Am. Petroleum Inst. v. Envtl. Prot. Agency

• Citation: 706 F.3d 474
• Decision Date: 25 January 2013
• Docket Number: No. 12–1139.,12–1139.
• Parties: AMERICAN PETROLEUM INSTITUTE, Petitioner v. ENVIRONMENTAL PROTECTION AGENCY, Respondent Advanced Biofuels Association, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

706 F.3d 474

AMERICAN PETROLEUM INSTITUTE, Petitioner

v.ENVIRONMENTAL PROTECTION AGENCY, Respondent

Advanced Biofuels Association, et al., Intervenors.

No. 12–1139.

United States Court of Appeals,District of Columbia Circuit.

Argued Dec. 10, 2012.

Decided Jan. 25, 2013.

On Petition for Review of Final Agency Action of the United States Environmental Protection Agency.

Robert A. Long, Jr. argued the cause for petitioner. With him on the brief were Kristen E. Eichensehr and Harry M. Ng.

Daniel R. Dertke, Attorney, U.S. Department of Justice, argued the cause and filed the brief for respondent.

John C. O'Quinn, William H. Burgess, Sandra P. Franco, David B. Salmons, and Bryan M. Killian were on the brief for intervenors.

Before: BROWN and KAVANAUGH, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge WILLIAMS.

WILLIAMS, Senior Circuit Judge.

This case arises out of Congress's command that the Environmental Protection Agency make predictions about a promising technology. While the program as a whole is plainly intended to promote that technology, we are not convinced that Congress meant for EPA to let that intent color its work as a predictor, to let the wish be father to the thought.

In 2005 and again in 2007, Congress amended the Clean Air Act (“Act”) to establish a renewable fuel standard (“RFS”) program, now codified at 42 U.S.C. § 7545( o ). See Energy Policy Act of 2005, Pub.L. No. 109–58; Energy Independence and Security Act of 2007, Pub.L. No. 110–140. Under the RFS program, EPA must promulgate regulations to ensure that transportation fuel sold or introduced into commerce (hereafter collectively, “sold”) in the 48 contiguous U.S. states contains an increasing measure of renewable fuel through 2022. See generally 42 U.S.C. § 7545( o )(2). The Act enumerates yearly “applicable volume” requirements not only for renewable fuel but also for a subclass known as “advanced biofuels,” which produce lower greenhouse gas emissions than conventional renewable fuels such as corn-based ethanol. Id. §§ 7545( o )(1)(B) (definition of advanced biofuel), 7545( o )(2)(B) (applicable volumes). The “applicable volume” for a particular fuel (a phrase used repeatedly in the statute and thus in this opinion) determines how much of that fuel refiners, importers and blenders must purchase each year in order to comply with the RFS program. Id. § 7545( o )(3)(B).

In establishing the RFS program, Congress made commercial production of cellulosic biofuel, an advanced biofuel derived from sources of lignocellulose such as switchgrass and agricultural wastes, central to the program's objective of reducing greenhouse gas emissions. Subject to the EPA adjustments that are the subject of this case, the Act requires that more than three quarters of advanced biofuel sold in the United States after January 1, 2022 be cellulosic biofuel. Id. § 7545( o )(2)(B)(i)(III). These standards for cellulosic biofuel assumed significant innovation in the industry. When Congress introduced the cellulosic biofuel requirement in 2007, there was no commercial-scale production at all. Yet Congress mandated cellulosic biofuel sales in the U.S. of 100 million gallons in 2010, 250 million in 2011, and half a billion in 2012 (all in ethanol-equivalent gallons). Id.; see also Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards, 77 Fed.Reg. 1,320, 1,325 (Table II.A–1), 1,330–31 (Table II–B.6–1) (Jan. 9, 2012).

Recognizing the technological challenges, Congress provided for the possibility that actual production would fall short of the stated requirements. Section 7545( o )(7)(D)(i) calls for a determination by EPA of the “projected volume of cellulosic biofuel production” for each calendar year, to be made no later than November 30 of the prior year and to be “based on” an estimate of the Energy Information Administration (“EIA”). When that projection is less than the mandated volume, the Administrator is to “reduce the applicable volume of cellulosic biofuel ... to the projected volume.” Id. §§ 7545( o )(3)(B), 7545( o )(7)(D)(i). The Act also provides that in the event of such a reduction the Administrator “may also reduce the applicable volume of renewable fuel and advanced biofuels” required for that year. Id. § 7545( o )(7)(D)(i).

In a January 2012 Final Rule (the “2012 RFS rule”), EPA projected that 8.65 million gallons of cellulosic biofuel (10.45 million ethanol-equivalent gallons) would be produced in 2012, well short of the 500 million ethanol-equivalent gallons mandated by the Act for that year. See Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards, 77 Fed.Reg. at 1,324–31. In the same rule, EPA considered but rejected a reduction in the volume of total advanced biofuels required for 2012, stating that other kinds of advanced biofuels could make up for the shortfall. Id. at 1,331–37.

Petitioner American Petroleum Institute (“API”) objects both to EPA's 2012 projection for cellulosic biofuel and to its refusal to reduce the applicable advanced biofuels volume for 2012. We reject API's argument that EPA failed to justify its determination not to reduce the applicable advanced biofuels volume for 2012. But we agree with API that because EPA's methodology for making its cellulosic biofuel projection did not take neutral aim at accuracy, it was an unreasonable exercise of agency discretion.

* * *

Timeliness of API's petition. Before turning to the merits we address a claim raised by a coalition of intervenors representing the biofuel industry. They argue that API is jurisdictionally barred from challenging the 2012 RFS rule because that rule merely perpetuates an approach that EPA first employed a year earlier in its projection of cellulosic biofuel volumes for 2011. Had API wanted to challenge the methodology employed in the 2012 RFS rule, intervenors contend, it should have filed suit within 42 U.S.C. § 7607(b)'s 60–day time limit after Federal Register publication of EPA's cellulosic biofuel projection for 2011. In support of this claim, they point to our decision in Medical Waste Institute v. EPA, 645 F.3d 420, 427 (D.C.Cir.2011), in which we declined to consider a challenge to a rule because the petitioner had not sought judicial review when the agency had “first use [d]” the approach that rule reflected.

Intervenors' invocation of Medical Waste is inapt. Here, unlike in Medical Waste, the petitioner attacks a methodology used for prediction, which can look more arbitrary the longer it is applied. The reasonableness of adopting a predictive methodology is not the same as the reasonableness of maintaining one in the face of experience; considering whether to maintain a methodology necessarily invites reflection on the success of earlier applications. API's challenge to the 2012 RFS rule rests significantly on the complete failure of EPA's prediction for 2011: 6.6 million gallons, as against zero in reality. See Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards, 75 Fed.Reg. 76,790, 76,793 (Dec. 9, 2010); EPA, Fuels and Fuel Additives, 2011 RFS2 Data, http:// www. epa. gov/ otaq/ fuels/ rfsdata/ 2011 emts. htm. We agree with API that the 2011 failure colors the rationality of EPA's decision to persist in 2012 and sheds light on the weight EPA gave to specific aspects of its approach. Accordingly we find API's petition timely.

Cellulosic biofuel projection.Section 7545( o )(7)(D)(i) of the Act states that an annual “projected volume of cellulosic biofuel production” will be “determined by the Administrator,” which determination is to be “based on” EIA's estimate. 42 U.S.C. §§ 7545( o )(3)(B), 7545( o ) (7)(D)(i). In the 2012 RFS rule, EPA explained that its projection of 8.65 million gallons of cellulosic biofuel was “based on several sources of information”: (1) EIA's projection of 6.9 million gallons for 2012; (2) “Progress that the cellulosic biofuel industry is making”; (3) the agency's “own assessment of the cellulosic biofuel industry's projected volumes” for 2012; and (4) comments on a draft version of the rule. 77 Fed.Reg. at 1,324, 1,328. The rule further stated that EPA's projection was “very similar” to EIA's, and that the two agencies' figures were derived from the same set of cellulosic biofuel production facilities. Id. at 1,329. EPA attributed its higher results to “slight variations [that] are a result of different methodologies.” Id. The most important of these variations related to timing: EIA assumed a “standard utilization factor” of 25 percent of full-capacity production (which EIA applies to all commercial-scale facilities in their first year of production), whereas EPA looked to the start-up dates of the facilities as anticipated by the facilities' owners. Id. EPA also disagreed with EIA's assessment of the production capacities of two facilities, and with its application of a ten percent utilization factor to a “pilot plant,” which EPA judged likely to produce fuel on a commercial scale rather than (as EIA expected) an experimental one. Id.

This exposition suggests little more than a technocratic exercise of agency discretion. Yet elsewhere in the rule EPA expressed a decidedly non-technocratic bent. In a response to comments submitted by API and others, EPA observed that “[i]n directing EPA to project cellulosic biofuel production for purposes of setting the annual cellulosic biofuel standard, Congress did not specify what degree of certainty should be reflected in the projections.” Id. at 1,325. It went on:

While the cellulosic biofuel standard that we set should be within the range of what can be attained based on projected domestic production and import potential, the standard that we set helps drive the production of volumes that will be made available.... Thus while any standard we set for cellulosic biofuel standard for 2012 will have some uncertainty in terms of actual attainment, our intention is to...