Poet Biorefining, LLC v. Envtl. Prot. Agency, No. 19-1139

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Writing for the CourtPillard, Circuit Judge
Citation970 F.3d 392
Docket NumberNo. 19-1139
Decision Date14 August 2020
Parties POET BIOREFINING, LLC, et al., Petitioners v. ENVIRONMENTAL PROTECTION AGENCY and Andrew Wheeler, Administrator, Respondents

970 F.3d 392

POET BIOREFINING, LLC, et al., Petitioners
v.
ENVIRONMENTAL PROTECTION AGENCY and Andrew Wheeler, Administrator, Respondents

No. 19-1139

United States Court of Appeals, District of Columbia Circuit.

Argued May 11, 2020
Decided August 14, 2020


Seth P. Waxman argued the cause for petitioners. With him on the briefs were Brian M. Boynton, David M. Lehn, Paul Vanderslice, Ethan G. Shenkman, Jonathan S. Martel, William C. Perdue, and Sally L. Pei.

Paul E. Salamanca, Attorney, U.S. Department of Justice, argued the cause for respondents. On the brief were Jonathan D. Brightbill, Principal Deputy Assistant Attorney General, and Kate R. Bowers, Attorney. Perry Rosen, Attorney, entered an appearance.

Before: Henderson, Garland, and Pillard, Circuit Judges.

Opinion concurring in part and dissenting in part filed by Circuit Judge Henderson.

Pillard, Circuit Judge:

Cellulosic biofuel is a renewable fuel derived from plant fibers like switchgrass or the husks of corn kernels, and it produces the least lifecycle greenhouse gas emissions of the four renewable fuels promoted by the Clean Air Act's Renewable Fuel Standard program. See 42 U.S.C. § 7545(o)(1). Quantifying how much cellulosic biofuel companies produce becomes complicated when they make ethanol from partially cellulosic feedstocks like corn kernels. Biochemically processing the kernels produces ethanol representing both conventional biofuel from the starchy innards and, in some fraction, cellulosic biofuel from the husks. The challenge is finding an accurate method to measure the amount of cellulosic biofuel in the homogenous ethanol yielded by the whole kernels.

Recognizing the difficulty of ascertaining the cellulosic fraction, the U.S. Environmental Protection Agency (EPA) adopted a regulation known as the Pathways II Rule, allowing renewable-fuel producers to use a measurement method (1) "certified by a voluntary consensus standards body" (VCSB), or a method (2) "that would produce reasonably accurate results as demonstrated through peer reviewed references." 40 C.F.R. § 80.1450(b)(1)(xiii)(B)(3). EPA soon noticed what it considered to be troublingly wide variation in producers’ measurements, so it issued "Guidance on Qualifying an Analytical Method for Determining the Cellulosic Converted Fraction of Corn Kernel Fiber Co-Processed with Starch" (the Cellulosic Guidance, or Guidance) to explain its interpretation of the applicable regulatory requirements and clarify the types of analyses and demonstrations that might meet them. The Guidance elaborated the support needed before EPA could deem a VCSB-certified or peer-reviewed method acceptable under the Pathways II Rule.

970 F.3d 398

POET Biorefining, LLC, and ten of its operating subsidiaries (collectively, POET) now petition us for review of the Cellulosic Guidance, contending that it is a legislative rule invalidly promulgated without notice and comment, conflicts with the Pathways II Rule it purports to interpret, and imposes arbitrary requirements that are impossible to meet. We conclude that POET's challenge to the Guidance's treatment of VCSB-certified methods is unripe because no such method yet exists and POET's registration efforts rely on the peer-reviewed alternative. As for POET's challenge to the Guidance's discussion of peer-reviewed methods, we hold the Guidance announces a final, interpretive rule that lawfully construes the underlying regulation. We therefore dismiss in part and deny in part the petition for review.

I. BACKGROUND

The Clean Air Act's Renewable Fuel Standard program charges EPA with increasing the domestic supply of four types of renewable fuel: cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel (which includes conventional biofuel that is not one of the three other types). See 42 U.S.C. § 7545(o). The four fuel types are partially "nested," meaning that cellulosic biofuel is a subcategory of advanced biofuel, which in turn is a subcategory of total renewable fuel. See Alon Refining Krotz Springs v. EPA , 936 F.3d 628, 635-36 (D.C. Cir. 2019) (per curiam). Each year, based on annual quotas set for each of the four statutorily defined renewable fuels, see 42 U.S.C. § 7545(o)(2), EPA identifies what percentage of the total amount of transportation fuel marketed in the United States should consist of each of the four types, see id . § 7545(o)(3)(B). To meet those goals, EPA annually requires refiners and importers to introduce each type of renewable fuel in an amount proportionate to their overall fossil-fuel business. See 40 C.F.R. § 80.1407(a). EPA uses Renewable Identification Numbers (RINs) to track the type and volume of renewable fuels introduced into the U.S. economy. See id . § 80.1425.

RINs make the Renewable Fuel Standard program credit based: Refiners and importers of fossil fuels satisfy their annual obligations by acquiring and submitting to EPA a quantity of RINs in requisite proportion to the fossil fuel they supplied the U.S. transportation market that year. See id . § 80.1427(a)(1); see also 42 U.S.C. § 7545(o)(5). The refiners and importers need not themselves produce or introduce renewable fuels, but instead can purchase and submit to EPA the necessary RINs from renewable-fuel producers like POET. See Ams. for Clean Energy v. EPA , 864 F.3d 691, 699 (D.C. Cir. 2017). Because RINs play a central role in tracking individual compliance and the volume of the overall renewable-fuel market, they must accurately reflect the volume and type of renewables produced or imported. To promote accuracy, EPA requires renewable-fuel producers to include certain information with their applications to generate RINs and, once registered with EPA, to comply with various reporting and recordkeeping requirements. See 40 C.F.R. § 80.1426(a)(1)(iii).

EPA's statutory duty to assign each batch of renewable fuel "an appropriate amount" of RINs, 42 U.S.C. § 7545(o)(5)(A)(i), becomes more complicated when a producer biochemically processes partially cellulosic feedstocks (like POET's corn kernels) into ethanol, a fraction of which the producer asserts is derived from the kernels’ husks so appropriately designated as cellulosic biofuel. One difficulty is the absence of "any ready test that could be used to identify the amount of a finished fuel that was derived from

970 F.3d 399

cellulosic versus non-cellulosic components," the relative amounts of which vary significantly depending on the producer's fuel-making process. Regulation of Fuels and Fuel Additives: RFS Pathways II, and Technical Amendments to the RFS Standards and E15 Misfueling Mitigation Requirements, 79 Fed. Reg. 42,128, 42,132 (July 18, 2014) (Pathways II Rule).

Here, POET challenges the procedural and substantive lawfulness of the Cellulosic Guidance, which explains, in view of additional data and experience, EPA's understanding of the Pathways II Rule's requirement that any method of measuring the proportion of cellulosic biofuel must do so with "reasonabl[e] accura[cy]." 40 C.F.R.80.1450(b)(1)(xiii)(B)(3).

A. Pathways II Rule & Memo

To address the problem of allocating RINs to the portion of cellulosic biofuel, if any, produced together with conventional biofuel from partially cellulosic feedstocks like corn kernels, EPA finalized the Pathways II Rule in July 2014. See Pathways II Rule, 79 Fed. Reg. at 42,132. Because they are triple-counted (as reflected in cellulosic biofuel's position nested within two larger categories), cellulosic-biofuel RINs are more valuable than conventional-biofuel RINs both in terms of satisfying annual regulatory obligations and generating revenue in the RIN market. See 40 C.F.R. § 80.1427(a)(2)-(3) (providing that RINs corresponding to cellulosic biofuel simultaneously count toward cellulosic biofuel, advanced biofuel, and total renewable fuel totals, while conventional-biofuel RINs count only as total renewable fuel).

In the Pathways II Rule, EPA describes assignment of cellulosic-biofuel RINs to a portion of the renewable fuel produced from partially cellulosic feedstocks in terms of what it calls the "cellulosic converted fraction"—the "portion of the feedstock that is converted" into cellulosic biofuel through an applicant's chosen fuel-making process. 40 C.F.R. § 80.1426(f)(3)(vi) ; see also Pathways II Rule, 79 Fed. Reg. at 42,132, 42,134. The Pathways II Rule requires that producers like POET, seeking to register with EPA to begin generating cellulosic-biofuel RINs from biochemically processing partially cellulosic feedstocks, identify "[t]he cellulosic converted fraction (CF) that will be used for generating [cellulosic-biofuel] RINs." 40 C.F.R. § 80.1450(b)(1)(xiii)(B)(2). To enable EPA to determine whether a producer's cellulosic converted fraction is a sufficiently reliable basis for EPA to award cellulosic-biofuel RINs, the Pathways II Rule requires producers to supply the data "used to calculate the cellulosic CF." Id . § 80.1450(b)(1)(xiii)(B)(3) ; see also Pathways II Rule, 79 Fed. Reg. at 42,135.

Establishing the converted fraction of cellulosic biofuel produced through biochemical processing of partially cellulosic feedstocks is not straightforward. A producer that processes partially cellulosic whole corn kernels into renewable fuel cannot directly measure how much of...

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