due respect, I disagree, Your Honor.

[02:13:18] Speaker 01:
Provision B1 and provision D7B have to work in harmony.

[02:13:23] Speaker 01:
D7B incorporates

[02:13:26] Speaker 01:
the period for judicial review of B1, and that is the way it's been in- The different proceedings, the different proceedings.

[02:13:34] Speaker 01:
Well, D7B refers to the agency proceeding.

[02:13:37] Speaker 09:
Excuse me, your B1 objection to relook at what was done in 2010.

[02:13:43] Speaker 09:
adds up with certain qualifications, but to hitch in D7B seems to me not to fit at all.

[02:13:53] Speaker 09:
It's a very, the new grounds involved in D7B are within a very narrow statutorily defined period of time.

[02:14:04] Speaker 01:
The statute doesn't include that time period.

[02:14:06] Speaker 01:
Instead, it refers back to the time for judicial review, which is set by B1.

[02:14:13] Speaker 01:
And these petitions were filed within the time for review under B1.

[02:14:21] Speaker 01:
And that is the way practitioners have read those provisions.

[02:14:26] Speaker 01:
And that's the procedure, for example, that, as far as I can tell, was used in coalition for responsible regulation to bring the greenhouse gas rules before the court.

[02:14:36] Speaker 01:
There's no case.

[02:14:38] Speaker 01:
that limits 7607D7B in that way and there's not deference to the agency on those kinds of issues.

[02:14:48] Speaker 01:
So I think statutorily that is a fair construction of the statute.

[02:14:52] Speaker 06:
What does it mean to say within the time specified for judicial review?

[02:14:57] Speaker 01:
I think that refers back to section B1.

[02:15:01] Speaker 01:
So if the petition for reconsideration is filed within

[02:15:07] Speaker 01:
the time period set by B1 after the grounds arise, then that triggers the reconsideration duty.

[02:15:17] Speaker 01:
And here, EPA did not conduct a proceeding for reconsideration asking whether to reconsider is not the same as reconsidering.

[02:15:28] Speaker 01:
What they did was they proposed to deny reconsideration.

[02:15:32] Speaker 01:
They did not conduct a proceeding for reconsideration.

[02:15:35] Speaker 09:
They really asked the wrong question and they answered it.

[02:15:48] Speaker 09:
a petition to EPA that calls for looking at something on the basis of new grounds creates under El Hado a duty on the part of the agency to look at it.

[02:16:01] Speaker 01:
You're right in the sense of invoking this court's jurisdiction, absolutely.

[02:16:05] Speaker 01:
But in terms of what the agency is obligated to do, the idea of 7607D7B

[02:16:13] Speaker 01:
was to require the agency to consider new information as if it had been available at the time of the original promulgation in 2010.

[02:16:23] Speaker 02:
I mean, for you, what's at stake is a standard of review.

[02:16:27] Speaker 01:
Well, it's also the consideration that's given.

[02:16:32] Speaker 01:
There was no independent analysis.

[02:16:35] Speaker 01:
And you have to remember, these are issues about the operation of financial markets.

[02:16:41] Speaker 01:
This is not within EPA's area of expertise.

[02:16:46] Speaker 01:
And the issue is how did they go about this proceeding?

[02:16:50] Speaker 01:
What they did was they strongly tilted the playing field.

[02:16:58] Speaker 01:
And they did not set out to fulfill their statutory duty, which is to consider who are the appropriate parties

[02:17:09] Speaker 01:
for this annual rulemaking or any annual rulemaking at this time.

[02:17:13] Speaker 01:
They didn't conduct an independent analysis.

[02:17:17] Speaker 01:
Instead, they treated a petition for reconsideration as one for rulemaking.

[02:17:23] Speaker 01:
And that's just not the same.

[02:17:25] Speaker 01:
And they did not treat this information as they would have had it been available in 2010, which they said

[02:17:33] Speaker 01:
Then.

[02:17:34] Speaker 06:
Petition for reconsideration of what the two thousand.

[02:17:42] Speaker 01:
Yes.

[02:17:43] Speaker 01:
Rule.

[02:17:43] Speaker 01:
Yeah.

[02:17:44] Speaker 01:
It was a petition to reconsider the obligated parties definition.

[02:17:49] Speaker 06:
But all of your arguments.

[02:17:53] Speaker 06:
are key to things that happen after 2010 that would be grounds for reconsideration even if the rule were lawfully promulgated at the moment of promulgation.

[02:18:09] Speaker 01:
Exactly.

[02:18:09] Speaker 01:
That's what 7607D7B goes to.

[02:18:12] Speaker 01:
It says when you have new information like that, if you bring it to the agency within the time period for judicial review,

[02:18:22] Speaker 01:
then the agency needs to reconsider the original promulgation as if that information had been available to it at the time.

[02:18:32] Speaker 01:
The classic case, go ahead.

[02:18:34] Speaker 06:
Sorry, I guess I'm just puzzled why we're talking about 2010 because that would seem to create

[02:18:44] Speaker 06:
a problem of new arriving grounds and you haven't, your brief asks for vacating the denial, the recent denial and remanding with instructions to grant the requested reconsideration.

[02:19:01] Speaker 06:
So isn't this just all about the agency's current failure to reopen based on post 2010 grants?

[02:19:10] Speaker 01:
Yes, you have it.

[02:19:12] Speaker 01:
I didn't mean to confuse that issue.

[02:19:14] Speaker 01:
You have it.

[02:19:15] Speaker 06:
You have it, but I think the way they go- The good news for you is that's new grounds to support jurisdiction.

[02:19:25] Speaker 06:
The bad news for you is you have a tough standard of review to show an abuse of discretion in not reopening a rulemaking.

[02:19:40] Speaker 01:
I don't think that the standard, I think that's the point, that the standard of review should be as if, the question is whether the determination was arbitrary and capricious.

[02:19:55] Speaker 06:
And here, when it's- What determination?

[02:19:57] Speaker 01:
The determination to deny- The refusal to reopen in 2017.

[02:20:01] Speaker 06:
Yes.

[02:20:01] Speaker 06:
Right.

[02:20:01] Speaker 01:
Yes.

[02:20:02] Speaker 01:
So I don't believe that we should be subject to a higher standard of review.

[02:20:06] Speaker 01:
And I think that's the point of

[02:20:09] Speaker 01:
the reconsideration process in 7607D7B.

[02:20:15] Speaker 02:
But isn't that also why, precisely why the core reading of 7607D7B is, perhaps doesn't encompass your case, that we're really talking about a situation in which the final rule differs from the proposed rule, and therefore if that's raised within the time for review of the final rule, even though it couldn't have been raised,

[02:20:40] Speaker 02:
in the common period of the proposal because it didn't exist, that that's all kind of wrapped up and then that becomes finalized.

[02:20:48] Speaker 02:
And there there's a more wide open standard of review, no?

[02:20:54] Speaker 02:
And this is just a different situation.

[02:20:56] Speaker 02:
We're talking about things that didn't exist in 2010.

[02:20:58] Speaker 01:
I guess I have two responses to that.

[02:21:01] Speaker 01:
One is, if you look at the plain language of 7607,

[02:21:07] Speaker 01:
I don't think it compels, I don't think it supports the idea that there is more deference given to EPA in the context of this denial than there would be had it conducted a proper reconsideration.

[02:21:28] Speaker 01:
But if that is the case, then it's even more important to insist

[02:21:35] Speaker 01:
that EPA has a duty to look at this issue annually.

[02:21:40] Speaker 02:
Maybe we can hear from you.

[02:21:41] Speaker 02:
OK.

[02:21:41] Speaker 02:
We'll give you a little bit of time on our ball.

[02:21:42] Speaker 02:
Thank you.

[02:21:52] Speaker 11:
May it please the court.

[02:21:54] Speaker 11:
My name is Megan Greenfield, and I'm here on behalf of EPA.

[02:21:58] Speaker 11:
The petitioners have not established

[02:22:03] Speaker 06:
Mike also moves.

[02:22:04] Speaker 11:
Does it move?

[02:22:05] Speaker 11:
I apologize.

[02:22:07] Speaker 11:
The petitioners have not established, as they must, that after arising review is proper here under the Clean Air Act.

[02:22:15] Speaker 11:
But first I'd like to address what the panel was just discussing, which is the interaction of the after arising provision, 7607B1, with the exhaustion provision, 7607D7B.

[02:22:30] Speaker 11:
Judge Williams, you are right that these provisions speak to events that take place at different points in time.

[02:22:36] Speaker 11:
After a rising review speaks to events that take place more than 60 days after promulgation, where D7B addresses events that take place at the time of promulgation, like logical outgrowth issues.

[02:22:50] Speaker 09:
And just to be clear, since you're agreed with me, B1 has no time limit on when the after arising event might occur.

[02:23:01] Speaker 09:
That's absolutely correct.

[02:23:02] Speaker 09:
A sharp contradiction with D7B.

[02:23:03] Speaker 09:
That is correct.

[02:23:05] Speaker 09:
So the five years between 2010 and the new grounds is not a problem.

[02:23:12] Speaker 11:
That's exactly right, where after a rising review standard is met, review is always available.

[02:23:18] Speaker 11:
And what confirms the reading that D7B has this more narrow application is that along with providing the exhaustion bar for direct review, it also gives the agency a stay authority to stay a rule for up to three months while it undertakes reconsideration.

[02:23:34] Speaker 11:
Under petitioner's view, because there's essentially no time limit for invoking that section,

[02:23:38] Speaker 11:
That would give the agency authority to stay the rule here, the point of obligation rule, if it undertook the mandatory reconsideration.

[02:23:46] Speaker 11:
I think petitioners are delighted by that.

[02:23:48] Speaker 02:
They think that if the rule has gone really off the rails and supports an after-arising petition, that maybe there should be stay authority.

[02:23:57] Speaker 11:
That result would be absurd, though, because it would pose some serious constitutional problems about those who have made investments and relied on the existing rule for almost a decade.

[02:24:07] Speaker 09:
Well, for getting into the merits, I'm probably the only judge on this court who has cited Coase's theory of the firm article.

[02:24:18] Speaker 09:
Certainly the only one who's cited it favorably.

[02:24:21] Speaker 09:
And that leads one to believe that.

[02:24:26] Speaker 09:
the integration of an activity within a firm sometimes makes a difference, sometimes it's costly, and sometimes it's not.

[02:24:34] Speaker 09:
Now the information stressed by Ms.

[02:24:37] Speaker 09:
Klein suggests that this may be a market where the integration of blending with refining makes all the difference in the world because we have, according to her, a set of refiners who are independent

[02:24:52] Speaker 09:
not associated with blending, being devastated, and a set of refiners who are integrated with blending who have no problem.

[02:25:06] Speaker 09:
What Ronald Coates would have said about that if you were alive, I have no idea, but the data, her site to the Goldman Sachs report and so forth suggests that assuming that markets are working smoothly with respect to RINs really is not a safe assumption.

[02:25:27] Speaker 11:
So I think the question is, would this program work better if blenders were obligated parties?

[02:25:33] Speaker 11:
And petitioners suggest that it would because it aligns what she calls the obligation with a means of compliance.

[02:25:41] Speaker 11:
So that's wrong for a number of reasons, but one of which is that the annual standards require an obligated party to acquire RINs in a number of different categories.

[02:25:54] Speaker 11:
But blenders are not diversified in the same way.

[02:25:57] Speaker 11:
You typically have a blender that blends only one type of fuel.

[02:26:01] Speaker 11:
So even under petitioner's theory,

[02:26:04] Speaker 11:
where a blender would be obligated, they would still have to acquire RINs in the different fuel types.

[02:26:10] Speaker 11:
So it would not neatly fit so that it would be easy to comply, that it would make the program much more administratively improved.

[02:26:21] Speaker 02:
How do you respond to her points about the theory just not being met in practice?

[02:26:26] Speaker 02:
I mean, I understand your basic point about the blender's not being diversified, and the Kozian point about putting this obligation on the bigger actor, and then letting the market deal with including everyone else, but she's asserting that

[02:26:45] Speaker 02:
that the blenders are holding on to the RINs, that there's a market that's holdout, that they're driving the prices up, but effectively there's some speculation and that they're, what she termed penalties from RIN shortfalls.

[02:26:59] Speaker 11:
Sure.

[02:26:59] Speaker 11:
So one of their points is that blenders have an incentive to hold on to these RINs and that creates a market dysfunction.

[02:27:07] Speaker 11:
What we saw in practice when we examined that issue closely is that because the fuel market is so competitive, blenders are forced to pass along the benefit or the value of the rim to the fuel consumers in lower prices.

[02:27:22] Speaker 11:
So if blenders were really holding on to this value, the price, the finished fuel would be more expensive and then make their product less attractive.

[02:27:31] Speaker 11:
But I wanted to bring the court's attention.

[02:27:32] Speaker 09:
Before we go too far with your point you want to make.

[02:27:36] Speaker 09:
does EPA offer in its lengthy treatment of this an explanation of why different classes of refiners seem to fare radically differently?

[02:27:51] Speaker 11:
So is the question why some refiners are better off than others financially?

[02:27:56] Speaker 09:
Radically better off.

[02:27:59] Speaker 09:
And that there's a distinguishing feature

[02:28:02] Speaker 09:
about the refiners who are badly off, namely, not being integrated with blending.

[02:28:10] Speaker 11:
So EPA assessed the refinery market in detail and found that... Where is it that the focus is on that point?

[02:28:17] Speaker 11:
So JA 118 to 122 discusses the financial solvency of refiners.

[02:28:25] Speaker 11:
And in that discussion, it says, if we thought

[02:28:30] Speaker 11:
that these merchant refiners were being injured by this program, you would expect that there would be perhaps a decrease in the amount of the refining capacity, that that financial burden would be shown.

[02:28:49] Speaker 11:
But in fact, what EPI found is that for these merchant refiners, there's been an expansion of production over the time period where rent prices have fluctuated.

[02:28:58] Speaker 11:
That's 2013 to 2017.

[02:29:01] Speaker 11:
But we don't get to any of this, because petitioners here have not shown that after arising grounds for review exist.

[02:29:09] Speaker 11:
The 2014.

[02:29:10] Speaker 06:
They're challenging the denial of this petition in 2017.

[02:29:17] Speaker 06:
They filed that challenge within 60 days of the denial.

[02:29:24] Speaker 06:
And all of their arguments are based on facts that were developed post 2010.

[02:29:29] Speaker 11:
So for after a rising review to exist on the AIR Act, you have to point to an event of legal consequence and then make a challenge based solely on that event.

[02:29:40] Speaker 06:
Why does this involve after a rising review at all?

[02:29:44] Speaker 06:
I mean, that's true only to the extent that you're trying to go back and challenge the 2010 reg as of 2010.

[02:29:55] Speaker 11:
This court's decision in ARPA held that denials for petitions to revise or to reconsider an existing rule are reviewable only under B1.

[02:30:05] Speaker 06:
Where the argument is one that was available at the time of the original promulgation of the rule.

[02:30:13] Speaker 06:
If you're saying that the rule was inconsistent with the statute or ultra virus.

[02:30:18] Speaker 11:
You do have to point to an event, but that event has to be significant.

[02:30:22] Speaker 09:
As I understand it, the petitioners here identify the event as the acknowledgement by EPA that the situation was the time EPA was deciding a mess, a mess inconsistent with its cheerier predictions for earlier, that it made earlier.

[02:30:47] Speaker 11:
They point to the invocation of the waiver authority, the general waiver authority as the basis for the actor rising ground.

[02:30:53] Speaker 11:
And that's insufficient.

[02:30:53] Speaker 06:
And everything they said in that order.

[02:30:56] Speaker 11:
They point to the underlying facts.

[02:30:59] Speaker 06:
About the malfunctioning RIN market and so on.

[02:31:02] Speaker 11:
Yes, the reason that that's not sufficient is because if their fundamental point is that the RIN market is malfunctioning, which it seems to be, and that those dramatic consequences that they're identifying, taking them at their word, occurred in 2013 at the time of the 2013 rule.

[02:31:22] Speaker 11:
That's when EPA acknowledged the existence of the blend wall and acknowledged that RIN prices were fluctuating in a different way than they had before.

[02:31:30] Speaker 11:
In fact, a petitioner brought that very issue to this court and said, this is a problem in the Monroe case, and made many of the same arguments that they're making here about the rent pricing and about the blend wall impacting that pricing.

[02:31:44] Speaker 11:
But B1 is specific, that the after arising grounds have to be the basis for challenging the existing rule.

[02:31:52] Speaker 11:
It's solely based on.

[02:31:54] Speaker 11:
And here, the fact that the waiver authority was invoked

[02:31:59] Speaker 11:
Even with the underlying circumstances, it's not really the basis that is not based the challenge that they're bringing here.

[02:32:06] Speaker 11:
They're different things.

[02:32:07] Speaker 06:
It's based on everything EPA said in that order.

[02:32:11] Speaker 06:
Right.

[02:32:12] Speaker 06:
About problems in the RIN market.

[02:32:14] Speaker 06:
And it seems to me a completely, completely different

[02:32:18] Speaker 06:
for a regulated party ex ante to say the agency's predictive judgments are unreasonable and are so unreasonable that we can set them aside in advance versus what we have here, which is an argument that the agency's predictive judgments have all proven false.

[02:32:47] Speaker 11:
I think you're right that there are certain types of facts that will constitute a sea change and allow for after-arising grounds.

[02:32:55] Speaker 11:
The reason why the waiver authority does not provide those facts here is because, for a number of reasons, one of which is it was vacated by this court in ACE, but also because the issue that that waiver authority identified, which was the shortfall in volumes, is no longer present.

[02:33:13] Speaker 11:
The implied statutory volume requirements of the rule are being met.

[02:33:16] Speaker 11:
The only shortfall at issue here is cellulosic.

[02:33:19] Speaker 06:
That just gets you pretty deep into the merits arguments about whether these problems in the RIN market are traceable to the point of obligation rule or to something else.

[02:33:36] Speaker 06:
And you may be right about that, but that seems to me more a merits point than a jurisdictional point.

[02:33:42] Speaker 11:
I think the problem there, though, is if it's right that it's just invocation of the waiver authority, that's an issue that's present on an annual basis.

[02:33:52] Speaker 02:
There really is a very tough question of separating out the merits and the jurisdictional basis.

[02:34:01] Speaker 02:
But I think the strongest version of their argument is that facts that might suffice to support an exercise of the waiver authority might also

[02:34:09] Speaker 02:
support, constitute an after arising event that would warrant jurisdiction under B1.

[02:34:17] Speaker 11:
Right, so in that circumstance, they would have to show that the facts, that a challenge based on those facts shows that the point of obligation should be changed.

[02:34:26] Speaker 11:
And I agree that that's authority.

[02:34:28] Speaker 11:
Is it jurisdiction?

[02:34:29] Speaker 11:
Is it merits?

[02:34:30] Speaker 11:
It's a tough question.

[02:34:31] Speaker 11:
But here what's clear is that they have not put forth evidence

[02:34:35] Speaker 11:
showing that obligating blenders would address the concerns that they've raised.

[02:34:41] Speaker 11:
It would not address this shortfall in cellulosic for sure.

[02:34:44] Speaker 09:
I haven't studied the pages that you cited as EPA's answer to the evidence from the different fates of different types of refiners.

[02:34:56] Speaker 09:
And maybe EPA completely disposes of that.

[02:35:00] Speaker 09:
Although that is, of course, a merits question, but to the extent that we have EPA acknowledging that we have a very serious problem not anticipated in 2010, and they have a theory with some facts to support it, surely they are entitled to get that looked at by EPA.

[02:35:24] Speaker 11:
And EPA did that examination.

[02:35:27] Speaker 11:
That's part of what a HALTO requires.

[02:35:28] Speaker 11:
It requires this administrative review so that this can court consider both whether revision is necessary, but also I think whether the grounds exist.

[02:35:36] Speaker 06:
And then after that process, when they come to this court,

[02:35:43] Speaker 06:
In that posture, it seems much more realistic to say the focus of their challenge is the 2017 order rather than the 2010 regulation.

[02:35:59] Speaker 11:
So it is important that the court review that administrative denial and determining whether the regulation was invalid.

[02:36:06] Speaker 11:
But the purpose of After Rising Grounds is to allow for a challenge of the original rule.

[02:36:11] Speaker 11:
A barrier of that is analyzing the administrative denial.

[02:36:15] Speaker 11:
But you don't get there.

[02:36:16] Speaker 11:
unless their challenge is based solely on the after arising event.

[02:36:21] Speaker 11:
For example, in 2013, at the time of the 2013 rule, if they said this rule acknowledges that this substantial factual event occurred, the blend wall, and RIN prices are now fluctuating dramatically.

[02:36:35] Speaker 11:
That is actually the basis of their challenge right now, right?

[02:36:38] Speaker 11:
I mean, the fundamental facts here that they discuss are the fluctuations in rent pricing.

[02:36:44] Speaker 11:
They also claim that there's particular hardship to refiners.

[02:36:48] Speaker 11:
But it's unclear, because they don't make the case, how changing the point of obligation and obligating blenders as well as refiners would measurably impact that.

[02:37:00] Speaker 09:
I understand what you're saying.

[02:37:02] Speaker 09:
if it is the case that integration really makes a huge difference.

[02:37:08] Speaker 09:
That suggests that integration, of course, would mean that the people who were refining would also be blending and that those firms are fully subject to the obligations.

[02:37:22] Speaker 09:
Suppose we have a market with no independent lenders, no blenders at all.

[02:37:27] Speaker 09:
lending happens exclusively by refiners, then the condition they point to would not exist.

[02:37:37] Speaker 09:
Your argument appears to be, and maybe it's established in the pages you cite to me too, that no problem.

[02:37:46] Speaker 09:
The notion that

[02:37:48] Speaker 09:
not the separation of obligation as between refining and blending, just has no effect whatsoever.

[02:37:57] Speaker 09:
Maybe you're right, I don't know, but I haven't focused on those pages.

[02:37:59] Speaker 11:
So our argument on that point is, does integration make a difference here?

[02:38:02] Speaker 11:
And we looked at the evidence and we found it does not, because these RIN prices are passed through.

[02:38:07] Speaker 11:
They're passed through.

[02:38:08] Speaker 11:
That's what the evidence shows.

[02:38:09] Speaker 11:
And that's at JA 77 to 82 in the record.

[02:38:13] Speaker 11:
And we have ample evidence supporting that.

[02:38:17] Speaker 11:
For example,

[02:38:19] Speaker 11:
We note that a blender pays more for the fuel components.

[02:38:26] Speaker 11:
That's the renewable fuel plus the regular gasoline.

[02:38:31] Speaker 11:
It pays more for those components than it ends up selling its product for.

[02:38:37] Speaker 11:
And that difference, we see the evidence shows that that reflects the value of the RIN.

[02:38:43] Speaker 11:
that the blender by keeping the value of the rain is able to sell its fuel for a lower price.

[02:38:49] Speaker 11:
So we have that as evidence.

[02:38:53] Speaker 11:
We have evidence that gasoline sold domestically is more expensive than gasoline that's exported because the price of gasoline

[02:39:04] Speaker 11:
pure gasoline, not blended, reflects the value of the RIN.

[02:39:08] Speaker 11:
So when the merchant refiners are selling their gasoline product to the blender or to whomever is downstream, they're selling it for more than they otherwise would in the absence of the program.

[02:39:18] Speaker 11:
They're recovering their, so they don't have, while it's true that on their financial statements, there's a line item and it reflects RIN costs.

[02:39:26] Speaker 11:
And it's a big one.

[02:39:27] Speaker 11:
We acknowledge that.

[02:39:29] Speaker 11:
They're recovering that in the sale of their product.

[02:39:34] Speaker 11:
And Petitioner brings up a series of events, including PES bankruptcy.

[02:39:40] Speaker 11:
It says those are critical to understanding the denial here.

[02:39:43] Speaker 11:
But of course, this court knows that that bankruptcy occurred after the time that the denial was issued.

[02:39:50] Speaker 11:
It's not part of the record here.

[02:39:52] Speaker 11:
If petitioners believe that that provides an after-arising event sufficient to challenge the point of obligation, they should have filed an after-arising petition then.

[02:40:02] Speaker 11:
But they did not.

[02:40:03] Speaker 09:
You understandably put great weight on the word solely, and I understand solely is right there in B1, so there's no doubt about it.

[02:40:13] Speaker 09:
It must be very rare, vanishingly rare, that something happens in the economy where there is only one cause, one phenomenon to be looked at.

[02:40:27] Speaker 09:
insisting literally on solely is pretty tough.

[02:40:30] Speaker 09:
It's the interaction of particular things.

[02:40:34] Speaker 09:
And they chose, maybe mistakenly, but they chose to focus on EPA's acknowledgement of a set of circumstances.

[02:40:47] Speaker 09:
And you know perfectly well that if they had come in saying these are the circumstances, EPA would have said, well, they don't amount to that much, and so forth and so on.

[02:40:58] Speaker 09:
So it would have all disappeared.

[02:41:00] Speaker 09:
Instead, they focused on EPA's acknowledgment of a condition.

[02:41:05] Speaker 11:
But the grounds that they chose are important because the act provides a timing requirement.

[02:41:11] Speaker 11:
It doesn't say file an after arising petition, you know, years or whenever without a time frame.

[02:41:16] Speaker 11:
It says within 60 days.

[02:41:18] Speaker 11:
And solely does have to have some meaning here.

[02:41:21] Speaker 11:
And the court, the 10th Circuit in the Utah VEPA case looked at the word solely and said,

[02:41:26] Speaker 11:
That means that the after a rising event has to be the basis for the challenge.

[02:41:31] Speaker 11:
And here, just saying that the waiver authority was invoked, which was advocated by them, and in their favor is insufficient.

[02:41:38] Speaker 09:
As I understand it, they're not relying on the proposition that the waiver authority was invoked.

[02:41:42] Speaker 09:
They're relying on conditions acknowledged by EPA, and more specifically, EPA's acknowledgement of those conditions.

[02:41:51] Speaker 11:
And if that's right, those conditions no longer exist.

[02:41:54] Speaker 11:
Because EPA's acknowledgement of those conditions there was that the volume requirements, with the exception of cellulosic, because cellulosic is not being met across the board, couldn't be met.

[02:42:07] Speaker 11:
And now they're being exceeded.

[02:42:09] Speaker 11:
So there's a very big difference there.

[02:42:11] Speaker 11:
Now with everything except cellulosic, it's being exceeded.

[02:42:14] Speaker 11:
So the basis of their challenge, to the extent it existed at all, is no longer here.

[02:42:19] Speaker 06:
Olato itself says you can challenge an old regulation based on new information.

[02:42:30] Speaker 06:
That's right out of the court's opinion.

[02:42:32] Speaker 06:
That seems to, and do so through a timely filed petition for review of a denial to reopen.

[02:42:42] Speaker 06:
That seems to describe this case to a tee.

[02:42:48] Speaker 11:
It does not, because the facts that they cited, relied on, are not the basis for their challenge now.

[02:42:54] Speaker 11:
And I am putting weight on that, but I think that the statute requires it.

[02:42:58] Speaker 11:
The statute requires that based solely on to do some work.

[02:43:02] Speaker 11:
Because otherwise, what we're gonna run into is we're going to have just mere application of a regulation is enough.

[02:43:08] Speaker 11:
You know, when the regulation was applied to X facility, certain things happened.

[02:43:12] Speaker 06:
I mean, but what I'm suggesting is it all depends on the kind of argument that the challenger wants to make.

[02:43:22] Speaker 06:
And we don't let the petition, the denial of the petition to reopen count when the underlying argument is one that, about the lawfulness of the regulation, which could have been raised at the time.

[02:43:41] Speaker 11:
Right, but any new facts can't be sufficient.

[02:43:43] Speaker 06:
But that isn't this kind of argument.

[02:43:46] Speaker 11:
That's right, but it's not any new facts because there's a line of case law where it says just mere application of a regulation is not enough, right?

[02:43:56] Speaker 06:
Not enough to support a challenge to the regulation itself.

[02:44:05] Speaker 06:
not enough to support an argument that the regulation violates a statute or is ultra virus or something like that.

[02:44:14] Speaker 11:
So I read those cases to say.

[02:44:16] Speaker 11:
that absent a new event that has adversely legal consequence, you don't get to open the door to the court at all.

[02:44:23] Speaker 06:
I mean, the foundational cases that you're relying on are national mining and ARTBA-1, where the argument that the challenger sought to make was

[02:44:36] Speaker 06:
The old rule was ultra virus or the old rule was inconsistent with the statute.

[02:44:41] Speaker 06:
Those are cases that we cite.

[02:44:42] Speaker 06:
And it might make sense for an argument like that to treat a 2017 denial of reopening as really a challenge to a 2010 rule.

[02:44:53] Speaker 06:
But I don't think it makes sense where the request for reconsideration rests on post-rule facts.

[02:45:04] Speaker 11:
I'm also referring to not those cases, which I cited for the distinction between what's reviewable here, but also national biodiesel board.

[02:45:11] Speaker 11:
So the petitioners there.

[02:45:13] Speaker 11:
They challenged a regulation, actually the same 2010 implementing regulations here, and said, you know, I had never anticipated the way that EPA would apply this.

[02:45:22] Speaker 11:
The facts here provide a basis.

[02:45:25] Speaker 11:
And this court said, that's not enough.

[02:45:27] Speaker 11:
You can't just say.

[02:45:29] Speaker 09:
I'm sorry.

[02:45:29] Speaker 09:
I had never anticipated.

[02:45:31] Speaker 09:
It sounds like an extraordinarily weak argument, as you quote it.

[02:45:36] Speaker 09:
I mean, was it clearly anticipatable?

[02:45:40] Speaker 11:
So it was EPA's application of a regulation to allow a certain foreign entity to import the fuel types under the RFS program.

[02:45:52] Speaker 11:
So they said at the time the regulation was enacted,

[02:45:55] Speaker 11:
I didn't know that it could be read by the agency to allow for this type of conduct.

[02:46:00] Speaker 11:
I understand that you're saying that these facts are different here, but regulated parties often comment on proposed rules, and they say, if you promulgate this rule,

[02:46:12] Speaker 11:
these bad things are going to happen.

[02:46:13] Speaker 11:
You know, it's going to have a devastating financial impact to my organization.

[02:46:16] Speaker 11:
And the EPA takes that into consideration and sometimes determines that promulgation is warranted even in light of that.

[02:46:23] Speaker 06:
But what was the underlying argument that the challenger sought to raise in NBB?

[02:46:32] Speaker 06:
It was an argument that the regulation as promulgated on day one was unlawful for some reason or another, right?

[02:46:41] Speaker 11:
Yes, I believe it was.

[02:46:43] Speaker 06:
Which is different from an argument that the regulation should be reconsidered because facts have changed.

[02:46:50] Speaker 02:
Because as we said in MBB, there's a C change.

[02:46:58] Speaker 11:
So MBB's reference to a C change was discussing the re-opener doctrine, which is not at issue in this case.

[02:47:08] Speaker ?:
Yep.

[02:47:10] Speaker 11:
But if the panel has no further questions, I seem about nine minutes over time.

[02:47:14] Speaker 02:
You are.

[02:47:15] Speaker 02:
All right.

[02:47:18] Speaker 02:
We will hear now from Mr. Long for interveners.

[02:47:39] Speaker 00:
Thank you, Your Honors.

[02:47:40] Speaker 00:
Robert Long representing the American Petroleum Institute.

[02:47:45] Speaker 00:
I hope to be able to make two points.

[02:47:47] Speaker 00:
I know we've been going a long time this morning.

[02:47:50] Speaker 00:
The first is really a practical point, not a legal point, and that is API representing the oil and gas industry and growth energy representing the ethanol industry.

[02:48:05] Speaker 00:
disagree on many issues concerning the RFS program, but they agree that moving the point of obligation would not solve the problems with this program and, in fact, would make the problems worse

[02:48:25] Speaker 00:
And the basic reason really goes to a point that Judge Pillard made back in the first case this morning, which is regulatory certainty.

[02:48:35] Speaker 00:
This is a big program and it is really essential to have some regulatory certainty to allow obligated parties to plan so that they can comply with the program.

[02:48:51] Speaker 00:
There are

[02:48:54] Speaker 00:
Compliance plans, which by their nature are multi-year.

[02:48:58] Speaker 00:
There are investments.

[02:49:01] Speaker 00:
EPA mentioned this in its denial.

[02:49:05] Speaker 00:
Commercial agreements.

[02:49:07] Speaker 00:
Certainly a system where every year who is an obligated party has to be reconsidered de novo from the ground up.

[02:49:17] Speaker 00:
we think would be highly destabilizing, and the program could not have... I think a critical phrase there is from the ground up.

[02:49:25] Speaker 09:
I don't think at this point anyone is arguing for a re-examination from the ground up.

[02:49:31] Speaker 09:
Well, and so let me... Actually, this relates to Coffeyville, not Elan.

[02:49:37] Speaker 00:
All right, so that's... My second point is

[02:49:41] Speaker 00:
Perhaps you might think a little intention with my first point initially, but I hope to show it strikes just the right balance, which is we do not think, and I don't really think EPA is arguing that they have absolute discretion to set the point of obligation once in 2010

[02:50:00] Speaker 00:
and never have to reconsider it, never subject themselves to judicial review, no matter what future developments may come to pass.

[02:50:10] Speaker 00:
We don't think that's right and we think the right approach.

[02:50:15] Speaker 00:
So, I mean, the court was discussing it.

[02:50:18] Speaker 00:
Ordinarily, of course, if we were not under the Clean Air Act, anybody could file a petition for rulemaking at any time to modify the rule.

[02:50:27] Speaker 00:
if the agency denied that petition, you would get review from this court or some court.

[02:50:33] Speaker 00:
But as I think Judge Williams was, we're under the Clean Air Act and Congress, I'm sure for good and sufficient reasons, has this very directive 60 day requirement.

[02:50:46] Speaker 00:
So we think it needs to qualify as an after a rising ground under 3071

[02:50:54] Speaker 00:
And if it can qualify as an after arising ground, then yes, this court reviews it.

[02:51:01] Speaker 00:
Now, our view is this situation does not make the cut because we think basically these arguments have been made since 2010.

[02:51:14] Speaker 00:
And the court can look, I'm sure the court will look.

[02:51:18] Speaker 00:
I won't take time on this, but if you look at

[02:51:21] Speaker 00:
comments that were made at the time of the 2010 rule, if you look at arguments that were made to this court in the Monroe Energy case.

[02:51:31] Speaker 09:
The petitioner's theory, though, is sure the argument was made, but it was brushed aside by EPA on the basis of EPA's understanding of the real world, and say the petitioners,

[02:51:48] Speaker 09:
events proved that understanding to be mistaken.

[02:51:52] Speaker 00:
Right.

[02:51:53] Speaker 00:
And I think frankly that's where we are here.

[02:51:57] Speaker 00:
There's sort of additional evidence.

[02:51:59] Speaker 00:
I mean it was no surprise to anybody who'd been watching in 2015 when the 2014-15-16 rule came out.

[02:52:08] Speaker 00:
that it had not been possible to produce cellulosic biofuel in anything like the quantities that Congress had hoped would be produced, and that we were approaching what everybody calls the blend wall, and what you probably understand from the briefs, it's relatively easy to get up to 10% renewable fuel, or close to 10%.

[02:52:31] Speaker 00:
And after that, it becomes like pulling teeth.

[02:52:35] Speaker 00:
I mean, basically just for a combination of technical reasons.

[02:52:38] Speaker 00:
So, you know, basically what happened in the 2014-15-16 role is EPA sort of formally

[02:52:48] Speaker 00:
in a rule said, okay, we've hit that spot.

[02:52:51] Speaker 00:
But everybody knew about it.

[02:52:53] Speaker 00:
I mean, it was being argued to this court in cases we've had discussed in many filings with EPA.

[02:53:02] Speaker 00:
So if you're taking seriously the after arising, the strict after arising provision of 307B1, I think

[02:53:13] Speaker 00:
In this situation, the petitioners could have sought review sooner.

[02:53:21] Speaker 00:
Essentially, they'd had another piece of evidence.

[02:53:26] Speaker 00:
They had, well, now we actually have a waiver, a cellulosic waiver and a general waiver.

[02:53:33] Speaker 00:
And so EPA has formally recognized what was really

[02:53:38] Speaker 00:
apparent to everybody.

[02:53:40] Speaker 06:
Could have sought review in 2010 challenging the predictive judgment or could have sought review in 2013 when the later acknowledged evidence starts to accumulate?

[02:53:56] Speaker 00:
I think there's no question that it could have sought review in 2010 in the sense that these merchant refiners, the unintegrated refiners

[02:54:06] Speaker 00:
were obligated parties.

[02:54:08] Speaker 00:
There had been comments made in 2010.

[02:54:10] Speaker 00:
This is going to put us on an uneven playing field.

[02:54:13] Speaker 09:
You know what we would have said about EPA's predictive judgment.

[02:54:17] Speaker 09:
Great deference.

[02:54:18] Speaker 00:
Well, Touche, Your Honor, and I mean, and I think, yes, I mean,

[02:54:25] Speaker 00:
As I say, we're trying to strike a balance here.

[02:54:28] Speaker 00:
We think as experience, as EPA has experience, as the obligated parties have experience, you may get to a point where yes, this isn't after a rising ground and EPA does have to look at it.

[02:54:43] Speaker 00:
We think this doesn't qualify here though.

[02:54:46] Speaker 02:
What's your position on whether the D7B authority applies here?

[02:54:51] Speaker 00:
Well, we did not.

[02:54:53] Speaker 00:
Make that argument in our brief, and my understanding, I hope I've got this right, is that this court's decision years ago, sort of foundational decision as I understand it, and Olacho says that under 307B1, if it's an after-rising ground,

[02:55:17] Speaker 00:
statutory language plainly says you can come straight to this court.

[02:55:20] Speaker 00:
However, you need an administrative record to review.

[02:55:23] Speaker 00:
You can't review it without an administrative record.

[02:55:26] Speaker 09:
We revised B1 in accordance with our understanding of it.

[02:55:32] Speaker 00:
So, you know, I think you don't have to read the D7B to say it's a 30-day window and it closed, a 60-day window, and if it's not during the initial period of judicial review, that's shut forever.

[02:55:47] Speaker 00:
But, I mean, whether you do it under D7B or whether you do it under, I think this court said in Alachua it was an exercise of the court's inherent power, either way,

[02:56:00] Speaker 00:
under, I mean, we think 307B1 is the key provision.

[02:56:04] Speaker 00:
If it's a true after arising ground, you do get review and you have to go to the agency to get a record so the court can conduct the review.

[02:56:15] Speaker 00:
That's how we would work out that problem.

[02:56:17] Speaker 02:
It's implicit in, I mean, the inherent authority language may be infelicitous, but the Ojato reasoning is that it's implicit in the B-1 review that there'd be some way to make a record.

[02:56:28] Speaker 00:
Yeah, because, I mean, as, I would, 307 B-1 clearly says you get to come to this court if there's an after-rising ground.

[02:56:37] Speaker 00:
This court cannot do its job if it doesn't have an administrative record, so there has to be an administrative record whether you,

[02:56:44] Speaker 00:
Read D7B to be the way you do that.

[02:56:48] Speaker 00:
I mean, I think you have to move within 60 days, because Congress seemed to be very, very serious about that.

[02:56:54] Speaker 00:
You know, there's even this provision in 307B that you can't, even in enforcement actions, if you could have raised that within 60 days, you can't raise it, which is, I understand there's an unresolved due process argument about whether that's even constitutional, but it shows Congress was serious about this notion.

[02:57:15] Speaker 09:
But the core of your argument is that,

[02:57:18] Speaker 09:
Here, we don't have what qualifies as a new ground after a rising ground.

[02:57:25] Speaker 00:
Right.

[02:57:25] Speaker 00:
And I would, I said I'd make two points.

[02:57:28] Speaker 00:
I'll make this third point very quickly.

[02:57:30] Speaker 00:
You know, as I look at what EPA did here, they essentially

[02:57:38] Speaker 00:
you know, decided not to move the point of obligation.

[02:57:41] Speaker 00:
They put it in terms of a denial of petitions to change the obligation, but they put it out for full notice and comment.

[02:57:49] Speaker 00:
They got thousands of comments, I think.

[02:57:53] Speaker 00:
wrote an 85 page decision and I mean they say expressly in there we should not move the point of obligation so I may have gotten a little confused in the long arguments this morning but it seems to me it would be sort of a

[02:58:08] Speaker 00:
a harmless error situation.

[02:58:11] Speaker 00:
I mean, if the court were to send it back and say, well, EPA should have granted the petition for reconsideration rather than denied it.

[02:58:19] Speaker 00:
And now, EPA, you need to have a proceeding to decide, having granted reconsideration, whether in fact you're gonna change the point of obligation.

[02:58:30] Speaker 00:
I think you'd get pretty much the same decision that EPA issued here.

[02:58:35] Speaker 00:
So I think that would be an exercise in futility.

[02:58:40] Speaker 00:
There are no further questions.

[02:58:41] Speaker 00:
Thank you.

[02:58:44] Speaker 02:
Thank you, Mr. Long.

[02:58:46] Speaker 01:
I know I stand between you and lunch.

[02:58:49] Speaker 01:
I just would like to correct a few things for the record.

[02:58:52] Speaker 02:
We'll give you two minutes.

[02:58:55] Speaker 02:
I'll be fast.

[02:58:57] Speaker 06:
And we're very strict with the red light.

[02:59:04] Speaker 02:
Only after 1230.

[02:59:09] Speaker 01:
There were two things that were said, I don't think they were intended to be inaccurate, but they are and they're important.

[02:59:17] Speaker 01:
One is the idea that EPA determined that RIN values are being passed through to retail and so things are working.

[02:59:29] Speaker 01:
That could not be further from the truth.

[02:59:32] Speaker 01:
If you look at EPA's own analysis, Mr. Burkholder's report at JA 379, he concludes that those values are not on the whole passing through to retail and instead the value is being maintained to maximize profits.

[02:59:50] Speaker 01:
There are about eight other reports.

[02:59:53] Speaker 01:
I think the best place to start is the Holcomb report that's excerpted in the record at JA 766.

[03:00:02] Speaker 01:
But there are also others, JA 1032, 530, 634, 366, all address that issue.

[03:00:14] Speaker 01:
Second, there was a statement that the shortfalls are no longer present.

[03:00:21] Speaker 01:
That also is factually inaccurate.

[03:00:24] Speaker 01:
If you look at what has happened,

[03:00:28] Speaker 01:
EPA has exempted 2 and 1 quarter billion gallons for 16 and 17.

[03:00:35] Speaker 01:
They waived some 200 million gallons to get PES out of bankruptcy.

[03:00:41] Speaker 01:
And since 2015, they have waived billions of gallons.

[03:00:47] Speaker 01:
The exact number is in our brief.

[03:00:49] Speaker 01:
So it's just simply not true that we're not facing shortfalls.

[03:00:55] Speaker 01:
Third, there was a reference to an earlier petition by Monroe that was based on methodology that was in a proposed rule for 2014 that was later withdrawn.

[03:01:09] Speaker 01:
The petition itself said it was filed in an abundance of caution and might be unright.

[03:01:23] Speaker 01:
Lastly, I just want to take a minute to talk about the unfairness.

[03:01:29] Speaker 01:
I see your face.

[03:01:31] Speaker 01:
I'm going to stop.

[03:01:32] Speaker 01:
Go ahead.

[03:01:32] Speaker 01:
Make your last point.

[03:01:35] Speaker 01:
I'm not going there.

[03:01:36] Speaker 01:
I think that you can understand the situation we're in, where we were told in 2010 EPA would look at this when things changed.

[03:01:46] Speaker 01:
They never said they wouldn't look at it in annual rule makings.

[03:01:49] Speaker 01:
In 2016 was the first time they said,

[03:01:52] Speaker 01:
It's off the table.

[03:01:53] Speaker 01:
We're not even going to consider comments.

[03:01:55] Speaker 01:
We took that up to this court.

[03:01:57] Speaker 01:
They said, don't worry.

[03:01:58] Speaker 01:
We've got this other collateral proceeding.

[03:02:01] Speaker 01:
You understand the kind of shell game that we feel and appreciate.

[03:02:08] Speaker 01:
Scrutiny here.

[03:02:09] Speaker 01:
Thank you.

[03:02:11] Speaker 01:
Enjoy your lunch.

[03:02:13] Speaker 02:
You as well.

[03:02:14] Speaker 02:
Thank you very much.

[03:02:16] Speaker 10:
Stand, please.

[03:02:18] Speaker 10:
This honorable court now stands adjourned until Tuesday morning at 930 AM.