[00:00:00] Speaker 07:
Case number 19-1023 et al, Growth Energy Petitioner versus Environmental Protection Agency and Andrew Wheeler, Administrator.

[00:00:13] Speaker 13:
Thank you.

[00:00:14] Speaker 13:
Welcome to all council this morning.

[00:00:16] Speaker 13:
And we'll begin with the claims by the Renewable Fuels Producers.

[00:00:22] Speaker 13:
Mr. Leen, when you're ready, please proceed.

[00:00:25] Speaker 03:
May it please the court.

[00:00:27] Speaker 03:
In the renewable fuel standard program, Congress prescribed increasing national renewable fuel volume requirements to, as this court has put it, force the market to use greater and greater volumes of renewable fuel each year.

[00:00:42] Speaker 03:
And each year, EPA is obligated to set national percentage standards that are reasonably calculated to force obligated parties to use the required amount of renewable fuel.

[00:00:53] Speaker 03:
This duty stems from Congress's command that EPA set percentage standards that ensure that the volume requirements are met and the duty to engage in reasoned decision-making, which includes considering all important aspects of the problem and rationally basing the decision on the evidence before it.

[00:01:11] Speaker 03:
In certain circumstances, EPA may determine that the percentage obligation shall not apply to individual small refineries.

[00:01:20] Speaker 03:
When it grants such exemptions without adjusting the national standards to account for them, EPA creates, as this court said in AFPM, a renewable fuel shortfall.

[00:01:32] Speaker 13:
Can I ask a question at the outset, Mr. Lane, and then before getting into the substance of the issue, just about timeliness, about the timeliness of the challenge.

[00:01:40] Speaker 13:
So in the 2011 rule, the agency said that

[00:01:47] Speaker 13:
If any small refinery exemptions for 2011 are approved after this final rulemaking, the parties would be exempt, but we would not intend to modify the applicable percentage standards and announce new standards for 2011.

[00:01:58] Speaker 13:
And the agency went on to say periodic revisions to the standards to reflect waivers issued to small refineries or refiners would be inconsistent with the statutory text.

[00:02:08] Speaker 13:
And would introduce an undesirable level of uncertainty for obligated parties.

[00:02:11] Speaker 13:
And so since the agency spoke in terms of a contrary approach being inconsistent with the statutory text and just put to one side for a moment that starting in 2020 a different approach was adopted, but

[00:02:24] Speaker 13:
in terms of the lay of the land as of 2011 and in the intervening years, including 2019, the agency had said that a different approach, quote, would be inconsistent with the statutory text, close quote.

[00:02:36] Speaker 13:
And so the question obviously arises, well, did a challenge of the kind that you're now asserting need to be brought within 60 days of the rendering of that interpretation in 2011?

[00:02:49] Speaker 03:
The answer is no, and there are a lot of reasons for this.

[00:02:52] Speaker 03:
I would start with the fact that what EPA said was inconsistent with the statute is not at all what we're asking for.

[00:03:00] Speaker 03:
What it said was inconsistent was modifying the standards after they've been set in the course of the compliance year.

[00:03:07] Speaker 03:
And we're not requesting that.

[00:03:08] Speaker 03:
And we're not saying that EPA should do that.

[00:03:11] Speaker 03:
EPA also interpreted as regulation at that time to permit it to account only for the exemptions that had already granted before finalizing the regulation or the standards.

[00:03:22] Speaker 03:
But the regulation didn't require that.

[00:03:24] Speaker 03:
That was just an interpretation that EPA adopted in the course of that standard setting and then subsequent ones.

[00:03:30] Speaker 03:
But the regulation can easily be interpreted

[00:03:32] Speaker 03:
to permit what we are proposing.

[00:03:36] Speaker 01:
Why does that matter from a point of view of timeliness?

[00:03:39] Speaker 01:
That is, EPA has a regulation.

[00:03:42] Speaker 01:
It's interpreted a certain way.

[00:03:44] Speaker 01:
Interpretation is the regulation for purposes of timeliness.

[00:03:49] Speaker 01:
You can challenge it at that point, but you can't challenge it later.

[00:03:52] Speaker 01:
It wasn't only in 2011.

[00:03:54] Speaker 01:
In 2018,

[00:03:55] Speaker 01:
The agency said, EPA is maintaining its approach that any exemptions for 2018 that are granted after the final rule is released will not be reflected in the percentage standards.

[00:04:07] Speaker 01:
So that seems directly what you are asking, that any exemptions be reflected.

[00:04:12] Speaker 01:
And I don't understand the timeliness question.

[00:04:16] Speaker 01:
The fact that it's an interpretation of a regulation, of course, interpretations can be changed.

[00:04:20] Speaker 01:
Regulations can be changed.

[00:04:22] Speaker 01:
But you have to challenge the agencies

[00:04:25] Speaker 01:
told you what they thought the regulation meant, and that's the time to challenge it.

[00:04:30] Speaker 03:
Well, there are additional reasons why I don't think it's time-barred.

[00:04:36] Speaker 03:
For one thing, there were other ways EPA could have done what we were asking without touching its interpretation of the regulation.

[00:04:43] Speaker 03:
It could have used a larger cellulosic wave or flow through.

[00:04:47] Speaker 03:
because it has discretion to determine how much of the cellulosic waiver to apply to the advance in total requirements.

[00:04:53] Speaker 03:
It could have increased the standards by adding, by the amount of prior exemptions, which is something it never spoke to, but something that it has effectively done in the past to deal with other shortcomings.

[00:05:06] Speaker 03:
And perhaps most importantly, an additional reason, I would direct the court to its own decisions in the AFPM case and the Elan case, where in both cases,

[00:05:16] Speaker 03:
There were challenges to old EPA regulations.

[00:05:20] Speaker 01:
Which was the first one you mean, marketing assistance?

[00:05:23] Speaker 03:
Is that the case?

[00:05:24] Speaker 03:
Pardon me.

[00:05:25] Speaker 03:
The American petrochemical and fuel manufacturers, or I think I have fuel and petrochemical reversed.

[00:05:32] Speaker 03:
They're one of the parties in this case.

[00:05:37] Speaker 03:
This decision involved the 2018 renewable fuel standard.

[00:05:41] Speaker 03:
And then the Elan refining case involved the 2017 renewable fuel standard.

[00:05:45] Speaker 01:
But the Elan case turned specifically on the statutory language, didn't it?

[00:05:49] Speaker 01:
That's what we said in Elan.

[00:05:52] Speaker 03:
Well, it did, but so does ours.

[00:05:54] Speaker 03:
I think the lesson from both of those decisions.

[00:05:56] Speaker 01:
We don't have statutory language that says as appropriate.

[00:06:00] Speaker 03:
Well, we have statutory language that says that each year when EPA sets the standards, it must set them to ensure that the volume requirements are met and EPA must engage in reason decision making each time it does that.

[00:06:11] Speaker 03:
Those are independent obligations that apply every time it acts.

[00:06:15] Speaker 03:
And what AFPM and ALAN recognize is that if you're arguing that EPA failed in those duties,

[00:06:23] Speaker 03:
that even if that challenge implicates the validity of some old policy or regulation that you can't challenge directly, the challenge to the standards is still timely.

[00:06:36] Speaker 03:
And if I may, I would read a key passage from AFPM in which the court said, after concluding that the challenge was time barred.

[00:06:48] Speaker 13:
Where are you in the opinion?

[00:06:49] Speaker 03:
Page 587.

[00:06:52] Speaker 03:
There was a challenge to EPA's RIN policy for exported renewable fuel.

[00:06:56] Speaker 03:
And the court found that that was time barred because the policy was adopted many years earlier.

[00:07:01] Speaker 03:
But then the court said the challengers, quote, have not explained how a change in the policy would have required the agency also to change its proposed applicable volumes and percentage standards.

[00:07:14] Speaker 03:
Therefore, EPA could, without acting arbitrarily and capriciously, take the discrete action of establishing the volumes and standards while declining to reconsider the policy.

[00:07:25] Speaker 03:
And in Elan at 653 to 54, after the court held that certain challenges to the point of obligation rule from 2010 were time barred, the court held that a very similar challenge was not time barred because the challenge was that EP had to reassess the point of obligation each year under the statute.

[00:07:46] Speaker 03:
And what we're saying is that the standards EPA set for 2019

[00:07:51] Speaker 03:
were invalid on their own because they do not satisfy the duty to ensure and the duty to engage in reason decision making, both of which apply every time EPA sets the standards.

[00:08:04] Speaker 03:
EPA can't define a legal obligation outside the scope of the rulemaking or disregard it just because it addressed it in an interpretation some years earlier.

[00:08:16] Speaker 13:
Can I ask a question this way?

[00:08:17] Speaker 13:
So it seems like there's two possible bases for an argument that the challenge is untimely.

[00:08:22] Speaker 13:
One is to say that back in 2011, and here I'm focused on 2011, not on things the agency said subsequently, that in 2011 the agency rendered an interpretation of the statute.

[00:08:32] Speaker 13:
And once it renders interpretation of the statute, that has to be challenged within 60 days.

[00:08:37] Speaker 13:
And then any challenge to that interpretation of the statute is time barred after 60 days.

[00:08:42] Speaker 13:
Another way to look at it is to say, well, no, the real issue is the interpretation of the regulation.

[00:08:47] Speaker 13:
And with respect to the interpretation of the regulation, it rendered an interpretation at one point, and then it kept reiterating that same interpretation of the regulation.

[00:08:55] Speaker 13:
So put aside the statutory one and just think about the regulatory one for now, the one that Judge Garland raised.

[00:09:00] Speaker 13:
So with the regulatory interpretation, if EPA says every year we're maintaining our approach, then does that, in your view, intersect with your claim such that the interpretation is frozen in time going forward?

[00:09:19] Speaker 13:
Or is what the agency's saying

[00:09:21] Speaker 13:
We're interpreting the regulation in the sense that we're going to apply it this way for this year, but that doesn't necessarily mean we're going to apply it the same way in a subsequent year either.

[00:09:29] Speaker 13:
We just have to revisit it each year.

[00:09:32] Speaker 03:
The latter, this is, I think, an independent basis to conclude that it's not time-barred, independent from the things I just said, because EPA was not adopting an official binding interpretation of the regulation.

[00:09:45] Speaker 03:
It was just saying, right now, we're going to do what we did last year.

[00:09:49] Speaker 03:
And it kept saying that.

[00:09:50] Speaker 03:
We're going to do what we did last year.

[00:09:51] Speaker 03:
So it did it in the 2019 room making as well.

[00:09:54] Speaker 03:
So I think that this was on the table every year.

[00:09:56] Speaker 03:
It was not binding.

[00:09:57] Speaker 03:
It certainly isn't entitled to any deference.

[00:10:00] Speaker 03:
I don't even think it's consistent with the with the plain language of the regulation, but

[00:10:05] Speaker 03:
We think that our challenge is fully timely for a variety of these reasons.

[00:10:11] Speaker 03:
The regulation interpretation wasn't official and binding.

[00:10:14] Speaker 03:
There were other ways to deal with it without altering the interpretation.

[00:10:18] Speaker 03:
And in any event, there's a current duty to ensure and to engage in reason decision-making, which is a timely claim under AFPM and ALAN.

[00:10:28] Speaker 01:
When you say there's no deference, the ALAN approach,

[00:10:32] Speaker 01:
was a review of the refusal to reconsider, which the court certainly indicated was even more deferential than a normal review of agency rule, isn't that right?

[00:10:45] Speaker 03:
That was the part of the case that was held.

[00:10:48] Speaker 03:
Well, there were a number of different but related challenges.

[00:10:53] Speaker 03:
And so the court held that a challenge to the original 2010 point of obligation rule was time barred.

[00:11:01] Speaker 03:
A challenge to the denial of a petition to reconsider was not time barred.

[00:11:08] Speaker 01:
That's not what I'm talking about.

[00:11:10] Speaker 01:
It's the third thing.

[00:11:12] Speaker 01:
Go ahead.

[00:11:14] Speaker 03:
Well, the third thing, as I understand it, is a challenge to the validity of the percentage standards that were set for 2017.

[00:11:24] Speaker 03:
Because those standards did not include a reassessment of the point of obligation, that that claim was not time barred.

[00:11:32] Speaker 01:
No, but the holding of the case is EPA's determination as to whether it is appropriate to reconsider

[00:11:40] Speaker 01:
point of obligation in the context of an annual volumetric rulemaking is reviewable for abuse of discretion.

[00:11:49] Speaker 00:
Okay.

[00:11:50] Speaker 01:
Okay.

[00:11:50] Speaker 01:
Well, that's deferential, abusive, when you say without deference, I'm not sure what you mean by that.

[00:11:56] Speaker 03:
Oh, I'm just saying that if you want to understand whether the regulation precludes the relief, the adjustment that we're seeking, even though EPA

[00:12:08] Speaker 03:
adopted an interpretation that said it did preclude it, we don't think that that interpretation was correct.

[00:12:14] Speaker 03:
I think that interpretation was incorrect.

[00:12:18] Speaker 03:
The plain language of the regulation permitted exactly what we have requested.

[00:12:23] Speaker 03:
EPA subsequently amended the regulation to permit what we're requesting.

[00:12:26] Speaker 03:
We don't think it was necessary because the regulation always permitted that.

[00:12:30] Speaker 03:
It just wasn't doing it.

[00:12:31] Speaker 03:
EPA was not doing that.

[00:12:34] Speaker 13:
So wait, I'm just a little bit confused about that.

[00:12:35] Speaker 13:
So if the argument is that the interpretation of the regulation was incorrect, then it seems like the perfect time to challenge the interpretation of the regulation is incorrect is around the time that the interpretation was rendered.

[00:12:49] Speaker 13:
So why does the fact that you think it's incorrect mean that that in and of itself means there's no timeliness issue?

[00:12:56] Speaker 03:
I apologize.

[00:12:56] Speaker 03:
I wasn't trying to suggest that's an answer for the time bar.

[00:12:59] Speaker 03:
I just want to be clear that we don't think that that regulation precluded

[00:13:03] Speaker 03:
the relief that we were asking EPA to provide, it could have done that even in the context of the percentage standard setting.

[00:13:14] Speaker 13:
Okay, I see.

[00:13:15] Speaker 13:
Thanks.

[00:13:17] Speaker 03:
I see my time has expired.

[00:13:19] Speaker 03:
If I may just make one quick additional point or I'm happy to answer any.

[00:13:27] Speaker 13:
You can take a minute to make an additional point and then we'll move on.

[00:13:31] Speaker 03:
Thank you.

[00:13:32] Speaker 03:
Well, it's a point about the about the remedy in this case.

[00:13:36] Speaker 03:
I just want to clear that should the court agree with us that EPA did need to adjust the standards to account for the exemptions.

[00:13:47] Speaker 03:
that it's imperative that the court direct EPA to actually do that on remand.

[00:13:53] Speaker 03:
In the Americans for Clean Energy case, the court held that the standard EPA had invalidly waived the requirement by 500 million gallons.

[00:14:01] Speaker 03:
Three years later, EPA has still done nothing to remedy that.

[00:14:05] Speaker 03:
And it is claimed that it would be a retroactive obligation to do so.

[00:14:09] Speaker 03:
That's incorrect under this court's decision in Monroe Energy and MPRA.

[00:14:13] Speaker 03:
But I think it's the same situation here where EPA has set a lower than permitted standard.

[00:14:21] Speaker 03:
We're always going to have this problem on remand, that there's going to be a makeup in the future.

[00:14:25] Speaker 03:
That has to be permissible.

[00:14:27] Speaker 03:
Otherwise, judicial review will be meaningless.

[00:14:30] Speaker 03:
And so I think it's imperative that the court provides some guidance and direction to EPA to actually remedy the invalidly low percentage standards.

[00:14:39] Speaker 09:
So how would you frame that?

[00:14:41] Speaker 09:
Because your briefs only ask for remand if the court agrees with you.

[00:14:46] Speaker 09:
Remand for further proceedings.

[00:14:49] Speaker 03:
Yes, I would be clear that EPA actually needs to adjust future standards.

[00:14:55] Speaker 03:
to account for the exemptions that it disregarded in setting the volume requirements.

[00:15:02] Speaker 03:
There is certainly some mechanical details to work out about how to do that.

[00:15:07] Speaker 03:
And I'm certainly not asking the court to wade into those technical issues.

[00:15:11] Speaker 03:
But just to make clear that EPA can't do nothing, which is its position with respect to Americans for Clean Energy, that it can do literally nothing to remedy a violation held by this court.

[00:15:26] Speaker 09:
I wondered whether your remedy then has some sort of time frame in mind.

[00:15:35] Speaker 03:
It would be nice to do it by the time of the next annual standard setting, ideally.

[00:15:42] Speaker 03:
And I don't think that would be particularly difficult.

[00:15:44] Speaker 03:
It's just a mathematical computation to work out.

[00:15:50] Speaker 09:
Thank you.

[00:15:51] Speaker 13:
Thank you, Gerard.

[00:15:52] Speaker 13:
OK.

[00:15:53] Speaker 13:
Thank you, Mr. Lien.

[00:15:53] Speaker 13:
We'll give you some time for rebuttal.

[00:15:55] Speaker 03:
Thank you.

[00:15:57] Speaker 13:
Mr. Hastings, we'll hear from you on your issue.

[00:16:00] Speaker 10:
Good morning, and may it please the court.

[00:16:01] Speaker 10:
My name is Doug Hastings.

[00:16:02] Speaker 10:
I'm appearing on behalf of Producers United.

[00:16:05] Speaker 10:
Producers United joins the argument Mr. Lane just presented.

[00:16:08] Speaker 10:
The EPA must account for retroactive small refinery exemptions.

[00:16:12] Speaker 10:
If the court agrees, it need not reach Producers United's separate issue.

[00:16:16] Speaker 10:
But if it disagrees, there is still another problem with the way the EPA treated small refinery exemptions here.

[00:16:21] Speaker 10:
And that is the EPA's decision to grant 2019 exemptions retroactively in the first place is arbitrary and inconsistent with the RFS.

[00:16:30] Speaker 10:
Retroactive exemptions granted during or after the compliance year have no place in the RFS, which sets out prospective annual mandates designed to promote increased renewable fuel use.

[00:16:41] Speaker 10:
Retroactive exemptions upend that system by eliminating refiners obligations after the annual percentages are set.

[00:16:48] Speaker 10:
And even if there are some ambiguity in the abstract about whether EPA could issue retroactive exemptions, it is surely unlawful here.

[00:16:55] Speaker 10:
And that is because EPA decided in the 2019 rule to continue granting retroactive exemptions when it knew that it would not account for them and that those exemptions would therefore substantially reduce the required volumes that EPA set.

[00:17:09] Speaker 10:
That decision violates EPA's duty to ensure that the statutory volumes are met.

[00:17:15] Speaker 10:
EPA's only response essentially to those points are that the challenge is not before the court.

[00:17:21] Speaker 10:
And this is wrong for three reasons.

[00:17:25] Speaker 10:
Some of them overlap with some of the procedural issues we just discussed.

[00:17:28] Speaker 10:
But I think it's important to emphasize that EPA's decisions about granting retroactive exemptions are made only in the context of particular annual rules.

[00:17:39] Speaker 10:
The court has already mentioned that in 2011, EPA made some determinations about this for the first time.

[00:17:46] Speaker 10:
But these are particular methodologies that are applicable to that year's annual standards.

[00:17:51] Speaker 10:
As recently as 2018, EPA made clear in the AFPM case that it applies its methodology and these annual standards only to that particular year.

[00:18:01] Speaker 10:
It actually argued that its methodology for another issue was only applicable that year and shouldn't be used as a precedent going forward.

[00:18:09] Speaker 01:
Secondly, this is something that... I'm sorry, I hate to be harping on timeliness for everybody, but it's a jurisdictional question for us, so it has to be answered.

[00:18:21] Speaker 01:
So no retroactive exemption, you're not challenging any particular exemption having been granted.

[00:18:28] Speaker 01:
And in the previous Producers United case, we emphasize that you were not challenging any specific exemptions, and instead you were challenging the rule and the statements in the subsequent annual rule makings, and that that was not sufficient, that that made it untimely.

[00:18:47] Speaker 10:
Correct.

[00:18:48] Speaker 10:
I think, Your Honor, there's a distinction in that previous case.

[00:18:51] Speaker 10:
This was a grounds arising after challenge, and this had not been presented.

[00:18:54] Speaker 01:
No, but the grounds arising after was an effort to, I think what the court said was sidestep.

[00:19:01] Speaker 01:
Maybe that was an AFPM case where they used that word.

[00:19:03] Speaker 01:
That is, to extend the time because there were grounds arising after.

[00:19:07] Speaker 01:
But the nature of, I'm not interested in the question of whether there's collateral estoppel here.

[00:19:12] Speaker 01:
I'm interested in the timeliness question.

[00:19:15] Speaker 01:
And the court said that by not asking for an exemption, challenging a specific exemption, and because there was nothing arising after, within the time, you were out of time.

[00:19:28] Speaker 01:
So I'm still not following why that case doesn't tell us that your challenge here is untimely.

[00:19:34] Speaker 10:
So I think there are two additional answers.

[00:19:37] Speaker 10:
One is that this is something that EPA reopens each year when it assesses essentially in this, in the context here.

[00:19:47] Speaker 01:
Well, you think this is a reopening, but you know, we are really, really stingy about reopenings and the agency is pretty clear they're not reopening anything.

[00:19:57] Speaker 01:
So

[00:19:58] Speaker 10:
Your Honor, I think you can look at it both ways.

[00:20:00] Speaker 10:
I think primarily this is something that EPA raised in the context of the 2019 rule and its determination that it needed to make again in the 2019 rule to determine how it set annual percentage standards.

[00:20:13] Speaker 10:
I think only if you view this, the original determination in 2010 and then again in 2011 as something that set APA's position in stone, then I think you can consider this as a reopening.

[00:20:27] Speaker 10:
And part of the reason is going back to EPA's change in its treatment of small refinery exemptions that only became apparent in the middle of 2018.

[00:20:35] Speaker 10:
It's dramatically expanded the program in a way that- That's the after arising argument that you made.

[00:20:43] Speaker 01:
And that's the one that was rejected as still having waited until too long after the after arising evidence occurred.

[00:20:55] Speaker 10:
Correct.

[00:20:57] Speaker 10:
Your Honor, I think that is true with respect to the grounds arising after argument where the comment has not been presented.

[00:21:04] Speaker 10:
And under the Clean Air Act,

[00:21:07] Speaker 10:
You have to have a specific grounds arising after ground.

[00:21:10] Speaker 10:
If you have not commented on the rulemaking in order to have preserved that comment.

[00:21:15] Speaker 10:
And that's sort of a preservation issue, but simply with respect to the broader issue of whether this is presented this year.

[00:21:23] Speaker 10:
Producers United has made ample comments.

[00:21:26] Speaker 10:
Other parties have made the comments.

[00:21:27] Speaker 10:
So that aspect was before the agency.

[00:21:30] Speaker 10:
I think there's a separate question as to whether this is something that the agency has put forth in its 2019 rule.

[00:21:37] Speaker 10:
I think it expressly discussed it.

[00:21:39] Speaker 10:
when it said, and I quote, any exemptions for 2019 that are granted after the final rule is released will not be reflected in the annual percentage standards.

[00:21:48] Speaker 10:
That's something where it is exhibiting a decision to examine its approach and maintain that approach.

[00:21:54] Speaker 10:
So the agency is making that determination and putting it back at issue.

[00:21:58] Speaker 10:
And I think it's something that it needed to wrestle with in light of its duty to ensure the annual standards are met, and particularly in the light of the increasing number of

[00:22:07] Speaker 10:
gallons that are exempted from the renewable fuel standard program as a result of the dramatically expanded system of smaller refinery exemptions.

[00:22:19] Speaker 13:
Thank you.

[00:22:19] Speaker 13:
I'll make sure my colleagues don't have further questions for you, Mr. Hastings.

[00:22:25] Speaker 13:
Appreciate your argument.

[00:22:26] Speaker 13:
Thank you.

[00:22:26] Speaker 13:
Thank you, Your Honor.

[00:22:28] Speaker 13:
Mr. Williamson, we'll hear from you on the renewable electricity issue.

[00:22:35] Speaker 11:
Good morning, may it please the court, David Williamson for the petitioner RFS Power Coalition on the electricity fuel issue.

[00:22:44] Speaker 11:
In a way, this issue has already been decided by this court's 2013 decision in American Petroleum Institute, which looked at application of the same provision, section 7D of the statute.

[00:22:58] Speaker 11:
Let me explain why.

[00:23:00] Speaker 11:
We are producers of cellulosic electricity fuel.

[00:23:04] Speaker 11:
If you drive a Tesla or ride on an electric bus, it might be powered by our renewable fuel.

[00:23:11] Speaker 11:
For 2019, Congress mandated 8.5 billion gallons of cellulosic fuel.

[00:23:18] Speaker 11:
But invoking subsection 7D, EPA reduced Congress's goal by over 95%.

[00:23:28] Speaker 11:
Section 7D directs EPA to calculate quote biofuel production

[00:23:34] Speaker 11:
But EPA failed to count any electricity fuel actually being produced by our members in real time and being used as transportation fuel.

[00:23:46] Speaker 11:
The government now argues that EPA counts RIN credits, not biofuel production.

[00:23:53] Speaker 11:
But the statute, Section 7D, speaks to biofuel production, not RINs.

[00:23:59] Speaker 11:
This is the converse of the American Petroleum Institute case,

[00:24:03] Speaker 11:
where the agency overcounted fuel production for policy reasons.

[00:24:09] Speaker 11:
But EPA is making the same mistake.

[00:24:12] Speaker 11:
By focusing on ring credits rather than fuel production and other technical and regulatory issues that are mentioned in the record, EPA is injecting policy considerations into what this court has described previously as a data-driven calculation.

[00:24:30] Speaker 11:
EPA must hew to the text

[00:24:32] Speaker 11:
and using policy to tilt this annual calculation is prohibited by API.

[00:24:39] Speaker 11:
And of course, rewriting the statute to substitute rent credits for fuel production is prohibited by the Americans for Clean Energy decision and other precedent.

[00:24:51] Speaker 11:
The result here I want to emphasize is devastation for electricity producers, shuttered plants, pink slips,

[00:25:01] Speaker 11:
and financial losses for investors that relied on EPA's qualification of electricity six years ago in 2014.

[00:25:10] Speaker 11:
So we asked the court to vacate EPA's use of the 7D reduction and remand for a proper calculation of biofuel production, which is what the statute requires.

[00:25:26] Speaker 11:
I'd be happy to answer any questions

[00:25:29] Speaker 11:
I do want to make one last point.

[00:25:33] Speaker 11:
We feel compelled to address the government's suggestion in its brief that applying the statute literally would result in, quote, havoc.

[00:25:42] Speaker 11:
And that's at EPA's brief at page 80.

[00:25:48] Speaker 11:
The concept or the notion that there's a burden on any parties is not in the record.

[00:25:55] Speaker 11:
It's only in the government's brief.

[00:25:57] Speaker 11:
And that's for good reason.

[00:25:59] Speaker 11:
because there is no scenario in which obligated parties would lack access to RIN credits if EPA actually counts biofuel production under 7D.

[00:26:10] Speaker 11:
And that is because another section of 7D, Romanet 3, which follows the provision that we're discussing, creates a reserve of cellulosic waiver credits.

[00:26:23] Speaker 11:
Also on remand, EPA can add any undercounted balance

[00:26:28] Speaker 11:
to the 2021 or future annual compliance years, rather than reopening the 2019 annual volume, which of course now is well past us.

[00:26:41] Speaker 11:
So unless the court has any questions, I will yield the floor.

[00:26:47] Speaker 13:
Thank you, Mr. Williamson.

[00:26:50] Speaker 13:
Mr. Hoshijima, we'll hear from you for the government.

[00:26:53] Speaker 04:
Good morning.

[00:26:54] Speaker 04:
May it please the court.

[00:26:56] Speaker 04:
Suki Hoshijima from the United States Department of Justice on behalf of the Environmental Protection Agency.

[00:27:03] Speaker 04:
Appearing with me are my colleagues Ben Carlisle and Mike Idol.

[00:27:07] Speaker 04:
I'll begin today with the claim that EPA failed to adequately account for small refinery exemptions.

[00:27:13] Speaker 04:
The court lacks jurisdiction to hear this claim.

[00:27:16] Speaker 04:
As this court noted, EPA has taken the same

[00:27:20] Speaker 04:
approach since 2011 to calculate the percentage standards.

[00:27:25] Speaker 04:
Petitioners' challenge to this interpretation and this approach is untimely because of the Clean Air Act's 60-day jurisdictional deadline.

[00:27:35] Speaker 04:
Petitioners cannot sidestep that jurisdictional deadline by reframing their challenge as a challenge to the 2019 annual rule because this Court has held that the application of a long-standing regulation to new facts

[00:27:50] Speaker 04:
does not reopen the timeframe for judicial review.

[00:27:54] Speaker 13:
Can I just ask you to clarify the source of your untimeliness argument?

[00:27:58] Speaker 13:
What is the interpretation that had to be challenged within 60 days?

[00:28:02] Speaker 13:
What's the document that the agency rendered that you're pointing to?

[00:28:06] Speaker 04:
In the 2011 annual rule, EPA interpreted its formula for calculating the percentage standards as accounting for small refinery exemptions that are

[00:28:19] Speaker 04:
granted before the date of the standard, but not those afterward.

[00:28:23] Speaker 04:
And EPA has consistently taken that approach in every year since.

[00:28:27] Speaker 13:
But is it the fact that in 2011 there's a statement about what would be consistent or inconsistent with the statutory text, or is it something in 2011 and in subsequent years that interpreted the regulation?

[00:28:41] Speaker 04:
I think both the fact that in 2011

[00:28:44] Speaker 04:
EPA said that it was interpreting the formula to account for certain exemptions and not for others and as well as well as the statement that no alternative approach would be inconsistent with the statute.

[00:28:57] Speaker 13:
But they seem like different arguments because one of them.

[00:29:00] Speaker 13:
is about our interpretation that says that if we do anything different, it would not cohere with the statute.

[00:29:07] Speaker 13:
And that's an interpretation of the statute of what the agencies compelled to do by the statute.

[00:29:11] Speaker 13:
But a different argument would be, and if I'm wrong about this conceptually, just tell me.

[00:29:15] Speaker 13:
But as I understand it,

[00:29:17] Speaker 13:
There's two different arguments you could be making.

[00:29:19] Speaker 13:
One is to say, in 2011, we said in our rule that if we do it in a different way, it would be inconsistent with the statute.

[00:29:26] Speaker 13:
And so we had no freedom to do anything different unless we changed our interpretation on that score.

[00:29:32] Speaker 13:
And once we rendered that interpretation of the statute, the challenge had to be brought to that interpretation within 60 days.

[00:29:38] Speaker 13:
But another way to do it is to say,

[00:29:39] Speaker 13:
No, really the instrument that renders this untimely is that we were interpreting the regulation.

[00:29:45] Speaker 13:
And the regulation, we thought, required us to do it this way, to not take account of these retroactive exemptions.

[00:29:51] Speaker 13:
We said that in 2011.

[00:29:53] Speaker 13:
We said it again in subsequent years.

[00:29:55] Speaker 13:
And all we were doing in subsequent years was just reiterating it.

[00:29:58] Speaker 13:
But that's our interpretation of the regulation.

[00:30:00] Speaker 13:
And once we rendered that interpretation of the regulation, that had to be challenged within 60 days of that interpretation.

[00:30:05] Speaker 13:
Which one of those two arguments are you making?

[00:30:09] Speaker 04:
I think more of the latter, Your Honor.

[00:30:11] Speaker 04:
In 2011, EPA interprets the formula in the regulations to account for certain exemptions and not for others.

[00:30:20] Speaker 04:
And EPA has taken that interpretation of the regulation ever since.

[00:30:24] Speaker 13:
So if EPA rendered an interpretation of the regulation and it said,

[00:30:28] Speaker 13:
Not that we interpret the regulation only in this way, that it compels us to do the following.

[00:30:34] Speaker 13:
If EPA says, here's how we're going to implement the regulation this year.

[00:30:38] Speaker 13:
We're going to implement it by not taking account of retroactive exemptions.

[00:30:41] Speaker 13:
Well, then it seems like in subsequent years, they're free to interpret in a different way.

[00:30:45] Speaker 13:
It's just that every time they apply the regulation, they're choosing how to apply it.

[00:30:49] Speaker 13:
They're not rendering an interpretation that says this is the only way we read these words to work.

[00:30:53] Speaker 13:
Do you see that distinction?

[00:30:56] Speaker 13:
And if there is that distinction, then do you think that in prior interpretations that the agency was actually saying, this is the only way the words of this regulation can be read?

[00:31:06] Speaker 04:
I'm not sure that in 2011 EPA was saying that's the only way the regulation could be read.

[00:31:12] Speaker 04:
But EPA, I think, even if there are multiple permissible interpretations of the regulation, is entitled to adopt an interpretation in 2011 and then

[00:31:21] Speaker 04:
there after refer back to that rather than reconsidering that interpretation.

[00:31:25] Speaker 13:
They definitely can do that, of course.

[00:31:27] Speaker 13:
But then the question is whether it's ever untimely.

[00:31:29] Speaker 13:
So suppose EPA in 2011 says, you know, this regulation doesn't actually, by its terms, give us an answer on what we do with retroactive exemptions.

[00:31:37] Speaker 13:
It doesn't compel us to take them into account.

[00:31:39] Speaker 13:
It doesn't preclude us from taking them into account.

[00:31:41] Speaker 13:
Here's what we're going to do this year.

[00:31:43] Speaker 13:
We're going to we're not going to take them into account.

[00:31:45] Speaker 13:
And then the following year, they say, we're going to continue not taking them into account.

[00:31:49] Speaker 13:
Well, then on that, it doesn't seem to me that there's any untimeliness problem if in the third year, they say, we're not going to take them into account this year either.

[00:31:56] Speaker 13:
Someone could come in within 60 days of that and say, well, okay, this year, you'd continue to prior practice, but it's something that you could have done or you couldn't have done.

[00:32:04] Speaker 13:
You decided to do it.

[00:32:05] Speaker 13:
We're challenging that you did it this year.

[00:32:07] Speaker 13:
And every year it starts anew because you've already said we could have done it either way.

[00:32:12] Speaker 13:
And for this year, we're doing it in the following way.

[00:32:15] Speaker 04:
I think there's a difference between if EPA in a later year says we looked at the issue again, we actually took a serious substantive reconsideration of the issue and are reaching the same interpretation.

[00:32:28] Speaker 04:
That's not what EPA did here.

[00:32:30] Speaker 04:
Instead, EPA made it clear from the proposal that it's the way the percentage standards formula adjusts for small refinery exemptions just isn't within the scope of the rulemaking, not taking comments on it.

[00:32:42] Speaker 13:
And then again, when it promulgated- I don't think EPA can just say, we're not taking comments on the following thing and therefore it's out of bounds.

[00:32:50] Speaker 13:
There's a separate inquiry that determines whether it's out of bounds.

[00:32:53] Speaker 13:
And I guess I may not be understanding this conceptually correctly and please just please correct me if I'm wrong.

[00:32:59] Speaker 13:
But as I understand it, the agency could say, we're reading the regulation.

[00:33:03] Speaker 13:
Here's how we interpret the regulation.

[00:33:05] Speaker 13:
The words of the regulation mean X. And here the agency could say, the words of the regulation

[00:33:11] Speaker 13:
of our regulation mean that we don't take account of retroactive exemptions.

[00:33:16] Speaker 13:
That's how we read the words.

[00:33:18] Speaker 13:
That would be one thing.

[00:33:19] Speaker 13:
That's an interpretation.

[00:33:20] Speaker 13:
But if the agency says, not that, but they say, we don't know that the words compel any particular implementation, but here's how we're going to implement the regulation this year.

[00:33:31] Speaker 13:
We're going to implement it so that

[00:33:33] Speaker 13:
We're not taking account of regulatory exemptions.

[00:33:35] Speaker 13:
Those seem like different approaches and it's not the first one raises a timeliness issue.

[00:33:40] Speaker 13:
The second one.

[00:33:41] Speaker 13:
It doesn't seem like it does.

[00:33:43] Speaker 04:
And you're on.

[00:33:44] Speaker 04:
I think the first one is the case and I would point the court to the response to comments document at J a 1845 to 46, which is where EPA discusses this issue.

[00:33:55] Speaker 04:
EPA says that comments on this issue are beyond the scope of this rulemaking.

[00:34:00] Speaker 04:
It decided the policy many years ago.

[00:34:02] Speaker 04:
and we're simply applying these long-standing regulations and policies.

[00:34:06] Speaker 13:
That's what you're saying now.

[00:34:09] Speaker 13:
I don't think the agency gets to say, now, what we did way back when is untimely, because now we're saying what we meant back then is this.

[00:34:17] Speaker 13:
What determines whether it's untimely is what you said back at the time of the instrument that triggered the 60-day clock.

[00:34:24] Speaker 13:
So that's the question.

[00:34:26] Speaker 13:
And then that question means we have to look back at what you did in 2011 or in a subsequent year to see whether those instruments triggered the 60 day clock, right.

[00:34:36] Speaker 04:
And I think it's useful to look at, for example, the 2018 rule where EPA does actually ask for comments on this, substantively reconsiders its approach and decides it's going to keep the prior interpretation that it made 2011 through 2017

[00:34:51] Speaker 04:
2019, though, is different, where EPA doesn't reopen.

[00:34:55] Speaker 04:
2020, again, EPA decides in a supplemental notice of proposed rulemaking, it's going to reconsider this issue, and it takes a different... Let me ask one last question, and then I'll stop.

[00:35:06] Speaker 13:
I'm sorry for occupying all the time on this, but for example, in 2019, and this is a JA45, it's a 63-740 of the rule,

[00:35:15] Speaker 13:
What EPA says is, we are maintaining our approach that any exemptions for 2019 that are granted after the final rule is released will not be reflected in the percentage standards.

[00:35:25] Speaker 13:
That's saying you're maintaining an approach.

[00:35:27] Speaker 13:
is not saying that there's an interpretation of the regulation that compels that understanding.

[00:35:32] Speaker 13:
It's just an approach.

[00:35:33] Speaker 13:
And if EPA said every year, for example, if EPA said in its rule, we could choose to continue this approach, or we could choose not to.

[00:35:40] Speaker 13:
This year, we're choosing to continue this approach.

[00:35:43] Speaker 13:
Well, then it doesn't seem to me that that means that the challenge has to be taken in that year if it then continues the approach the subsequent year.

[00:35:49] Speaker 13:
That triggers it anew.

[00:35:50] Speaker 04:
Well, I see what Your Honor is saying, and I actually disagree with that legal premise.

[00:35:54] Speaker 13:
OK, thanks.

[00:35:54] Speaker 04:
I would point the court.

[00:35:56] Speaker 04:
I think that the EPA did establish an interpretation before.

[00:36:01] Speaker 04:
But even if, let's say, it's just an approach they're carrying over year to year, this court's Medical Waste Institute case, this is cited in our brief at page 40, that's a situation where EPA established an approach in a prior rule.

[00:36:15] Speaker 04:
And then it would, again, maintain that same approach in a later rule.

[00:36:20] Speaker 04:
The court said that it was untimely to challenge that methodology that was not challenged

[00:36:25] Speaker 04:
previously when EPA first applied it in an earlier rule.

[00:36:31] Speaker 13:
And I'll see, I want to make sure I'm not interrupting on my colleague's time because let me just ask one last question this way then.

[00:36:38] Speaker 13:
Suppose EPA specifically says when it's adopting an approach, we could choose to adopt this approach or we could choose a different approach.

[00:36:48] Speaker 13:
We're choosing to adopt this approach.

[00:36:50] Speaker 13:
And that's the same one that we adopted last year.

[00:36:53] Speaker 13:
Do you think that that triggers the 60-day clock anew?

[00:36:56] Speaker 13:
Or do you think, no, it's still just an approach that was cemented at time zero and so had to be challenged before?

[00:37:03] Speaker 04:
The latter.

[00:37:04] Speaker 04:
I think that if EPA says there are multiple permissible things we can do, we are going to choose to interpret it with this one of the permissible approaches.

[00:37:14] Speaker 04:
EPA can then rely on that in subsequent years without reopening the issue.

[00:37:20] Speaker 01:
Can I ask, is there, and the chief judge is hypothetical, is there any language in any of the rules suggesting that the agency is saying we could do this or we could do that and every year we'll decide over again which one we do?

[00:37:35] Speaker 01:
No, and I don't think that's the case.

[00:37:37] Speaker 01:
I think it's instead the agency is doing what we normally permit under our they interpret their statute, their regulation.

[00:37:45] Speaker 01:
Question is whether it's a reasonable, not necessarily compelled.

[00:37:49] Speaker 01:
Then that's their interpretation of the regulation.

[00:37:52] Speaker 01:
And if there's a jurisdictional bar to challenging it, it has to be challenged at that point.

[00:37:58] Speaker 01:
Isn't that your argument?

[00:37:59] Speaker 04:
Yes.

[00:37:59] Speaker 04:
And what I'm saying is even if it were the case that

[00:38:02] Speaker 04:
EPA had used language about there being maybe possible approaches, and I picked one.

[00:38:08] Speaker 04:
Even in that situation, we would consider a challenge to that interpretation in later years to be on time.

[00:38:15] Speaker 01:
Well, we, for example, with respect to Chevron, we require the agency to say, we understand we have discretion here.

[00:38:22] Speaker 01:
If you want Chevron step two deference, you have to say, we agree, we have discretion here, we're not compelled.

[00:38:31] Speaker 01:
You say we're compelled, then we only give you Chevron 1.

[00:38:34] Speaker 01:
So an agency following this court's general doctrine would almost always, unless they actually feel compelled, would say, we have discretion.

[00:38:44] Speaker 01:
This is our discretionary decision.

[00:38:46] Speaker 01:
This is our view of the statute, or under our and Kaiser, this is our view of the regulation.

[00:38:53] Speaker 04:
I think that's right, Your Honor.

[00:38:55] Speaker 09:
So counsel, do you see any difference in the

[00:38:59] Speaker 09:
circumstance of an annual determination in light of the statutory language on which the petitioner is relying, that it's a new determination each year.

[00:39:13] Speaker 09:
And I don't know if our Chevron general approach that

[00:39:25] Speaker 09:
Judge Garland is referring to necessarily controls in that circumstance, because we have acknowledged the difference between an interpretation, the point that the chief judge is exploring with you, and the decision to continue or to maintain this approach.

[00:39:49] Speaker 04:
So I think if I understand your honor's question,

[00:39:53] Speaker 09:
You're asking if- Everyone always says that when I ask.

[00:39:57] Speaker 09:
I think it's clear, all right?

[00:39:59] Speaker 09:
I'm talking about petitioners' argument that the statutory language requires an annual determination.

[00:40:08] Speaker 04:
Yes, Your Honor, and that's Section 03 of the statute.

[00:40:12] Speaker 04:
Nothing in Section 03 of the statute requires EPA to revisit this issue every year.

[00:40:18] Speaker 04:
It requires EPA to calculate percentage standards each year

[00:40:22] Speaker 04:
but EPA is entitled to do the calculation each year in reliance on and without reopening its prior calculation methodology.

[00:40:31] Speaker 04:
I would point out that Mr. Lin referred to the Alon case in the point of obligation, which is different because there, at least there's the as appropriate language in 03.

[00:40:45] Speaker 04:
There's nothing like that here that applies to EPA annually having to revisit

[00:40:51] Speaker 04:
the framework regulations under which it calculates the percentage standards.

[00:40:56] Speaker 09:
So my question about the obligation to make an annual interpretation also asks you whether where the facts before the agency have changed such that applying its

[00:41:21] Speaker 09:
2011 interpretation no longer is consistent with the purpose of the statute.

[00:41:32] Speaker 09:
In other words, this is not a question of being accurate in projecting and estimating, but rather that what may have worked in 2011 to be consistent with the purpose of the statute

[00:41:52] Speaker 09:
no longer works to do anything that is consistent with the statute.

[00:42:00] Speaker 09:
Congress was trying to promote greater use.

[00:42:03] Speaker 09:
This is working to the contrary.

[00:42:05] Speaker 09:
It's promoting less use, a negative use.

[00:42:10] Speaker 09:
So that's what I'm trying to get at, is that if the circumstances have changed and yet Congress has placed on the agency the obligation to make an annual determination,

[00:42:21] Speaker 09:
doesn't that suggest that we're not in the situation that the chief judge was exploring with you?

[00:42:30] Speaker 09:
And I thought you acknowledged that you weren't in the situation where the agency was saying even in 2011 that it was compelled to interpret its regulation in a particular way.

[00:42:43] Speaker 04:
And I think that if Congress had wanted to impose on EPA

[00:42:49] Speaker 04:
an obligation to revisit its approach every year, it could have used language such as the as appropriate language that Congress used for the point of obligation.

[00:42:59] Speaker 09:
It could have, but where it places, I'm just trying to understand what the agency thinks an annual determination means.

[00:43:07] Speaker 09:
Is it just counting up gallons or is it looking at how its interpretation affects the ability of the agency to carry out Congress's purpose?

[00:43:20] Speaker 04:
So in Elan, this court called the annual rule process, quote, a quantitative standard setting duty.

[00:43:27] Speaker 04:
I think it's fair to understand that as saying EPA needs to calculate the percentage standard each year.

[00:43:33] Speaker 04:
But that doesn't mean it has to re-evaluate its approach to how it does that calculation when it establishes an interpretation years in advance.

[00:43:44] Speaker 09:
So I'll just press you on this, a hypothetical.

[00:43:47] Speaker 09:
The interpretation in 2010,

[00:43:49] Speaker 09:
did produce increased use of renewable fuels.

[00:43:56] Speaker 09:
Maybe not as much as some would have liked, but certainly the agency could with a straight face say that renewable fuels were being interpreted.

[00:44:06] Speaker 09:
Now, eight years later, the agency itself knows that no renewable fuel usage is occurring

[00:44:19] Speaker 09:
under its 2011 interpretation of its regulation, which is not compelled.

[00:44:26] Speaker 09:
Has the agency no obligation to consider that in an annual interpretation?

[00:44:33] Speaker 09:
And I really think we were getting at something a little different in Elan, but I won't press that point with you.

[00:44:39] Speaker 04:
And I think what I would say in response to that, Your Honor, is this court recognized in Americans for Clean Energy that this statute does not

[00:44:47] Speaker 04:
pursue its purposes of increased renewable fuel use at all costs.

[00:44:51] Speaker 04:
It's not really the only single goal of the statute.

[00:44:56] Speaker 09:
Well, would you at least agree that the renewable fuels program did have a purpose of increasing the use of renewable fuels?

[00:45:05] Speaker 04:
Yes, I think it is a purpose of the statute, for sure.

[00:45:09] Speaker 04:
But to say that because that single goal might no longer be being achieved effectively,

[00:45:15] Speaker 04:
There are other goals that the statute requires EPA to consider.

[00:45:22] Speaker 09:
So that's close to saying there are no circumstances that the agency would consider requiring it in its annual interpretation to reconsider what was maybe its preferred regulatory interpretation, but not the compelled regulatory interpretation.

[00:45:43] Speaker 04:
Well, I think what your honor is positing is a situation where new facts or new circumstances more recently might compel a different approach.

[00:45:52] Speaker 04:
And in that situation, what Alon says is the proper way to seek a change in the existing interpretation is to go to the agency first, submit a petition for reconsideration based on those new facts, ask the agency to take another look at its interpretation,

[00:46:11] Speaker 04:
But that doesn't have to be done, nor should it be done within the context of the annual rule process, where that statute doesn't require that in section 03.

[00:46:22] Speaker 04:
Thank you.

[00:46:25] Speaker 04:
If I can take some time to respond to the other two set of petition arguments, unless the court has any more here?

[00:46:32] Speaker 13:
Sure.

[00:46:32] Speaker 13:
Why don't you take a minute to do that?

[00:46:34] Speaker 04:
So briefly, on the Producers United argument,

[00:46:39] Speaker 04:
They're simply challenging the wrong agency action because EPA didn't grant any exemptions here, retroactive or otherwise.

[00:46:46] Speaker 04:
EPA did not unretire any rents.

[00:46:49] Speaker 04:
They're just in the wrong place.

[00:46:51] Speaker 04:
And for that simple reason, their petition should be denied.

[00:46:55] Speaker 04:
I'll also note that they try to reframe their challenge as one to the denial of an administrative petition.

[00:47:01] Speaker 04:
I would just say that EPA did not take action on that petition in this rule.

[00:47:06] Speaker 04:
That petition is still pending.

[00:47:08] Speaker 04:
EPA will act on that petition in a separate action at a future date.

[00:47:13] Speaker 04:
Turning to renewable electricity, EPA reasonably didn't include renewable electricity in its projection of cellulosic biofuel because no qualified volumes of renewable electricity have ever been produced.

[00:47:28] Speaker 04:
And the key word there is qualified.

[00:47:30] Speaker 04:
You're not qualified to produce renewable electricity for purposes of the RFS statute

[00:47:36] Speaker 04:
until you have a facility that's registered to generate RINS.

[00:47:40] Speaker 04:
It's not enough for there to be a pathway.

[00:47:43] Speaker 04:
That's not the end of the process.

[00:47:45] Speaker 04:
And this registration requirement is more than a formality.

[00:47:49] Speaker 04:
It's the way that EPA ensures that RINS are only generated for renewable fuel that actually meets the requirements to qualify under the statute.

[00:47:59] Speaker 04:
So the registration requirement is how EPA ensures that renewable fuel

[00:48:04] Speaker 04:
is being made from the proper renewable biomass, using the proper production process that might be in the pathway that's been approved, and then ensure that the renewable fuel is actually being used for transportation purposes.

[00:48:20] Speaker 04:
RFS Power argues for the first time on its reply brief in a statutory interpretation point.

[00:48:26] Speaker 04:
They argue for the first time that the statute requires EPA to consider

[00:48:31] Speaker 04:
renewable fuel from unregistered facilities as part of its production estimate.

[00:48:37] Speaker 04:
They've waived this argument because they raised the statutory interpretation for the first time in its reply brief, never raised it in its opening brief or in their public comments.

[00:48:47] Speaker 04:
They can't claim to be surprised that this is EPA's approach because EPA made that clear in its final rulemaking.

[00:48:56] Speaker 04:
I would point the court to JA 1698-99

[00:49:00] Speaker 04:
which is where in the response to comments, EPA made it clear it was only considering registered facilities.

[00:49:06] Speaker 04:
And that's also been EPA's approach in prior years.

[00:49:10] Speaker 04:
We cite those places in the brief at page 77.

[00:49:13] Speaker 04:
Even if they hadn't waived this, petitioners are wrong in relying on API.

[00:49:20] Speaker 04:
API actually cuts against them.

[00:49:22] Speaker 04:
In API, the court said that the Selly Lawsake Waiver Provision is a safety valve

[00:49:29] Speaker 04:
make sure that obligated parties aren't going to be subjected to an impossible or highly punitive situation.

[00:49:36] Speaker 04:
And if you read RFS, the statute the way RFS power does, you would increase the obligations without a corresponding increase in RINs that can be used to meet those obligations.

[00:49:48] Speaker 04:
So that's certainly not the required reading of the statute, probably not a reasonable one.

[00:49:53] Speaker 04:
And so

[00:49:54] Speaker 04:
You know, I think that EPA properly decided that it was only taking into account the registered facilities or facilities likely to be registered.

[00:50:06] Speaker 13:
Thank you, Mr. Hoshijima.

[00:50:09] Speaker 13:
We'll hear from Mr. Lan on rebuttal.

[00:50:12] Speaker 13:
We'll give you your three minutes.

[00:50:18] Speaker 06:
Your honors, if I may, Elizabeth Dawson on behalf of interveners.

[00:50:21] Speaker 06:
Oh, I'm sorry.

[00:50:22] Speaker 06:
I'm sorry.

[00:50:22] Speaker 13:
You're right.

[00:50:23] Speaker 13:
I apologize.

[00:50:24] Speaker 13:
I apologize.

[00:50:24] Speaker 13:
We have the intervener time.

[00:50:26] Speaker 13:
My apologies.

[00:50:27] Speaker 13:
Please proceed.

[00:50:28] Speaker 06:
Thank you very much.

[00:50:29] Speaker 06:
And may it please the court on behalf of American Fuel and Petrochemical Manufacturers, American Petroleum Institute, and Monroe Energy, I'm Elizabeth Dawson.

[00:50:38] Speaker 06:
In light of the court's discussion with the advocates today regarding jurisdiction and timeliness to hear biofuels petitioners' arguments,

[00:50:46] Speaker 06:
We would simply encourage the court to agree with EPA on those grounds and uphold EPA's decision in this regard.

[00:50:55] Speaker 06:
However, should the court decide that it has jurisdiction to reach the merits, EPA has correctly acted in the 2019 rulemaking not to reallocate non-exempt obligated parties the volumes of renewable fuel attributable to small refineries who received the exemptions from compliance.

[00:51:14] Speaker 06:
This decision was consistent with the statute and reasonable and should be upheld on that basis.

[00:51:19] Speaker 06:
Biofield's petitioners have not shown that EPA had an obligation to reallocate, which is all that the court need reach here regarding the merits.

[00:51:29] Speaker 06:
Unless this court has any questions, I will cede the rest of my time.

[00:51:35] Speaker 13:
Thank you, Ms.

[00:51:35] Speaker 13:
Dawson.

[00:51:36] Speaker 13:
We appreciate it.

[00:51:37] Speaker 13:
Sorry to overlook that.

[00:51:37] Speaker 13:
Mr. Len, now we'll go to rebuttal for you.

[00:51:41] Speaker 13:
We'll give you your three minutes.

[00:51:43] Speaker 03:
Thank you, Your Honor.

[00:51:44] Speaker 03:
I want to, I think, try to sum up the key points on the timeliness issue.

[00:51:51] Speaker 03:
We don't think this is time-barred for three reasons.

[00:51:54] Speaker 03:
I want to set them out as crisply as I can.

[00:51:56] Speaker 03:
The first is that the AFPM decision and the ALAN decision recognize that a challenge to a duty that applies to the annual standard setting is a timely challenge, even if it would implicate

[00:52:12] Speaker 03:
The validity of an earlier adopted rule or policy that it doesn't matter anymore.

[00:52:19] Speaker 03:
And the fact that a lawn involved this language of as appropriate Doesn't distinguish the case.

[00:52:26] Speaker 03:
There's a statutory duty to ensure a lawn.

[00:52:30] Speaker 03:
ultimately upheld EPA's actions because it read that language as appropriate not to require the reconsideration, but that was the merits determination.

[00:52:39] Speaker 03:
Before that was the timeliness decision, and it said it was a timely challenge.

[00:52:44] Speaker 03:
And AFPM, the court recognizes explicitly in saying that if the petitioners had challenged the standards, that that claim would have been timely.

[00:52:54] Speaker 03:
So that's number one.

[00:52:55] Speaker 03:
Number two, as Judge Rogers was pointing out, it is unreasonable for an agency to maintain interpretation or an approach in the face of experience that shows that it is failing.

[00:53:08] Speaker 03:
This proposition was recognized by this court in an earlier renewable fuel standard case called American Petroleum Institute at 476 and 7.

[00:53:19] Speaker 03:
The evidence was crystal clear that the exemptions were destroying the program.

[00:53:25] Speaker 03:
There are billions of rins from these exemptions and they completely undermine the market forcing purpose that Congress had when it established the program.

[00:53:37] Speaker 03:
And third, there were other ways to account for the exemptions without changing the interpretation

[00:53:45] Speaker 03:
For example, EPA could have used a lesser cellulosic waiver, or it could have simply added additional amounts to the future standard to account for the previously granted exemptions.

[00:53:58] Speaker 03:
Its approach or method or whatever EPA wants to call it

[00:54:04] Speaker 03:
to understanding the regulation only accounted for what it's called modifying or revising the standards after they have been set.

[00:54:14] Speaker 03:
But that's not what we have said EPA should have done here.

[00:54:18] Speaker 03:
So we don't even think that the kind of adjustment we're talking about is in the teeth of EPA's interpretation or approach to its regulation.

[00:54:30] Speaker 03:
I have nothing further, Your Honor, but I'd be happy to answer any additional questions if there are.

[00:54:36] Speaker 13:
Looks like we don't have any further questions.

[00:54:38] Speaker 13:
Thank you, Mr. Lin.

[00:54:40] Speaker 13:
Thank you.

[00:54:41] Speaker 13:
Mr. Williamson, we'll give you one minute for rebuttal.

[00:54:49] Speaker 11:
Thank you, Your Honor.

[00:54:51] Speaker 11:
The government argues that we waived an objection to their interpretation of the rule, but we have to respond to the record.

[00:55:00] Speaker 11:
And where is the interpretation of 7D in the record?

[00:55:04] Speaker 11:
The response to comments documents nowhere mentions qualified volume that the government argues now.

[00:55:13] Speaker 11:
It nowhere connects its position on RINs to the text of the statute.

[00:55:19] Speaker 11:
So again, we can only respond to what is in the record.

[00:55:24] Speaker 11:
This argument that the government is advancing now only appeared for the first time in the red brief.

[00:55:31] Speaker 11:
The API case, which the government did, which EPA did cite obliquely in the record, that is fundamentally different in this sense from what EPA is arguing now.

[00:55:47] Speaker 11:
API was concerned with the lack of physical fuel being produced.

[00:55:52] Speaker 11:
In that case, EPA was overestimating

[00:55:55] Speaker 11:
the amount of volume in order for policy reasons to promote renewable fuel technologies that were still in their infancy and needed to be incubated but actually weren't producing physical fuel.

[00:56:09] Speaker 11:
The electricity issue is completely different.

[00:56:12] Speaker 11:
We're producing copious volumes of electricity fuel.

[00:56:16] Speaker 11:
It's available.

[00:56:18] Speaker 11:
And a rim is different than production.

[00:56:21] Speaker 11:
Why do we know?

[00:56:22] Speaker 11:
Because Congress used different terms.

[00:56:25] Speaker 11:
Congress used the word production in 7D.

[00:56:28] Speaker 11:
It also created the RIN credit program in section five.

[00:56:32] Speaker 11:
So Congress understood the distinction, but importantly, something that my brother said was that RINs look at not only the production, but the use as transportation fuel.

[00:56:46] Speaker 11:
Well, that is certainly far beyond production.

[00:56:49] Speaker 11:
The RINs are reflective of the entire supply chain

[00:56:54] Speaker 11:
of fuel once it's produced, transported, used ultimately.

[00:56:59] Speaker 11:
That is not what the word production means.

[00:57:02] Speaker 11:
And the government itself argued in the underlying ACE case, but it's referenced in the ACE decision that these terms mean different things.

[00:57:14] Speaker 11:
In that case, EPA was arguing that the term supply was different than the word production.

[00:57:22] Speaker 11:
So if supply is different than production,

[00:57:24] Speaker 11:
than certainly ring credits or facility registrations.

[00:57:27] Speaker 11:
The last point, and I know I'm over time, is that the question of qualified was answered in the 2014 pathway rule in the federal register notice and actually prior to that in 2010, where EPA made the decision that electricity is qualified, that's different than counting the physical volumes that are available.

[00:57:51] Speaker 13:
Thank you, Mr. Williamson, and thank you to the council on this issue.

[00:57:55] Speaker 13:
Why don't the court take a five-minute recess before we come back to the obligated parties and the environmental issues?

[00:58:02] Speaker 07:
This honorable court will now take a brief recess.

[00:58:05] Speaker 07:
This honorable court is now again in session.

[00:58:10] Speaker 13:
Thank you.

[00:58:10] Speaker 13:
We'll proceed to the obligated parties' claims.

[00:58:13] Speaker 13:
Mr. Tehrani?

[00:58:16] Speaker 05:
May it please the court.

[00:58:18] Speaker 05:
I'd like to focus this morning on severe economic harm

[00:58:21] Speaker 05:
and the point of obligation.

[00:58:23] Speaker 05:
For two reasons, EPA acted arbitrarily and capriciously when it refused to grant a severe economic harm waiver and abused its discretion when it declined to reconsider the point of obligation.

[00:58:36] Speaker 05:
With respect to severe economic harm, EPA relied on logically inconsistent reasoning when it denied a waiver based on a refiner's supposed ability to pass through RFS compliance costs.

[00:58:50] Speaker 05:
while at the same time granting scores of exemptions based on the economic harm that the RFS program causes to small refiners.

[00:59:00] Speaker 05:
EPA provided no explanation or justification for this inconsistent reasoning.

[00:59:06] Speaker 05:
EPA also completely ignored a new comprehensive expert report demonstrating the severe economic harm that the 2019 volume requirements would cause to East Coast refiners and

[00:59:18] Speaker 05:
to the broader East Coast economy.

[00:59:21] Speaker 05:
Those same two errors also demonstrate why EPA abused its discretion when refusing to reconsider the point of obligation.

[00:59:30] Speaker 05:
Despite the new evidence bearing directly on whether it is appropriate to obligate refiners but not blenders, EPA provided no explanation whatsoever for deeming the point of obligation beyond the scope of this rulemaking.

[00:59:46] Speaker 05:
I'd like to turn first to

[00:59:48] Speaker 05:
the small refinery exemptions, and their relevance to the severe economic harm inquiry.

[00:59:55] Speaker 05:
EPA has the authority under the Clean Air Act to grant a waiver of volume requirements where those requirements would cause severe economic harm to a state, a region, or to the United States.

[01:00:10] Speaker 05:
In 2019, EPA denied a severe economic harm waiver

[01:00:16] Speaker 05:
on the rationale that refiners are not harmed by the volume requirements because they are supposedly able to pass through their RFS compliance costs to their customers.

[01:00:31] Speaker 05:
That reasoning is utterly inconsistent with EPA's decision 85 times over the 2016 to 2018 time period to grant

[01:00:44] Speaker 05:
exemptions to small refiners based on a conclusion that the RFS program would cause disproportionate economic hardship to those small refiners.

[01:00:58] Speaker 05:
It's impossible on the one hand to reconcile those 85 findings of disproportionate economic hardship with EPA's conclusion here that there would be no severe economic harm to refiners or the broader

[01:01:14] Speaker 05:
region in which those refiners are located because refiners purportedly can pass through their RFS compliance costs.

[01:01:23] Speaker 05:
This tension, this inconsistency was specifically highlighted in a comment letter by Bolero that EPA stood silent and provided no explanation for how it can reconcile its reasoning with respect to pass through with its decision 85 times to grant small refinery exemptions.

[01:01:43] Speaker 05:
This inconsistency has been identified by multiple other courts.

[01:01:48] Speaker 05:
Most recently, in Renewable Fields Association versus EPA, a 2020 decision from the 10th Circuit, the court vacated EPA's granting of small refinery exemptions, specifically because EPA had failed to explain how it could grant those exemptions and how it could make a finding of disproportionate economic hardship

[01:02:12] Speaker 05:
while at the same time relying on pass-through theory in other settings.

[01:02:19] Speaker 05:
The Fourth Circuit, likewise, in the Ergon decision, a 2018 decision, vacated EPA's decision to deny a small refinery exemption because EPA had relied on pass-through theory to deny that exemption, but had also informed the regulated community that RIN costs

[01:02:41] Speaker 05:
and RFS compliance obligations are directly relevant to the small refinery exemption inquiry.

[01:02:49] Speaker 05:
EPA had an obligation in this rulemaking to explain how it could reconcile those two strands of reasoning.

[01:02:58] Speaker 05:
Its failure to do so is arbitrary and capricious.

[01:03:02] Speaker 05:
EPA's failure to grapple with the recent surge in small refinery exemptions also underscores why

[01:03:11] Speaker 05:
It was an abusive discretion for EPA to refuse to reconsider the point of obligation as part of its 2019 rulemaking.

[01:03:21] Speaker 05:
This court made clear in the Alon case that EPA has an annual obligation to determine whether or not it is appropriate to consider the point of obligation as part of the annual rulemaking.

[01:03:38] Speaker 05:
Here,

[01:03:38] Speaker 05:
Commenters came forward with new evidence bearing directly on the propriety of EPA's prior decision to obligate refiners but not blenders and urged EPA to include the point of obligation within the scope of the 2019 rulemaking.

[01:03:58] Speaker 05:
That new evidence included the dramatic increase in the number of small refinery exemptions, 85 as I mentioned between 2016 and 2018,

[01:04:08] Speaker 05:
a significant increase over the 23 that were granted between 2013 and 2015.

[01:04:14] Speaker 05:
The evidence also included the bankruptcy of Philadelphia Energy Solutions, the largest refinery on the East Coast in 2018, which specifically identified written compliance costs as the quote, primary driver for its decision to file for bankruptcy.

[01:04:33] Speaker 05:
The new evidence also included the expert report from Dr. Craig Perron,

[01:04:38] Speaker 05:
submitted by Monroe Energy, which documented the severe economic harm that would be caused by the 2019 volume requirements.

[01:04:46] Speaker 05:
In the face of all of that new evidence, EPA simply declared in the most conclusory Ipsodixit imaginable that the point of obligation is beyond the scope of this rulemaking.

[01:05:00] Speaker 05:
That was the entirety of EPA's reasoning with respect to the point of obligation.

[01:05:06] Speaker 05:
That is an abuse of discretion

[01:05:08] Speaker 05:
under this court's decision in a law.

[01:05:12] Speaker 05:
To be sure, EPA has discretion in this field to determine whether to include the point of obligation within its annual rulemakings.

[01:05:22] Speaker 05:
But when faced with new evidence bearing directly upon the pass-through theory that is the underpinning of its prior point of obligation determinations,

[01:05:32] Speaker 05:
EPA has an obligation to exercise that discretion, to provide a reasoned explanation for why or why not to include the point of obligation within the scope of the annual rulemaking.

[01:05:46] Speaker 05:
The simple, conclusory ipsidixit that the point of obligation is beyond the scope of this rulemaking is a textbook abuse of discretion.

[01:06:01] Speaker 05:
report from Dr. Perron was a comprehensive 30-page expert analysis from a professor of finance at the University of Houston.

[01:06:11] Speaker 05:
That expert report bears directly on the propriety of the current point of obligation, and it bears directly upon whether EPA acted arbitrarily and capriciously by denying the severe economic harm waiver.

[01:06:27] Speaker 05:
There were multiple new pieces of evidence

[01:06:29] Speaker 05:
in this expert report.

[01:06:32] Speaker 05:
First, the expert report focused on the Pad 1 region.

[01:06:36] Speaker 05:
That's the east coast of the United States.

[01:06:40] Speaker 05:
Dr. Prong explained that Pad 1 refiners traditionally have lower refining margins and lower profitability than refiners in other areas of the United States.

[01:06:50] Speaker 05:
The report also focused specifically on the 2019 volume requirements, which are 630 million gallons higher than prior

[01:06:59] Speaker 05:
the prior year's volume requirements.

[01:07:02] Speaker 05:
And Dr. Perron found specifically that the 2019 volume requirements would lead to a 12.3% reduction in refining margins for East Coast refiners, that the 2019 requirements would lead to a $1.6 billion loss in profits by East Coast refiners, and that these economic losses could imperil the viability

[01:07:29] Speaker 05:
of East Coast refiners and thereby have substantial ripple effects throughout the entire regional economy.

[01:07:37] Speaker 05:
As Dr. Parang explained, for each refinery job that is lost by a refinery in Southeastern Pennsylvania, there would be 18.3 interrelated jobs lost in that region and 22 jobs lost throughout the state.

[01:07:54] Speaker 05:
So if a refiner the size of Philadelphia Energy Solutions with a thousand employees

[01:07:59] Speaker 05:
shuts down, that means that there'll be 18,300 jobs lost in the Southeastern Pennsylvania region and 22,000 jobs lost throughout the state with an annual labor income loss of $1.6 billion.

[01:08:17] Speaker 05:
EPA said absolutely nothing about Dr. Perrong's report.

[01:08:23] Speaker 05:
It stood silent in the face of this new evidence.

[01:08:27] Speaker 05:
EPA had an obligation to explain how it could reconcile its reliance on the pass-through theory to both deny a severe economic harm waiver in this proceeding and to justify its prior reasoning with respect to the point of obligation.

[01:08:48] Speaker 05:
How it could reconcile that reasoning with Dr. Perang's findings about the dire economic consequences

[01:08:55] Speaker 05:
that would arise from the imposition of the 2019 volume requirements on East Coast refiners.

[01:09:04] Speaker 05:
EPA's failure to address this new relevant evidence was arbitrary and capricious.

[01:09:11] Speaker 05:
And it was an abuse of discretion that requires a remand and vacator so that EPA can consider this new evidence and can explain the inconsistent reasoning on which it relied in

[01:09:24] Speaker 05:
denying a severe economic harm waiver.

[01:09:28] Speaker 05:
EPA on remand after a vacator from this court should grapple with that new evidence and assess in a reasoned manner whether it requires granting a severe economic harm waiver and whether it is appropriate as the statute specifies, whether it is appropriate in light of that evidence to include the point of obligation within this rulemaking proceeding.

[01:09:53] Speaker 05:
If the panel has no questions, I'll reserve the balance of my time for rebuttal.

[01:09:59] Speaker 13:
Make sure my colleagues don't have any questions.

[01:10:01] Speaker 13:
Thank you.

[01:10:02] Speaker 13:
Mr. Tehrani, we'll give you your rebuttal time that you reserved.

[01:10:06] Speaker 13:
Mr. Carlisle, we'll hear from you on behalf of the agency.

[01:10:12] Speaker 12:
Good morning.

[01:10:13] Speaker 12:
Ben Carlisle from the Department of Justice on behalf of EPA.

[01:10:17] Speaker 12:
Petitioners' arguments on the severe economic harm waiver and point of obligation are unpersuasive.

[01:10:23] Speaker 12:
They try to relitigate materials and arguments that were at issue in Elban.

[01:10:28] Speaker 12:
Second, they claim a logical inconsistency with EPA's grant of small refinery exemptions.

[01:10:33] Speaker 12:
Starting with their first argument, EPA reasonably declined to invoke the severe economic harm waiver after thorough analysis.

[01:10:39] Speaker 12:
This is JA 1675 to 85.

[01:10:43] Speaker 12:
It also reasonably and specifically found that commenters provided no new creditable evidence to indicate that refiners do not or cannot recover the cost of RINS.

[01:10:55] Speaker 12:
In doing so, EPA expressly cited the point of obligation denial.

[01:11:00] Speaker 12:
The court in Elan thoroughly examined and upheld EPA's conclusion that refiners pass through the cost of RINS.

[01:11:08] Speaker 12:
It also held that EPA had no annual duty to reassess the point of obligation

[01:11:12] Speaker 12:
subject only to review for abuse of discretion.

[01:11:16] Speaker 12:
Finally, Elan held that once EPA resolves an issue, it may defend against related criticism by simply referring to that resolution, in this case, the point of obligation denial, so long as the reasoning remains applicable.

[01:11:29] Speaker 12:
Petitioners are treating this case as if Elan did not make these holdings.

[01:11:33] Speaker 12:
as if they can resubmit the same arguments that EPA cannot simply refer to its prior analyses and that petitioners may then relitigate these issues.

[01:11:44] Speaker 12:
It is not enough that they dress up old arguments in new clothing as they did in the Perong study.

[01:11:49] Speaker 12:
This will be treating the issues as if they are addressed on a blank slate every year, which they are not.

[01:11:55] Speaker 12:
The two CRA studies are clear examples of the petitioner's approach here.

[01:11:59] Speaker 12:
The point of obligation denial address the arguments raised in these studies, yet petitioners simply resubmit them.

[01:12:05] Speaker 12:
The Perang analysis is similarly based on rehashing arguments that were squarely addressed and rejected in the point of obligation denial.

[01:12:13] Speaker 12:
This includes Perang's arguments as to the Pad 1 region.

[01:12:18] Speaker 12:
It includes Perang's claim that refiners do not pass through the costs of RIN.

[01:12:24] Speaker 12:
Here, he simply relies on the CRA studies.

[01:12:29] Speaker 12:
reliance on refinery closures, which EPA already found were not due to the renewable fuel standards in the point of obligation denial.

[01:12:37] Speaker 12:
And it includes his supply and demand analysis, which is how he reaches the 12.3% reduction that my colleague alluded to.

[01:12:44] Speaker 12:
His core assumption here is that RIN prices affect the price of transportation and fuel raising the supply curve.

[01:12:51] Speaker 12:
But the point of obligation denial already specifically came to a contrary conclusion, which Alon upheld at 651.

[01:12:58] Speaker 12:
RINS are a form of cross subsidy.

[01:13:00] Speaker 12:
They reduce the prices for biofuels and increase the price for petroleum products.

[01:13:05] Speaker 12:
This is found in the record at JA 169 to 70.

[01:13:09] Speaker 12:
From the perspective of the consumer of transportation fuels, these effects largely cancel each other out, so the supply and demand curves are not affected as Perron assumes.

[01:13:18] Speaker 12:
None of this is post hoc analysis.

[01:13:21] Speaker 12:
Rather, petitioners are recycling arguments that were already addressed in the point of obligation denial.

[01:13:27] Speaker 12:
EPA permissibly referred to that denial and correctly found that no new credible evidence had been presented.

[01:13:34] Speaker 12:
Nor is PES's bankruptcy or its subsequent settlement with EPA evidence that it could not pass through its costs, as our brief explained.

[01:13:43] Speaker 12:
And it's worth pausing here to think about how this settlement benefited PES, because the same point is also relevant to petitioners' arguments on small refinery exemptions.

[01:13:53] Speaker 12:
Under this settlement, PES can still sell its products

[01:13:56] Speaker 12:
at a market price that includes the cost of RIN acquisition, but it will not actually have to acquire the full amount of RINs it would otherwise, thereby raising its profits.

[01:14:06] Speaker 12:
To illustrate this point, imagine that a store's, that a gallon of milk costs $3, and a state then imposes a $1 per gallon tax on all stores, which they then pass through to their customers.

[01:14:17] Speaker 12:
That would raise the market price to $4 per gallon.

[01:14:21] Speaker 12:
If the state then waives this tax for a single store,

[01:14:25] Speaker 12:
That store can continue to sell at the prevailing $4 per gallon market price.

[01:14:30] Speaker 12:
And in doing so, it can take a higher profit because they do not have to pay the tax.

[01:14:34] Speaker 12:
This is important because it illustrates that the benefits to PES of its bankruptcy settlement is not withstanding PES's ability to pass through its RIN costs.

[01:14:45] Speaker 12:
Turning to petitioners' arguments on the alleged logical inconsistency between EPA's grant of small refinery exemptions and its decisions not to invoke the severe economic harm waiver,

[01:14:55] Speaker 12:
and its conclusions on RIN cost pass-through, again, petitioner's arguments are unpersuasive.

[01:15:00] Speaker 12:
First, the court should bear in mind that EPA's conclusions on RIN cost pass-through, as Alon explained in detail, are empirical, based on an extensive analysis of actual data.

[01:15:10] Speaker 12:
Again, Alon found these conclusions well-reasoned.

[01:15:14] Speaker 12:
Particularly, in light of this empirical support, there are good reasons, at least three of them, to reject petitioner's arguments of a purported logical inconsistency.

[01:15:25] Speaker 12:
The benefit of receiving a small refinery exemption is irrespective of a small refinery's ability to pass through its RIN costs.

[01:15:34] Speaker 12:
Petitioners go to great lengths to try and link these small refinery exemptions to this pass-through conclusion, but the foundation of their argument is not solid.

[01:15:44] Speaker 12:
Here, the same economic point that I just discussed with regard to Philadelphia Energy Solution applies to the exemptions.

[01:15:50] Speaker 12:
Again, Congress specifically authorized these exemptions by statute.

[01:15:55] Speaker 12:
Second, these exemptions do not show severe economic harm or that the hardship to small refineries is due to an inability to pass through costs.

[01:16:06] Speaker 12:
EPA grants these exemptions based on disproportionate economic hardship to a particular refinery.

[01:16:12] Speaker 12:
And it specifically addressed in the record the claim that these exemptions suggest severe economic harm.

[01:16:19] Speaker 12:
It explained that these are decided on a different standard than the severe economic harm waiver

[01:16:25] Speaker 12:
And the fact that there may be some hardship to some specific small refineries does not necessarily show severe economic harm to a nation, state, or region.

[01:16:36] Speaker 12:
Excuse me, the United States, a state or a region.

[01:16:39] Speaker 12:
And it explains these conclusions at JA 1680 to 81.

[01:16:43] Speaker 12:
Again, what we are addressing here is a subset of small refineries, which is itself a subset of the refinery industry.

[01:16:51] Speaker 12:
Petitioners make no showing that this rises to the level of severe economic harm as provided in the statute.

[01:16:58] Speaker 12:
And with this particularized focus, EPA can consider factors that are not dependent on RIN costs passed through and factors specific to particular small refineries.

[01:17:08] Speaker 12:
For example, refiners pass through their RIN acquisition costs in the prices of their product.

[01:17:14] Speaker 12:
But RIN compliance, demonstration of compliance with the renewable fuels program is annual.

[01:17:21] Speaker 12:
A small refinery may therefore incur all of its RIN costs at the end of the compliance period after it has already passed through those costs.

[01:17:31] Speaker 12:
If at that time they have low liquidity credit problems or cash flow problems, they may struggle to in fact acquire those RIN costs.

[01:17:40] Speaker 12:
EPA thus can consider factors such as the short-term hardship associated with RIN acquisition.

[01:17:46] Speaker 12:
This harm is irrespective of those refineries ability to pass through their costs.

[01:17:52] Speaker 12:
In fact, petitioners do not show any situation in which EPA granted a small refinery exemption because it found that a refinery could not pass through its costs.

[01:18:03] Speaker 12:
To the contrary, it reaffirmed in the 2019 rule at 63742 that small refiners are in fact able to pass through ring costs.

[01:18:14] Speaker 12:
Third,

[01:18:15] Speaker 12:
The Tenth Circuit decision and Renewable Fuels Association does not support petitioners' arguments.

[01:18:20] Speaker 12:
It actually undermines them.

[01:18:23] Speaker 12:
The Renewable Fuels Association decision did not find that EPA's grant of small refinery exemptions was inconsistent with its pass-through conclusion.

[01:18:32] Speaker 12:
Rather, it held that EPA failed to adequately consider written cost pass-through on the particular individual circumstances of the small refinery petitions.

[01:18:42] Speaker 12:
This is RFA at 1256 to 57.

[01:18:45] Speaker 12:
Ergon is similar, as we pointed out in our brief.

[01:18:49] Speaker 12:
It held that EPA relied, erred in relying on generic pass-through analysis when it was examining the specific small refinery exemptions for particular refiners that were before it.

[01:19:03] Speaker 12:
Moreover, and this goes to the third reason that petitioners' arguments fail, EPA acknowledged in RFA

[01:19:10] Speaker 12:
that the factors it evaluated leading it to grant small refinery exemptions were not solely due to the renewable fuel standards.

[01:19:18] Speaker 12:
It is never argued that the renewable fuel standards must be the sole cause of the disproportionate hardship that leads to granting a small refinery exemption.

[01:19:31] Speaker 12:
And in fact, RFA held that EPA small refinery exemptions were not restricted to disproportionate economic hardship caused by RFS compliance.

[01:19:40] Speaker 12:
This is at pages 1, 2, 5, 3 to 5, 4.

[01:19:43] Speaker 12:
This undermines any claim of inconsistency here because it undermines the causal connection the petitioners are relying on.

[01:19:51] Speaker 12:
Your Honor, if the court doesn't have any further questions on these issues or any of the other issues in petitioners brief, we would ask that the petitions be denied.

[01:20:05] Speaker 13:
Thank you, Mr. Carlisle.

[01:20:06] Speaker 13:
It doesn't appear we have questions.

[01:20:07] Speaker 13:
Thank you for your argument.

[01:20:09] Speaker 13:
Mr. Tehrani, if I looked at the timer correctly, I believe you had three minutes and 11 seconds remaining.

[01:20:14] Speaker 13:
We'll get as close to that as we can.

[01:20:15] Speaker 13:
Three minutes and 20, I'm corrected.

[01:20:18] Speaker 05:
Thank you very much.

[01:20:20] Speaker 05:
The fundamental problem with EPA's defense of its denial of the severe economic harm waiver and its refusal to reconsider the point of obligation in this court

[01:20:34] Speaker 05:
is that almost none of the reasoning in its brief and that we heard today is contained within the four corners of its rule or within its response to comments.

[01:20:48] Speaker 05:
This court must evaluate EPA's reasoning based on the four corners of its rule and in its response to comments, not based on post hoc rationalizations in this court.

[01:21:04] Speaker 05:
There is nothing in the EPA's rule or its response to comments that addresses the serious logical inconsistency between EPA's pass-through reasoning on the one hand and its decision to grant 85 small refinery exemptions between 2016 and 2018 on the other.

[01:21:26] Speaker 05:
Each of those exemptions requires a finding of disproportionate economic hardship to

[01:21:34] Speaker 05:
the refinery applicants.

[01:21:36] Speaker 05:
EPA never explained when it relied on the pass-through theory here to deny a severe economic harm waiver how pass-through could be the basis for denying the waiver on the one hand, but on the other, EPA could repeatedly find that RIN costs and the RFS compliance program are causing

[01:22:00] Speaker 05:
disproportionate economic hardship to these scores of small refinery applicants.

[01:22:06] Speaker 05:
The failure to address that issue and to reconcile that logical tension within the four corners of its decision cannot be cured by post hoc rationalizations in this court.

[01:22:19] Speaker 05:
The same holds true with respect to EPA's lack of reasoning regarding the point of obligation, the totality of EPA's

[01:22:29] Speaker 05:
Discussion of that issue is at JA 1850, and it reads as follows.

[01:22:35] Speaker 05:
Changes to the point of obligation for the RFS program are all beyond the scope of this rulemaking, as EPA did not propose any changes to the overall structure of the RFS program or otherwise seek comment on these issues.

[01:22:50] Speaker 05:
These topics are not further addressed in this document.

[01:22:54] Speaker 05:
That is all EPA said on this issue, and that is

[01:22:59] Speaker 05:
a textbook abuse of discretion under this court's decision in Alon, which makes clear that EPA has an annual obligation to determine whether it is appropriate to consider the point of obligation as part of the rulemaking.

[01:23:16] Speaker 05:
In light of the new evidence in this record, that was not before the court in Alon, that was not before the EPA when it issued its denial of the point of obligation petitions.

[01:23:26] Speaker 05:
EPA had an obligation to explain why that new evidence, the surge in new small refinery exemptions, the PES bankruptcy, the Perang report, why that did not compel it to consider the point of obligation as part of this rulemaking.

[01:23:42] Speaker 05:
Its failure to do so was an abuse of discretion.

[01:23:45] Speaker 05:
Thank you.

[01:23:47] Speaker 13:
Thank you, Mr. Tarani, Mr. Carlisle.

[01:23:50] Speaker 13:
We'll proceed now to the claims by the environmental groups.

[01:23:54] Speaker 13:
Ms.

[01:23:54] Speaker 13:
Atfield?

[01:23:56] Speaker 08:
Morning and may it please the court.

[01:23:58] Speaker 08:
I'm Carrie Apfel on behalf of environmental petitioners.

[01:24:01] Speaker 08:
I'd like to reserve two minutes of my time for rebuttal.

[01:24:05] Speaker 08:
Your honors, we're here today because in setting the volumes for the Renewable Fuel Standard Program for 2019, EPA violated the law by ignoring the very real, severe, and documented environmental harms caused by the rule.

[01:24:19] Speaker 08:
This includes the unlawful conversion of pristine grassland

[01:24:23] Speaker 08:
to grow crops for renewable biomass, causing devastation to endangered and threatened species, their critical habitat, and the environment more broadly.

[01:24:32] Speaker 08:
In doing so, EPA violated the Endangered Species Act, the Administrative Procedure Act, and the Clean Air Act.

[01:24:40] Speaker 08:
Though EPA tries to argue otherwise, the 2019 rules 15 billion gallon mandate unquestionably leads to the production of biomass to satisfy its requirements.

[01:24:51] Speaker 08:
corn, soy, and other crops have to be grown somewhere to satisfy this mandate.

[01:24:56] Speaker 08:
And the record directly links the production of renewable biomass for the RFS program to the loss of biodiversity, soil erosion, water pollution, and harm to species.

[01:25:08] Speaker 08:
EPA turned a blind eye to all of this when setting a 15 billion gallon mandate for 2019, rendering the rule unlawful.

[01:25:15] Speaker 08:
I will first turn to our Endangered Species Act challenge and explain how in light of the record before EPA, linking the production of renewable biomass to environmental degradation, it is simply implausible to find that the 2019 rule's 15 billion gallon mandate will have no effect whatsoever on threatened and endangered species or their critical habitat.

[01:25:35] Speaker 08:
EPA's decision not to consult about the rule violates the ESA.

[01:25:41] Speaker 08:
Next, I will explain how the same evidence shows that the EPA's no effective termination and the rule that depends on it are arbitrary and capricious and in violation of the Administrative Procedure Act.

[01:25:51] Speaker 08:
I will then explain that by failing to acknowledge the very real and severe environmental harms stemming from the RFS volumes for 2019, EPA abused its discretion when deciding not to issue an environmental harm waiver under the Clean Air Act.

[01:26:06] Speaker 08:
And finally, I will explain how the 2019 rules use of an aggregate compliance approach to determine whether land can be used to grow renewable biomass for the RFS program violates the Clean Air Act.

[01:26:19] Speaker 13:
When you gave us our roadmap, your first two points were no effect points.

[01:26:26] Speaker 13:
What's the difference between the two, just so I have an idea of where you're going?

[01:26:29] Speaker 08:
Well, one was that they failed to consult.

[01:26:32] Speaker 08:
The failure to consult violated the ESA.

[01:26:34] Speaker 08:
The other focus is on the no effect determination.

[01:26:36] Speaker 08:
They rely on the same flaws in the in the no effect determination, Your Honor.

[01:26:43] Speaker 08:
So turning first to the Endangered Species Act claim, under the ESA, Congress intended to give endangered species priority over primary missions of federal agencies, imposing substantive and procedural requirements on federal agencies to protect threatened and endangered fish, wildlife, plants, and their habitats.

[01:27:01] Speaker 08:
Towards that end, the ESA requires an agency to consult with Fish and Wildlife Services and National Marine Fisheries Service before taking any action if the proposed action may affect species or critical habitat.

[01:27:14] Speaker 08:
The may affect threshold for triggering consultation is low.

[01:27:18] Speaker 08:
It essentially means more than a zero chance of having an effect.

[01:27:21] Speaker 08:
If the action may affect, consultation is required.

[01:27:25] Speaker 08:
If the action may affect but is not likely to adversely affect, this still requires the concurrence of the services.

[01:27:32] Speaker 08:
Only if the agency determines that the proposed action will have no effect at all can it do away with the consultation requirement and issue a no effect determination explaining the findings.

[01:27:43] Speaker 08:
Here, there's no question that the 2019 world's 15 billion gallon mandate may affect threatened and endangered species in critical habitat.

[01:27:51] Speaker 08:
This mandate has to be satisfied by renewable biomass grown somewhere, either on newly converted land or land already in cultivation.

[01:27:58] Speaker 08:
And the record leaves no doubt that some of this corn will be grown in places like the Mississippi River Basin, where fertilizer and pesticide use required to grow corn will lead to runoff, which contributes to the dead zone in the Gulf of Mexico, Harmon Golf Sturgeon, which is a federally listed species.

[01:28:16] Speaker 08:
And the record also shows that some of this corn will likely come from places like Kansas, where land conversion and intensification harms the habitat of the whooping crane, another federally listed species.

[01:28:28] Speaker 08:
The record includes this evidence, as well as additional evidence that collectively shows that the proposed volumes may have some amount of effect that is more than absolutely nothing, and this is sufficient to trigger the consultation requirements under the ESA.

[01:28:41] Speaker 08:
EPA's failure to consult and its no effect determination supporting it render the rule unlawful.

[01:28:49] Speaker 08:
Despite record evidence linking detailed environmental harms to the renewable fuel volumes, EPA irrationally tries to pretend that the 2019 volumes will have no effect on the production of renewable biomass, despite the fact that this is exactly what the rule is designed to do.

[01:29:04] Speaker 08:
Indeed, the very premise of the RFS program was to increase the production of renewable fuels.

[01:29:10] Speaker 08:
As this court has consistently recognized, quote, by requiring upstream market participants to introduce increasing volumes of renewable fuel into the transportation fuel supply, Congress intended the renewable fuel program to be a market forcing policy that would create demand pressure to increase consumption of renewable fuel.

[01:29:30] Speaker 08:
And that's from AFPM at 568.

[01:29:34] Speaker 08:
The program does what Congress intended it to do.

[01:29:37] Speaker 08:
Indeed, the other petitioners are here today challenging the rule precisely because of the effect they allege the volumes will have on market demand for renewable biomass.

[01:29:46] Speaker 08:
EPA's argument is untenable.

[01:29:48] Speaker 08:
Rather, by setting a mandate of 15 billion gallons of renewable fuel for 2019, EPA is incentivizing the production of renewable biomass in the form of corn and soybeans.

[01:29:59] Speaker 08:
And study after study, including EPA's own second triennial report for the Renewable Fuel Standard Program, show that the production of renewable biomass has had devastating effects on threatened and endangered species and the environment.

[01:30:12] Speaker 08:
The causal chain is direct and unbroken.

[01:30:14] Speaker 08:
Renewable fuel volumes lead to the production of renewable biomass, and this destroys habitat and harms threatened and endangered species.

[01:30:22] Speaker 08:
The court already heard and decided a similar challenge to the 2018 rule in AFPM, and based on strikingly similar evidence,

[01:30:30] Speaker 08:
determined that the EPA's own triennial report shows that land has been converted to grow crops to make biofuels.

[01:30:42] Speaker 08:
And the court found that the triennial report and a declaration by Dr. Tyler Lark show that, quote, this increase in crop production and land conversion

[01:30:52] Speaker 08:
harms the habitats of numerous animals and fish, including, critically, the particular habitats of the whooping crane and the golf sturgeon," end quote.

[01:31:02] Speaker 08:
Those are two federally listed species.

[01:31:04] Speaker 08:
And the court found that these reports describe the effects of the annual standards promulgated over the past decade, and that the 2018 rule is simply the next iteration of those standards, and that these reports certainly serve as evidence of the likely harms of the 2018 rule.

[01:31:19] Speaker 08:
And all of that's from AFPM at 591 to 595.

[01:31:22] Speaker 08:
The same holds true for the 2019 wolf.

[01:31:29] Speaker 08:
There are a number of flaws in EPA's determination.

[01:31:32] Speaker 08:
First, EPA applies the wrong standard.

[01:31:36] Speaker 08:
The question is not whether the proposed action is reasonably certain to affect species or habitat, but rather whether the proposed action may affect species or habitat.

[01:31:46] Speaker 08:
And the answer to that question here is a resounding yes.

[01:31:49] Speaker 08:
The reasonably certain standard applies to whether an indirect effect will occur.

[01:31:54] Speaker 08:
And here it is reasonably certain that some corn will be grown to satisfy the 15 billion gallon mandate.

[01:32:00] Speaker 08:
And this clearly may affect species.

[01:32:02] Speaker 08:
For example, corn cultivation in the Mississippi River basin leads to increased fertilizer and pesticide use, which leads to runoff contributing to the dead zone in the Gulf of Mexico and harming species such as Gulf sturgeon.

[01:32:15] Speaker 08:
EPA's attempt to import this higher burden into the initial threshold question is improper, and EPA can't escape the fact that the threshold for triggering consultation is low.

[01:32:26] Speaker 08:
It requires more than a zero chance of having an effect, which clearly is the case here.

[01:32:30] Speaker 08:
EPA also argues that corn acreage is down, pointing in its brief to evidence that's not referred to or relied on in the no effect determination.

[01:32:41] Speaker 08:
EPA cannot now rely on this data to support its otherwise unreasonable determination.

[01:32:46] Speaker 08:
And in any event, planted acreage is not the issue.

[01:32:50] Speaker 08:
Instead, the issue is whether the mandate will lead to the production of renewable biomass, which based on the evidence in the record, it is certainly reasonable to do, reasonably certain to do.

[01:33:01] Speaker 08:
Whether through land conversion or through intensification on already cultivated lands,

[01:33:08] Speaker 08:
15 billion gallon mandate is reasonably certain to incentivize renewable biomass production as the rule was designed to do.

[01:33:17] Speaker 08:
And as the record shows, and as this court concluded in AFPM, and as EPA itself concluded in its own triennial report, this likely harms species and their habitat.

[01:33:28] Speaker 08:
EPA wholly ignored this in its decision not to consult.

[01:33:31] Speaker 08:
Because the volumes unquestionably meet the May Effect standard, EPA's decision not to consult violated the Endangered Species Act.

[01:33:40] Speaker 08:
For these same reasons, by ignoring the same record evidence, EPA's determination and the rule that relies on it also violate the Administrative Procedure Act.

[01:33:49] Speaker 08:
EPA acted in an arbitrary and capricious manner by relying on a no effect determination that is contrary to the evidence, has no rational connection to the facts in the record, and also applies the wrong standard.

[01:34:04] Speaker 08:
An agency action is arbitrary and capricious for that agency operator.

[01:34:07] Speaker 08:
I'm sorry, Your Honor.

[01:34:08] Speaker 01:
Could you, would you mind moving on to the severe environmental harm waiver issue?

[01:34:13] Speaker 08:
Sure, Your Honor.

[01:34:16] Speaker 08:
Under the Clean Air Act, EPA can lower the RFS volume requirement where it determines that implementation of the requirement will cause severe environmental harm.

[01:34:26] Speaker 08:
Given the documented evidence, some of which I just described and also that's included in the record, that show that severe environmental harm caused by the renewable fuel program and that the 2019 rule is simply the next iteration of that program and thus will continue these harms, harms including land conversion, causing environmental degradation and harm to species and habitat, EPA's decision not to issue a severe environmental harm waiver was arbitrary and capricious and an abuse of discretion.

[01:34:56] Speaker 08:
We believe EPA didn't engage in any analysis here.

[01:34:59] Speaker 08:
Had it consulted as it was required to do under the ESA, it could have found severe environmental harm.

[01:35:05] Speaker 08:
Instead, it ignored record evidence, pretended the rule doesn't do exactly what it is intended to do, which is to incentivize the production of renewable biomass, and its decision not to issue a waiver without addressing the fact that show the volumes destroy habitat and lead to severe environmental harm was an abuse of discretion.

[01:35:26] Speaker 13:
Turning to the challenge to the aggregate compliance approach, EPA- Okay, before you go to that, before you go to aggregate compliance, can I just ask you, based on the, if we take your no effect argument and the related argument with respect to the waiver, and let's just suppose for purposes of argument, I'm not saying we will, but let's just suppose for purposes of argument that we find those meritorious, the relief you're asking, as I understand it from a brief, is for remand.

[01:35:53] Speaker 08:
Correct, Your Honor.

[01:35:54] Speaker 08:
We would ask for a remand with instructions for the agency to consult and for it to reconsider issuance of the waiver in light of the evidence that's actually in the record to consider all of the evidence of environmental harm.

[01:36:09] Speaker 13:
Okay, so no issue a vacator comes up with your request.

[01:36:11] Speaker 13:
It's a remand.

[01:36:12] Speaker 08:
That's correct.

[01:36:13] Speaker 13:
Okay, thanks.

[01:36:15] Speaker 08:
So I recognize that I'm in my rebuttal time, but can I take a few minutes to talk about aggregate compliance.

[01:36:21] Speaker 13:
If it's up to you, you can take this time if you'd like.

[01:36:26] Speaker 08:
Just quickly turning to the aggregate compliance approach, EPA ignores the merits of environmental petitioners claims and focuses exclusively on the issue of timeliness.

[01:36:35] Speaker 08:
We believe that the issue is both timely and valid.

[01:36:38] Speaker 08:
The Clean Air Act clearly defines crop-based renewable biomass as planted crops and crop residue harvested from agricultural land cleared or cultivated at any time prior to December 19th, 2007 that is either actively managed or fallow and non-forested.

[01:36:56] Speaker 08:
aggregate compliance scheme permits the conversion of land that was neither cleared nor cultivated prior to December 2007, as long as the amount of land in use as cropland across the country at any given time remains below a certain threshold.

[01:37:10] Speaker 08:
But this ignores the fact that land comes out of cultivation for a number of reasons, including, for example,

[01:37:16] Speaker 08:
urbanization and that the aggregate amount may remain below the threshold level, even as millions of acres of grassland are being converted for use as renewable biomass for the RFS program in violation of the Clean Air Act.

[01:37:29] Speaker 08:
In terms of timeliness, the EPA's triennial report and its use in the 2019 rulemaking constructively reopened the question of the lawfulness of EPA's use of the aggregate compliance approach.

[01:37:42] Speaker 08:
This statutorily required report, which was included for the first time in an RFS volume setting rulemaking, shows that millions of acres of previously uncultivated land have been converted to grow renewable biomass for the RFS program

[01:37:56] Speaker 08:
despite the Clean Air Act prohibition on the use of this land for this purpose.

[01:38:02] Speaker 08:
As Judge Rogers pointed out earlier, here we have a situation where the facts before the agency have changed so that applying this approach is no longer valid.

[01:38:12] Speaker 08:
So the triennial report reopened the question of the lawfulness by providing new facts

[01:38:19] Speaker 08:
and revealing changed circumstances, which includes indisputable evidence for the first time in an RFS rulemaking that the aggregate compliance provision is resulting in illegal conversion.

[01:38:30] Speaker 08:
And the evidence gained the aggregate compliance scheme a new significance in two ways.

[01:38:36] Speaker 08:
By demonstrating that the impact it was having was not consistent with EPA's original projection that new lands would not be converted to grow renewable biomass,

[01:38:44] Speaker 08:
And second, by demonstrating that despite the evidence that unlawful conversion was occurring under this approach, that EPA would still continue to follow this approach.

[01:38:54] Speaker 08:
So this new information changed the stakes of a judicial review and thus constructively reopened the challenge, which would have been too speculative to bring back in 2010.

[01:39:06] Speaker 08:
So if this doesn't reopen the issue, then EPA can continue to allow for the illegal conversion of pristine grassland as renewable biomass, which violates both the text and the purpose of the Clean Air Act.

[01:39:20] Speaker 06:
OK, thank you.

[01:39:21] Speaker 09:
We heard counsel for EPA argue that the way to address this is to file a petition.

[01:39:29] Speaker 08:
I'm sorry, Judge Rogers, I'm having trouble hearing you.

[01:39:32] Speaker 09:
Previously,

[01:39:34] Speaker 09:
Council for EPA said the proper way to raise this is through a petition to the agency to change its approach.

[01:39:41] Speaker 09:
Any comment?

[01:39:43] Speaker 08:
Sure, Your Honor.

[01:39:44] Speaker 08:
We believe that that is a proper way to raise it.

[01:39:46] Speaker 08:
if the challenge were brought for the entire renewable fuel standard program.

[01:39:51] Speaker 08:
Our challenge right here is for the 2019 rulemaking.

[01:39:55] Speaker 08:
And so I don't think that they're mutually exclusive.

[01:39:58] Speaker 08:
I think a petition for review can ask to amend the use of the aggregate compliance scheme for all of the renewable fuel standard program.

[01:40:07] Speaker 08:
I think our position is for this case that this challenge is

[01:40:12] Speaker 08:
appropriate and timely because EPA is continuing to use this approach despite evidence in this rulemaking that shows that this approach violates the Clean Air Act.

[01:40:24] Speaker 08:
And so I think that this challenge is timely, but that doesn't mean that you can't also have a petition to amend for the overall Renewable Fuel Standard Program.

[01:40:37] Speaker 13:
Thank you.

[01:40:37] Speaker 13:
Thank you, Ms.

[01:40:38] Speaker 13:
Abfel.

[01:40:39] Speaker 13:
We'll give you a little bit of time for rebuttal.

[01:40:41] Speaker 13:
Mr. Ito will hear from you on behalf of the agency.

[01:40:44] Speaker 02:
May it please the court, Mike Ito with Department of Justice for Respondent Environmental Protection Agency.

[01:40:50] Speaker 02:
Your Honor, in the litigation over the 2018 rule, this court held that EPA must expressly address its obligations under the Endangered Species Act.

[01:41:01] Speaker 02:
And EPA addressed that issue head on in the 2019 rulemaking.

[01:41:07] Speaker 02:
and looked at the facts and the circumstances and the evidence surrounding the 2019 rule.

[01:41:12] Speaker 02:
And it determined that this rule is not driving corn, soybean, or other feedstock production for biofuels, and therefore is not the causal mechanism that is causing impacts to endangered species or their critical habitat.

[01:41:27] Speaker 02:
And that determination at JA 1635 is reasoned

[01:41:32] Speaker 02:
It's supported by the evidence.

[01:41:35] Speaker 02:
And it highlights a key disconnect that runs throughout this entire case.

[01:41:39] Speaker 02:
And that is that petitioners rely on the same evidence they relied on in the past litigation.

[01:41:46] Speaker 02:
They rely on the LARC declaration and EPA's triennial report, both of which are retrospective analysis of past biofuels from 2006 and before.

[01:41:58] Speaker 09:
They do not address- So you do agree, do you not, that that evidence

[01:42:03] Speaker 09:
does speak to the future as well.

[01:42:07] Speaker 02:
That evidence is primarily a retrospective analysis of conditions before- Maybe primarily, but not exclusively.

[01:42:14] Speaker 02:
There is- Is that correct?

[01:42:18] Speaker 02:
There is some predictions within the 2018 triennial report that look to the future, but no, that report was issued in June 2018.

[01:42:28] Speaker 02:
It did not look at facts and circumstances specific to the 2019

[01:42:33] Speaker 02:
renewable fuel rule.

[01:42:35] Speaker 02:
And what changed?

[01:42:37] Speaker 02:
What changed is we have intervening evidence since 2016.

[01:42:41] Speaker 02:
And that evidence is?

[01:42:43] Speaker 02:
So EPA addressed that in JA 1635.

[01:42:50] Speaker 02:
And so if we start with corn, and that's primarily what petitioners are talking about when they reference a 15 billion gallon renewable fuel mandate, that is the corn ethanol mandate.

[01:43:02] Speaker 02:
And what EPA looked at is, they looked at if you take away our 2019 rule, if it is gone, would that at all change production of corn ethanol in the United States?

[01:43:16] Speaker 02:
Would it change crop production practices in the United States?

[01:43:21] Speaker 02:
And a good illustrative point of that inquiry is JA 1638 to 39, where EPA engages in that type of analysis.

[01:43:29] Speaker 02:
If you take this rule away, what happens?

[01:43:32] Speaker 02:
And so looking at like corn ethanol, the market is built up to blend corn ethanol into nearly every gallon of gasoline.

[01:43:41] Speaker 02:
It's what is referred to as E10 gasoline.

[01:43:44] Speaker 02:
It is used as an additive.

[01:43:46] Speaker 02:
As EPA points out, the data shows that corn ethanol is cheaper than regular gasoline.

[01:43:53] Speaker 02:
It is economical for refiners to blend that into every gallon of gasoline.

[01:43:58] Speaker 02:
So looking at the market factors, regardless of whether there's an RFS rule, the market will produce corn ethanol and blend it into gallons of gasoline.

[01:44:07] Speaker 09:
But it doesn't mean that the corn production is not also, I'm just talking about what's in the record.

[01:44:19] Speaker 02:
Right, and this is in the record at JA 1635.

[01:44:22] Speaker 09:
No, I understand that's in the record, but again, it's not saying exclusively, it's all going to be this

[01:44:29] Speaker 09:
E10 gasoline?

[01:44:31] Speaker 02:
No, it is not saying exclusively E10, but with corn production, in addition to E10, there is a robust export market for corn ethanol.

[01:44:40] Speaker 02:
And that export market is not tied to renewable fuel standard rules.

[01:44:45] Speaker 02:
And illustrative figure is figure one on JA 1640.

[01:44:50] Speaker 02:
And it shows that US production of corn ethanol is exceeding consumption, and that exports of this commodity are increasing over time.

[01:44:59] Speaker 02:
And so EPA looked at the total demand for corn ethanol exceeds the renewable fuel mandate.

[01:45:07] Speaker 02:
And so if you take away the RFS volumes, you'll still have production for E10 additive blends.

[01:45:14] Speaker 02:
You'll still have production for exports.

[01:45:17] Speaker 02:
And so it's not the case that simply this rule is driving production of the biofuel.

[01:45:22] Speaker 02:
And if it's not driving production of the biofuel, it's also not driving production of the crop.

[01:45:27] Speaker 13:
So what the Triano report said was,

[01:45:29] Speaker 13:
that evidence from observations of land use change suggests that some of this increase in acreage and crop use is a consequence of increase by fuel production mandates.

[01:45:41] Speaker 13:
And it's talking about corn in part there.

[01:45:44] Speaker 02:
Correct, your honor.

[01:45:45] Speaker 02:
And what that's talking about is, again, that retrospective analysis.

[01:45:50] Speaker 02:
And so we're not disputing the broader look at an RFS program that in circumstances it can have those kind of interactions.

[01:45:58] Speaker 02:
What EPA was very specifically focused on is the regulation ad issue in this case, and that's the 2019 rule.

[01:46:06] Speaker 02:
And it was looking at those market agricultural fuel market factors specific to the 2019 rule.

[01:46:12] Speaker 02:
And it's actually illustrative if we talk about like soy production.

[01:46:17] Speaker 02:
Vegetable oil from soybeans is used to produce advanced biofuels.

[01:46:22] Speaker 02:
And this is a different circumstance than corn.

[01:46:25] Speaker 02:
because the RFS rule is driving production of renewable biofuels made from virgin vegetable oils like soybean or canola oil.

[01:46:36] Speaker 02:
And so EPA again looked at and scrutinized the evidence on those factors.

[01:46:42] Speaker 02:
And it found even though the renewable fuel is supporting increased production of those biofuels, that it is not driving production of soybean crops in 2019.

[01:46:52] Speaker 02:
And among those factors is new evidence and new regulatory factors surrounding 2019, like a large surplus of soybeans on hand, Chinese tariffs that are reducing exports of these commodities.

[01:47:06] Speaker 09:
So where are you getting your standard of driving force?

[01:47:12] Speaker 02:
So we're looking at principles of causation.

[01:47:15] Speaker 02:
And so when EPA is looking at it, what kind of effects is this rule going to have?

[01:47:21] Speaker 02:
We discuss it in terms of both standing, and then when we get into the merits on whether this is a may affect, but they all revolve around principles of causation.

[01:47:30] Speaker 02:
And is this rule driving crop protection or agricultural practices in the US?

[01:47:36] Speaker 09:
And where do you get that in this context?

[01:47:42] Speaker 09:
The standard, Your Honor?

[01:47:44] Speaker 09:
Where does it say that in order to meet the standard here

[01:47:51] Speaker 09:
that the petitioners have to show that the 2019 rule is the driving force.

[01:48:02] Speaker 09:
Sure.

[01:48:02] Speaker 09:
So I'm getting it.

[01:48:03] Speaker 09:
You're guessing it has to show exclusivity, and I don't see that anywhere.

[01:48:10] Speaker 02:
So the exclusivity point comes from what they are challenging in this case.

[01:48:13] Speaker 02:
Under the Clean Air Act, all they are challenging is the 2019 regulations.

[01:48:18] Speaker 02:
So for purposes of standing, they need to show that the 2019 regulation is the causal factor of some concrete and particularized.

[01:48:27] Speaker 09:
But do they have to show it is the driving force?

[01:48:33] Speaker 09:
You say that, it's as though everything else is to be excluded.

[01:48:38] Speaker 09:
So that even if the 2019 rule is a partial cause, where they have shown through these expert studies,

[01:48:47] Speaker 09:
There is a causal link.

[01:48:50] Speaker 09:
Why isn't that enough?

[01:48:52] Speaker 02:
So based on the evidence in J1635, we do not believe there is that causal link to begin with.

[01:48:58] Speaker 09:
But even if you have an expert to that, well, your own triennial report says there is.

[01:49:06] Speaker 09:
Again, the triennial report.

[01:49:09] Speaker 09:
I'm getting at.

[01:49:10] Speaker 02:
Right.

[01:49:10] Speaker 02:
The triennial report is a little different beast because it was looking at the kind of past program, past biofuel use.

[01:49:17] Speaker 02:
EPA, as this court said in the 2018 opinion, EPA took that very directed analysis at the 2019 rule.

[01:49:26] Speaker 02:
And it looked at those specific economic and market factors applicable to the 2019 rule.

[01:49:33] Speaker 02:
And that is what the prior court asked.

[01:49:35] Speaker 02:
And that is the expert analysis that we are relying on.

[01:49:39] Speaker 02:
Because importantly, these are points that EPA does have expertise in analyzing and reviewing when it's

[01:49:47] Speaker 02:
implementing the renewable fuel standard program.

[01:49:50] Speaker 09:
I understand that we defer to agency expertise, but your own record of experts is contrary to what you're suggesting we defer to.

[01:50:05] Speaker 02:
And on that point, Your Honor, I point the court to J.A.

[01:50:17] Speaker 02:
JA1649.

[01:50:20] Speaker 02:
And that is EPA's ESA determination where it expressly addresses its triennial report and explains these are both EPA products and it did reconcile and wrestle with what are the imports and implications of this triennial report on its determination.

[01:50:36] Speaker 02:
And so it did not ignore its prior determination and in fact looked at it expressly.

[01:50:41] Speaker 02:
And I think the key driving factor here

[01:50:44] Speaker 02:
is that conditions surrounding renewable fuels or biofuels or even all RFS rules are not the same every year.

[01:50:53] Speaker 02:
That there are specific market factors that are different from year to year, and it takes that directed analysis of what is the impact of the 2019 rule.

[01:51:03] Speaker 02:
And one example of that, I'll point to it again, is soybeans with the Chinese tariffs.

[01:51:09] Speaker 02:
It created a huge surplus

[01:51:11] Speaker 02:
of soybeans in the United States.

[01:51:14] Speaker 02:
And so EPA is looking at, look, is it reasonable to say our rule is driving production of soybeans when we have a surplus of soybeans on hand?

[01:51:22] Speaker 02:
We have more than enough products to meet whatever renewable fuel standards are being applied for the 2019 rule.

[01:51:29] Speaker 13:
So can I ask you this about J1649?

[01:51:30] Speaker 13:
So I know that towards the bottom of the page, there's an effort to say that there's an acknowledgement that statements in the Triennial Report

[01:51:40] Speaker 13:
may appear inconsistent with our conclusions.

[01:51:42] Speaker 13:
And I get that.

[01:51:43] Speaker 13:
But just up above a little bit, the agency said, the report did not purport to establish a causal connection between the RFS annual rules and land use changes.

[01:51:56] Speaker 13:
And then what the report said is, it's likely that the impacts associated with land use changes are at least in part due to increased biofuel production and use associated with the RFS.

[01:52:07] Speaker 13:
Those statements don't seem reconcilable to me.

[01:52:10] Speaker 02:
So a large part of the statements that EPA was making there is the triennial port was looking at biofuels generally, like exports of corn ethanol.

[01:52:20] Speaker 02:
And not all biofuel issues are wrapped up in annual RFS rules.

[01:52:25] Speaker 02:
RFS deals with only use of biofuels in the United States.

[01:52:29] Speaker 02:
So the issue surrounding biofuels generally is much broader than annual renewable fuel rules.

[01:52:36] Speaker 02:
So that is part of what EPA was driving at in that statement.

[01:52:39] Speaker 02:
The other more salient point for our purposes is that the Toronto report certainly was not looking at the individual effects of individual RFS rules like it did in this case.

[01:52:55] Speaker 02:
And so, Your Honor, even if we assume that there is some link, even despite the evidence, if we assume there's some link between the RFS and environmental harm, EPA still addressed those factors and found that there was not enough of a link

[01:53:09] Speaker 02:
or enough evidence to show that even if there is some crop production in the United States, that it is actually having an impact on ESA listed species or critical habitat.

[01:53:19] Speaker 02:
And at least for the purposes of standing, I point the court to the spring court's decision in Lujan versus Defenders of Wildlife, where the court addressed a similar issue of you had federal funding on a foreign project and that federal funding was less than 10% of the foreign project.

[01:53:37] Speaker 09:
Is this 504 US or is this is another Lugan?

[01:53:40] Speaker 02:
Sorry, 504 US, correct.

[01:53:42] Speaker 09:
Yeah.

[01:53:43] Speaker 02:
And in the court there found even if you remove that 10% of foreign funding, there was a lack of evidence showing that there was that ability to redress the injuries they were complaining about.

[01:53:55] Speaker 02:
And there's a similar circumstance here as we point to in page 91 and 92 of our brief, that even if you assume there's some connection, even plaintiff's evidence shows that that would be a very small

[01:54:06] Speaker 02:
impact.

[01:54:08] Speaker 02:
And they certainly don't provide any evidence that if you remove the RFS or you remove that impact, that there's going to be any perceptible change to their members, to the injuries their members complain about, or to endangered species or their critical habitat.

[01:54:24] Speaker 02:
And so, Your Honor, overall, just direct the court again to JA 1635, where EPA does the directed targeted analysis of the facts and evidence surrounding the 2019 rule.

[01:54:36] Speaker 02:
It considered the relevant factors, made a reasoned rational determination, and that determination is properly entitled to deference and should be upheld.

[01:54:46] Speaker 02:
So if there's any questions the court has on aggregate compliance or any of the other factors, I'm happy to address them.

[01:54:54] Speaker 13:
I think so.

[01:54:55] Speaker 13:
We appreciate your argument, Mr. Idol.

[01:54:57] Speaker 13:
Thank you.

[01:54:57] Speaker 02:
Thank you, Your Honor.

[01:54:59] Speaker 13:
Ms.

[01:54:59] Speaker 13:
Apfel, we'll give you the two minutes you wanted to reserve for rebuttal.

[01:55:03] Speaker 08:
Thank you, Your Honor.

[01:55:04] Speaker 08:
Just to begin with, once again, even in the argument, EPA is still applying the wrong standard.

[01:55:10] Speaker 08:
The standard isn't whether the RFS is actually having an effect on threatened and endangered species or habitat, but whether it may affect.

[01:55:18] Speaker 01:
Mr. Ethel, could you address the new evidence since the triennial report that EPA says they're relying on and the argument that

[01:55:29] Speaker 01:
The triennial report was retrospective and this new evidence is focused just on 2019.

[01:55:36] Speaker 08:
Sure, Your Honor.

[01:55:37] Speaker 08:
First, I don't believe that the training report is retrospective.

[01:55:40] Speaker 08:
To George Rogers' point, it clearly says that, and this is at JA 1470, that the available data in the training report suggests that the current trends using corn starch and soybeans as primary biofuel feedstocks with associated environmental and resource conservation impacts will continue in the near term.

[01:56:01] Speaker 08:
And it also states on JA 1530 that EPA can state that biofuels are responsible for a percentage of domestic land used for and the environmental effects from corn and soybean production, including newly converted land.

[01:56:18] Speaker 08:
And it also states that the impacts, the environmental impacts, including impacts to air quality, soil quality, water quality,

[01:56:27] Speaker 08:
and the associated land use change are at least in part due to increased biofuel production and use associated with the RFS.

[01:56:36] Speaker 08:
So it's not just biofuel generally, but to RFS specifically.

[01:56:40] Speaker 01:
What about their arguments about the market producing the same amount of corn ethanol without effect?

[01:56:47] Speaker 08:
Your Honor, two points on that.

[01:56:49] Speaker 08:
First, they made that argument in 2018 and the court flatly rejected that argument.

[01:56:54] Speaker 08:
Second, it just seems

[01:56:56] Speaker 01:
In AFPM or in AFPM.

[01:56:59] Speaker 08:
Yes, your honor.

[01:57:02] Speaker 08:
And the second point is that it's just simply implausible to find that a 15 billion gallon mandate will have no effect whatsoever on the production of renewable biomass.

[01:57:13] Speaker 08:
To Judge Rogers' point, it doesn't have to be the only driver, but it is certainly a driver of production of renewable biomass.

[01:57:20] Speaker 08:
And then all of the evidence in the record links that production to all of the severe environmental harms and harm to species and their habitat.

[01:57:28] Speaker 08:
So while there might be this additional evidence that doesn't refute all of the evidence that's already in the record that links the RFS program and the volumes to the production of renewable biomass.

[01:57:41] Speaker 09:
As I understood counsel's argument, it was in part, suppose everything you say is correct.

[01:57:53] Speaker 09:
Nevertheless, EPA looked at 2019 and

[01:58:00] Speaker 09:
I'm going beyond what counsel argued.

[01:58:02] Speaker 09:
So hypothetically, suppose there was a record that showed that the 2019 rule was not going to have any effect on production, no effect whatsoever, because the market was flooded.

[01:58:20] Speaker 09:
He gave the example of soybean, but let's suppose corn too, just for sake of the hypothetical.

[01:58:26] Speaker 09:
Then what would your response be?

[01:58:28] Speaker 09:
still the triennial report, sort of the carryover effect is enough?

[01:58:33] Speaker 09:
Or does the 2019 rule itself have to have, and I think this is your argument, some effect?

[01:58:41] Speaker 08:
But I just wanted to be clear about that.

[01:58:43] Speaker 08:
Yes, Your Honor.

[01:58:44] Speaker 08:
I think that if there were evidence that truly showed that

[01:58:50] Speaker 08:
There was no effect at all on renewable biomass production.

[01:58:55] Speaker 08:
It might be a different case than what we're arguing here.

[01:58:58] Speaker 08:
But I don't believe the record reflects that.

[01:59:00] Speaker 08:
I understand you're giving a hypothetical.

[01:59:03] Speaker 08:
And I think that No, and I understand.

[01:59:08] Speaker 09:
And counsel's arguments never refer to the correct standard.

[01:59:11] Speaker 09:
But I just wanted to be clear.

[01:59:14] Speaker 08:
I do think that you need to look at it for each year.

[01:59:18] Speaker 08:
I don't think that you can look at it in isolation.

[01:59:21] Speaker 08:
However, I think that there is a mountain of evidence that directly links these volumes to renewable biomass production, which leads to land conversion, which leads to environmental harm.

[01:59:33] Speaker 08:
which leads to harm to species and the environment.

[01:59:36] Speaker 08:
And it would really take something to overcome that mountain of evidence really unique to 2019, which is not in the record here.

[01:59:43] Speaker 08:
I don't think they can overcome that mountain of evidence for 2019 that shows that a 15 billion gallon mandate

[01:59:50] Speaker 08:
has to rely on corn and soy produced somewhere.

[01:59:53] Speaker 08:
And then once you reach that conclusion that you need soybeans and corn produced somewhere to satisfy the mandate, then it go back to the direct link to all of the environmental harms and harms to species and habitat that flow from that.

[02:00:13] Speaker 13:
Thank you.

[02:00:13] Speaker 13:
Thank you.

[02:00:14] Speaker 13:
Miss Abfel and most of my colleagues have further questions.

[02:00:18] Speaker 13:
Thank you for your argument.

[02:00:18] Speaker 13:
Thank you to all counsel for your arguments this morning.

[02:00:21] Speaker 13:
We'll take all the issues in this case under submission.