U.S. court questions EPA delays to biofuel mandate

WASHINGTON, April 7 Tue Apr 8, 2014 2:56am IST

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WASHINGTON, April 7 (Reuters) - Federal judges on Monday pressed the Obama administration to explain delays that have plagued its implementation of the U.S. biofuel mandate, as the government attempted to fend off an oil industry challenge to renewable fuel use targets.

In a case before the U.S. Court of Appeals for Washington D.C., the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers argued the 2013 biofuel use targets should be thrown out because the administration acted "arbitrarily and capriciously" when it issued the targets nearly nine months after its legislative deadline.

The Environmental Protection Agency, which administers the biofuel mandate, "exacerbated the negative effects of its tardiness" by basing the targets on a new estimate of total transportation use that increased compliance burdens for refiners, the industry groups said.

Judge Thomas Griffith called EPA's delays "egregious."

"At some point, don't these deadlines mean something?" Judge Griffith asked at the hearing.

The ruling on the 2013 targets could have broad implications for the biofuel mandate going forward. The EPA's final 2014 quotas are due out in June, about seven months behind schedule.

The Renewable Fuel Standard requires increasing amounts of biofuels to be blended into U.S. gasoline and diesel supplies each year through 2022 and was designed at a time fuel demand was also expected to rise.

Instead, gas and diesel demand has been limited by rising fuel economy and slow economic growth.

An attorney for EPA defended the delays, saying the agency had to weigh how to handle the looming "blend wall," the point when the law would require more ethanol to be blended into gasoline supplies than the 10 percent level that dominates U.S. fueling infrastructure, such as equipment at gas stations.

Refiners need to accumulate ethanol credits, or Renewable Identification Numbers (RINs), to prove they have blended their share of renewable fuels into gasoline and diesel. If they do not blend, they need to buy a RIN for each gallon of ethanol.

RIN prices spiked last year in anticipation of the country's collision with the blend wall, dramatically raising compliance costs for some refiners and cementing oil industry opposition to the mandate.

Despite the concerns raised about the EPA missing statutory deadlines, the judges also challenged the industry groups to prove that the agency's use of updated transportation data in the final rule issued in August caused them harm.

"Isn't it always better to have accurate information?" Judge Cornelia Pillard asked.

Another party arguing against EPA's 2013 targets was Delta Air Lines' subsidiary Monroe Energy, which operates the Trainer refinery complex in Pennsylvania.

Monroe said EPA failed to fully consider the amount of ethanol credits that companies might need to carry over for use in 2014 when setting the 2013 targets.

The company said compliance with the mandate imposed "devastating" costs, possibly of $100 million for Monroe, and it was not sure whether it would be able to meet the targets by the June 30 deadline.

Judge Pillard said some of Monroe's concerns seemed more aimed at the market for ethanol credits, than with EPA's actual rule.

Biofuel groups intervening in the case said there are more than enough ethanol credits to adhere to the EPA's quotas and the oil industry has plenty of options to meet the program's obligations.

It is unclear when the court will rule on the case. (Reporting by Ayesha Rascoe, editing by Ros Krasny and Cynthia Osterman)

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