US appeals court overturns key portion of EPA's renewable fuels mandate


WASHINGTON -- A federal appeals court Friday granted the oil industry a partial victory in a lawsuit challenging the US renewable-fuel mandate, throwing out part of an Environmental Protection Agency rule that would have fined refiners for not buying advanced forms of motor fuel even though the fuel wasn't available on the market.

The decision means the EPA will have to be more cautious in setting future requirements for buying advanced renewable fuels, including a mandate for this year that is still pending.

In previous years, developers of advanced fuels have relied on the EPA's mandate to show investors there will be a market for their product.

The unanimous ruling from the US Court of Appeals for the District of Columbia Circuit said the EPA overstepped its authority when it set optimistic targets for the amount of advanced renewable fuel the US would produce in 2012.

Under a 2007 law designed to boost the US alternative-fuel industry, the EPA sets requirements each year for buying renewable fuel, which can be made from corn and soybeans as well as other materials.

For 2012, the agency estimated six companies would produce about 8.65 million gallons of advanced "cellulosic" fuel made from inedible parts of plants, such as corn stalks and wood chips. It required US refiners, fuel importers, and blenders to purchase that amount of cellulosic fuel in 2012, or pay a fine.

But the agency's projections turned out to be too high -- about 20,000 gallons were produced in the US last year, according to EPA data. As a result, the oil industry said it was facing more than $8 million in fines.

In June, the American Petroleum Institute, an oil-industry trade group, filed a lawsuit saying the EPA was "systematically" overestimating the amount of advanced fuel that would be produced, citing 2010 and 2011 projections that also turned out to be unrealistic.

The court agreed Friday in an opinion authored by Judge Stephen F. Williams, who wrote the law doesn't allow the EPA "to let its aspirations for a self-fulfilling prophecy divert it from a neutral methodology."

The court vacated the 2012 requirement for fuel made from inedible parts of plants, and said the agency should make future decisions consistent with Friday's ruling.

Stephen Brown, vice president of federal government affairs for the refiner and fuel marketer Tesoro, said the decision meant EPA's annual renewable-fuel targets "need to have a basis in reality and cannot be founded on a desired political agenda." He said it showed Congress needed to step in and make changes to the renewable fuels policy.

Renewable-fuel backers disagreed with the court's decision to throw out part of the 2012 rule, but also claimed a partial victory because the court left the rest of the rule intact.

"Today's decision once again rejects broad-brushed attempts to effectively roll back the federal Renewable Fuel Standard," said a statement from a coalition of renewable fuel trade groups.

Dow Jones Newswires

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