June 8, 2022
With all the hype of Season 4 of Stranger Things, it’s truly a miracle that I get anything done. Admittedly, I wasn’t all about it when it was originally released (pretty sure I was still in the black hole of law school), but I’m a little addicted now. Between defeating the Demogorgon and Dustin’s dimples, the show is pretty easy to love. Speaking of demogorgons, EPA recently released the final Renewable Volume Obligations (RVOs) for 2020, 2021, and 2022, and other, well, stranger things.
Part of the reason the final release of the RVOs was important was that EPA was incredibly behind. When the COVID-19 pandemic broke out in the U.S., EPA’s ability to set timely RVOs that balanced the burden of obligated parties with the progress of the Renewable Fuel Standard (RFS) was greatly hindered. Due in large part to quarantines which decreased commuter traffic, the transportation fuels markets were, like many other markets, economically affected. Predicting what was feasible for obligated parties, renewable fuel producers, blenders of renewable fuel, and other market participants was far more of a guessing game than an exact science. Further, the effects the fuels industry experienced carried over from one year to the next. Like the Season 2 virus from Stranger Things, the deleterious effects of COVID-19 continued to spread from one year to the next.
Ok, yeah, we all know that, we were there. The stranger thing here, however, is that EPA retroactively adjusted the RVOs for 2020 to reflect “actual use” within the fuels marketplace. This means that the RVOs for 2020, which were previously finalized in 2019, were “re-opened” to adjust for the unforeseen events of a global pandemic as well as the resulting consequences. In a way, this makes a certain amount of sense. It doesn’t help the RFS for obligated parties to be held to annual standards that were not met because fuel production was far from its peak.
Yeah, but can EPA legally do this? They think they can, and I guess that’s what matters? According to the D.C. Circuit Court, EPA “retains authority to set annual standards retroactively so long as EPA exercises this authority reasonably[1].” However, in doing so EPA is required to balance the “burden on obligated parties of a retroactive standard with the broader goal of the RFS program to increase renewable fuel use[2].” More specifically, EPA can use its reset authority granted under the Clean Air Act to adjust volumes retroactively. Reset authority? What even is that, like a mulligan? It’s pretty much exactly like that. The Clean Air Act authorizes EPA, in the event certain criteria are met, to adjust or “reset” statutory volume targets. In the current final rule, EPA is using both their reset authority and the precedent set by the D.C. Circuit court to promulgate late and retroactive rules.
But with so much happening in the year 2020, is it really fair to expect EPA not to address the final 2020 standards that were promulgated prior to the national advent of the COVID-19 pandemic? The short answer to that question is probably not. Market participants of the RFS all felt the strains of the pandemic. It makes a certain amount of sense for EPA to adjust those volumes retroactively.
On the flip side, isn’t the precedent set here horrible? If EPA can retroactively adjust final volumes doesn’t that mean that all RVOs will never really be final. To quote Stranger Things, “I think that probably might be true.” However, abuse of this type of authority isn’t really in EPA’s best interest and it certainly doesn’t lend credence to the progress of the RFS. You know, with great authority comes great responsibility and all that jazz…
So what else happened in this current rulemaking? EPA also set the RVOs for 2021 and 2022, albeit late. But better late than never, am I right? Similarly to the logic for 2020, EPA set the 2021 volumes to the “actual volumes of cellulosic biofuel, advanced biofuel, and total renewable fuel that were used in the U.S. in 2021[3].” Again, this isn’t surprising. 2021 was very much just 2020 part II for the fuels industry. While being late in setting the 2021 RVOs is a violation of statute and has been widely discussed and criticized among the participants of the RFS (including by yours truly), guessing at the recovery period for an unprecedented global pandemic is not an easy task. EPA’s balancing has to be just right in order to achieve the objectives the RFS.
So 2020 final RVOs were retroactive and 2021 RVOs were a year-and-a-half late, what’s the deal with 2022 RVOs? We’re already 6 months into 2022, facing a 2023 set, and EPA just released the final 2022 RVOs. Well, 2022 RVOs are higher the volumes for 2020 and 2021, as well as consistent with the proposed volumes from last December’s rulemaking. While EPA focused on a variety of statutory factors, some of those included market constraints on the ability of RFS annual volume requirements. Those types of factors included: “the commercial availability of cellulosic biofuel, the price and availability of feedstocks, and the availability of infrastructure to distribute higher-level blends of ethanol[4].”
Does this mean that since the RVOS for all three years are finalized that the RFS will have smooth sailing from here? I cannot guarantee that at all, but I hope that’s what happens. *cue ominous music*
[1] American for Clean Energy v. EPA, 864 F.3d 691, 720 (D.C. Cir. 2017).
[2] Nat’l Petrochemical & Refiners Ass’n v. EPA, 630 F.3d 154-158 (D.C. Cir. 2010); see also, Renewable Fuel Standard: Annual Rules, EPA-HQ-OAR-2021-0324; FRL-8521-01-OAR, pg. 21 (June 3, 2022).
[3] Renewable Fuel Standard: RFS Annual Rules, EPA-HQ-OAR-2021-0324; FRL-8521-01-OAR, pg. 8 (June 3, 2022).
[4] Id