RFS Update: EPA Extends 2013 RFS Compliance Deadlines, Final 2014 RFS on Deck

by Latham & Watkins LLP
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On June 16, 2014, EPA extended the compliance and attest engagement reporting deadlines for the 2013 Renewable Fuel Standard (RFS), to September 30, 2014 and January 30, 2015, respectively. 79 Fed. Reg. 34242 (June 16, 2014). In its notice, EPA indicates that the 2014 RFS final rule will be issued “shortly.”

The RFS requires obligated parties (primarily refiners and importers of gasoline and diesel) to submit an annual compliance report. 40 CFR §80.1451(a)(1). The report details the Renewable Identifications Numbers (RINs) that have been retired by the obligated party for compliance with the RFS. The attest engagement report provides the results of an audit conducted by a certified public accountant, which reviews the regulated party’s compliance and its internal systems for monitoring and documenting compliance. §80.1464.

The regulations specify that the compliance report for a given year is to be submitted by February 28 of the subsequent year. §80.1451(a)(1). The attest engagement report is then due by May 31 of that year. §80.1451 (which points to §80.130(a)(2), which points to §80.75(m)). These deadlines are reasonable given the statutory deadline of November 30 for issuance of the RFS for the upcoming year. 42 USC §7545(o)(3)(B)(i). However, EPA did not issue the final 2013 RFS until August 15 of that year. Because of the delay, and because the volume requirements of the 2013 RFS were bumping up against the “blend wall” (the amount of ethanol that pragmatically can be blended into the transportation fuel supply), EPA extended the deadline for the 2013 RFS to June 30, 2014. At the time it published the final 2013 RFS, EPA intended to issue the final 2014 RFS by the statutory deadline of November 30, 2013. With the requirements of the 2014 RFS in hand, obligated parties would have had over half a year in which to decide on their compliance strategies for the 2013 RFS (e.g., whether to use banked RINS, purchase new RINs, export fuel to avoid the RIN requirement, etc.).

EPA did not issue the final 2014 RFS by November 30, 2013. In fact, it did not issue the proposed 2014 RFS until November 29, 2013, with a comment period ending January 28, 2014. 78 Fed. Reg. 71732 (Nov. 29, 2013). The agency declared at the time that it would issue the final rule by the end of February, which would still have given obligated parties several months to decide on their 2013 compliance strategy. EPA’s ability to finalize by the end of February, however, was stymied by its receipt of over 300,000 comments on the proposed rule.

Thus, the June 30 compliance deadline for the 2013 RFS nears with no final 2014 RFS yet issued. In light of this, EPA thought the deadline extensions reasonable. Because they change previously promulgated dates, the extensions must be done through rulemaking. Even though the November 29 proposed rule included nothing about such extensions, EPA is styling them as finalizing two components of the 2014 RFS, asserting that “they are appropriate as a logical outgrowth of the proposed rule.” 79 Fed. Reg. at 34242. This creates a colorable basis to judicially challenge the extensions if any party were to think that strategic.

Meanwhile, all concerned parties are on tenterhooks waiting for the rest of the final 2014 RFS. The petroleum, food producer and renewable fuel industries are vociferously objecting to the proposed rule, for opposing reasons – the petroleum industry and food producers claiming EPA has not reduced the RFS sufficiently, the renewable fuels industry claiming EPA should not have reduced the RFS at all, its proposed partial waiver of the statutory volume requirements being unlawful.

This spring, EPA reconsidered the 2013 cellulosic standard in light of industry developments and lowered it from 6,000,000 gallons to 810,185 gallons—based on the number of valid cellulosic RINs actually generated in 2013—an 86 percent reduction. 79 Fed. Reg. 25025 (May 2, 2014). On May 6, 2014 the D.C. Circuit dismissed a refiner’s challenge to EPA’s decision not to reduce the other statutory volumes for the 2013 RFS Monroe Energy v. EPA, 2014 U.S. App. LEXIS 8454; 44 ELR 20100 (DC Cir. 2014). (Challenges by the American Petroleum Institute and American Fuel & Petrochemical Manufacturers were severed and are not yet decided.) The final 2014 RFS almost certainly will be judicially challenged. Comparing the Monroe decision to the January 2013 decision of API v. EPA, 706 F.3d 474 (DC Cir. 2013) (vacating EPA’s 2012 cellulosic standard as based on an impermissible technology-forcing rationale), it is not certain where the court will find the balance to lie between deference to the agency (especially in light of market realities) and strict interpretation of the statute.

EPA has not yet sent the final 2014 RFS to the Office of Management & Budget (OMB) for review. OMB has 90 days for its review (with an extension possible). Given the intense controversy over this rule, including claims from both sides of dire economic consequences if EPA does, or does not, reduce the statutory mandate, it is possible OMB will take at least 90 days for its review. If so, EPA may need to again extend the compliance deadlines for the 2013 RFS as stakeholders continue to await the final 2014 RFS.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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