EPA authority to reduce the RFS
Earlier this year, in American Petroleum Institute v. EPA (available here, case number 12-1139), the court disagreed with EPA's justification for setting the 2012 cellulosic biofuel requirement above actual production estimates. The court did, however, uphold EPA's decision to hold off on reducing the advanced fuels requirement along with its cellulosic reduction giving weight to EPA's determination that imports and biomass-based diesel were sufficient to satisfy the mandate. For its decision on cellulosic biofuel, EPA had argued that Congress intended the RFS to promote the growth of that industry. The court concluded that EPA had gone beyond its statutory authority because Congress treated cellulosic biofuels in a different manner. When it came to cellulosic biofuel, the court concluded, Congress had clearly signaled concerns about the industry's ability to produce enough to meet the mandate and thus required a more cautious approach. Interestingly for the current issue and discussed further below, the court rejected EPA's pro-growth justification in part because the EPA decision applied to the oil industry which had no control over cellulosic production. The court referred to this as an "asymmetry in incentives" because the burden fell on the oil industry to blend a fuel that the cellulosic industry was unable to produce, which in the court's opinion would not promote growth but act as a kind of punishment on the oil industry. In reaching its decision, the court made clear that a "broad programmatic objective cannot trump specific instructions" and that "an agency may flesh out the interstices of a technical regime" but that such "discretion does not entitle the agency to arrogate to itself purposes outside the statutory provision it is applying."
Presuming that its estimates for cellulosic production are acceptable, EPA must reduce the RFS cellulosic ethanol requirement. Because it must reduce the cellulosic requirement, EPA is within its statutory authority if it chooses to reduce the advanced and renewable requirements by the same amount or less. EPA does not have authority under the specific cellulosic reduction provisions to reduce the rest of the mandate beyond that amount.
EPA may on its own initiative, however, reduce the renewable fuels requirement for 2014 if it determines there is an inadequate domestic supply. The U.S. Energy Information Agency (EIA) recently forecast ethanol production to equal 13.49 billion gallons and biodiesel production at 1.3 billion gallons in 2014. Additionally, the Renewable Fuels Association estimates that domestic ethanol production capacity currently exceeds 14.7 billion gallons. That information would seem to indicate that, excluding cellulosic biofuels, there appears to be sufficient domestic production of renewable fuels to supply the market and meet the mandate. All of which emphasizes the question about whether the blend wall's limit on what can be made available to consumers constitutes inadequate supply.