EPA authority to reduce the RFS
If EPA's proposal in the leaked document becomes the final rule, it is a safe bet legal challenges will follow in short order. There are fairly general principles that will guide a court's review of the EPA decision but they are somewhat in conflict. On EPA's side is the long-standing general principle that courts give deference to the agency's interpretation of statutes it administers. Agency decisions must be based on a permissible construction of the statute but a court generally doesn't reject the agency interpretation unless the statute or its legislative history indicates that Congress would not have agreed with the agency decision. Moreover, EPA has been given broad discretion when it comes to decisions under statutory waiver provisions in the Clean Air Act.
As noted above, the biggest factor working against EPA's position is the well-established intent of Congress for the RFS to increase production of renewable fuels by mandating increasing volumes each year. Any reduction other than one necessary due to cellulosic production shortfalls can be expected to have an uphill climb because it is going against this clear intent. The other general principles factoring against EPA's proposal are that general statutory authority cannot trump specific statutory authority and EPA cannot use its interpretation of the statute to expand its authority beyond what Congress provided. EPA's decision must be rationally connected to the facts.
The blend wall is not included in the parameters Congress gave to EPA for deciding whether to waive a requirement and reduce the mandate. Therefore, the key is just how much latitude a court will be willing to give to EPA in figuring out what counts as "inadequate domestic supply." Congressional intent looms large. Congress explicitly required 18.15 billion gallons of renewable fuel be blended in 2014 and it provided specific guidance on making reductions where the cellulosic industry is incapable of producing enough to meet the mandate. When it provided for reductions through a general waiver, however, Congress vaguely required that EPA determine there wasn't enough domestic supply. Are the blend wall's limits on what can be put into the gasoline market actually a situation where there is not enough supply?
One method for helping interpret Congressional intent is to put the waiver in context with other relevant provisions. The most obvious is the waiver based on cellulosic biofuel shortfalls, where Congress provided very clear guidance that was focused on concerns with the industry's ability to actually produce the renewable fuel, not whether that biofuel had someplace to go. Likewise, the other justification for waiver requires a situation where the mandate would create a threat to the environment or the economy. Both would appear to lend weight to the argument that a waiver should be granted only in a situation where the mandates could not be met because sufficient renewable fuel was physically unavailable in that year. For example, where production could not keep pace with the mandate or that something happened that limited production capacity or supply. Congress wanted production to increase and arguably granted waiver authority only in extraordinary circumstances. It is also notable that EPA has treated its waiver authority in that manner up this point. EPA's seemingly abrupt reversal in how it interprets its waiver authority is likely to be noticed by a court.