American Petroleum Institute v. Environmental Protection Agency , 706 F.3d 474 ( 2013 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 10, 2012 Decided January 25, 2013
No. 12-1139
AMERICAN PETROLEUM INSTITUTE,
PETITIONER
v.
ENVIRONMENTAL PROTECTION AGENCY,
RESPONDENT
ADVANCED BIOFUELS ASSOCIATION, ET AL.,
INTERVENORS
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.
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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).
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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).
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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
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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/2011emts.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
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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 balance such uncertainty with the
objective of promoting growth in the industry. Our
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final projected available volume . . . for 2012 reflects
these considerations.
Id. (emphasis added). The agency went on to state its concern
that setting 2012 cellulosic biofuel production figures “at the
low end of the proposed range, or some lower volume, could
potentially result in a depressed market for cellulosic biofuel.”
Id. at 1,330. The figures the agency chose, by contrast, would
“provide the appropriate economic conditions for the
cellulosic biofuel industry to grow.” Id.
In comments to EPA and before us, API offers several
broad critiques of the agency’s cellulosic biofuel projection
for 2012. First, API argues that EPA did not base its
projection on EIA’s estimate, but rather used a
“supplementary analysis” that “effectively supplanted” EIA’s
prediction. Pet’r Br. 27-28 (quoting Sierra Club v. EPA, 356
F.3d 296, 306 (D.C. Cir. 2004)). The table below expresses
the divergence:
8
Cellulosic biofuel production, 2010-2012 (millions of
gallons)1
2010 2011 2012
EIA Projected 5.0 3.9 6.9
EPA Projected 5.0 6.6 8.7
Actual 0 0
Putting aside EPA’s deliberate choice of a non-neutral
purpose, discussed below, and deviations from the EIA
estimates that seem likely to have been a product of that
choice, we aren’t persuaded that there is any illegality in
EPA’s treatment of EIA’s work. The statute called first for
EIA to supply an estimate of the amount of cellulosic biofuel
to be sold, 42 U.S.C. § 7545(o)(3)(A), then for EPA to
“determine” the obligation “based on” that estimate, id.§ 7545(o)(3)(B). Plainly Congress didn’t contemplate slavish
adherence by EPA to the EIA estimate; had it so intended, it
could have skipped the EPA “determination” altogether. We
think EPA was entitled under Chevron USA, Inc. v. Natural
1
Source: Regulation of Fuels and Fuel Additives: 2012
Renewable Fuel Standards, 77 Fed. Reg. 1,320, 1,325-30 (Jan. 9,
2012); Regulation of Fuels and Fuel Additives: 2011 Renewable
Fuel Standards, 75 Fed. Reg. 76,790, 76,793-97 (Dec. 9, 2010);
Regulation of Fuels and Fuel Additives: Changes to Renewable
Fuel Standard Program, 75 Fed. Reg. 14,670, 14,748-49, 51 (Mar.
26, 2010); EPA, Fuels and Fuel Additives, 2011 RFS2 Data,
http://www.epa.gov/otaq/fuels/rfsdata/2011emts.htm; EPA, Fuels
and Fuel Additives, 2010 RFS2 Data,
http://www.epa.gov/otaq/fuels/rfsdata/2010emts.htm.
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Resources Defense Council, Inc., 467 U.S. 837 (1984), to read
the phrase “based on” as requiring great respect but allowing
deviation consistent with that respect.
Second, API claims that EPA’s projection derived from a
methodology biased towards overstatement, inasmuch as it
relied largely on statements from cellulosic biofuel facility
owners, who in 2011 predicted significant production and yet
generated no fuel at all. Joint Appendix 100; Pet’r Br. at 33-
35. But the producers were not only an almost inevitable
source of information but were also a principal source of
EIA’s estimates; at least if EPA regarded that information
with suitable caution, we can hardly fault it for following
EIA’s lead.
Finally, API challenges the special tilt with which EPA
expressly viewed the data—a tilt, in its words, toward
“promoting growth” in the cellulosic biofuel industry. We
agree with API that such a purpose has no basis in the relevant
text of the Act.
EPA is correct that one of Congress’s stated purposes in
establishing the current RFS program was to “increase the
production of clean renewable fuels.” See Pub. L. No. 110-
140, 121 Stat. 1492, 1492 (2007). But that general mandate
does not mean that every constitutive element of the RFS
program should be understood to individually advance a
technology-forcing agenda, at least where the text does not
support such a reading. As we observed in American
Petroleum Institute v. EPA, 52 F.3d 1113, 1119 (D.C. Cir.
1995), “EPA cannot rely on its general authority to make rules
necessary to carry out its functions when a specific statutory
directive defines the relevant functions of EPA in a particular
area.” Although here EPA invokes not its general rulemaking
authority, but rather the general purpose of the RFS program,
10
we think the same principle applies: a broad programmatic
objective cannot trump specific instructions.
We do not think the text of § 7545(o)(7)(D)(i) or the
general structure of the RFS program supports EPA’s decision
to adopt a methodology in which the risk of overestimation is
set deliberately to outweigh the risk of underestimation.2
Section 7545(o)(7)(D)(i)’s reference to the “projected volume
of cellulosic biofuel” seems plainly to call for a prediction of
what will actually happen. EPA points to no instance in
which the term “projected” is used to allow the projector to let
its aspirations for a self-fulfilling prophecy divert it from a
neutral methodology.
In fact, the general structure of the RFS program militates
against such a conclusion. Section 7545(o)(7)(D)(i) serves as
a non-discretionary safety valve when the refiners and
importers of transportation fuel subject to § 7545(o)’s
mandate would otherwise be put in an impossible position, or
at least a highly punitive one—that is, forced to purchase
volumes of cellulosic biofuel greater than total production, or
pay fines for failing to do so. Only with regard to cellulosic
biofuel did Congress adopt so cautious an approach—perhaps
because of the industry’s embryonic character. The only other
fuel-specific waiver provision in the RFS Program is for
biomass-based diesel; but that waiver authorizes no more than
a fifteen percent reduction in applicable volumes, does not
require EPA to project available fuel, and is tied to price
spikes, not production volumes. See 42 U.S.C.
§ 7545(o)(7)(E)(ii). In other words, only with respect to
2
More precisely, a methodology that plans for the expected
value of upside errors (the summation of each upside deviation,
weighted by its likelihood) to exceed the expected value of
downside errors.
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cellulosic biofuel did Congress evince a clear concern for
production shortfalls.
Viewed in this light, the most natural reading of the
provision is to call for a projection that aims at accuracy, not
at deliberately indulging a greater risk of overshooting than
undershooting. Although as EPA notes the Act allows an
obligated entity to carry over a deficit in renewable fuel
purchases into the following year, see 42 U.S.C.
§ 7545(o)(5)(D); 40 C.F.R. § 80.1427(b)(1), that simply
makes the controlling unit of time two years rather than one—
hardly long enough to sharply reduce the risk of a penalty. As
reflected in the chart, supra at 8, history suggests the opposite
conclusion: a refiner forced to carry a deficit in 2010, when
EPA projected five million gallons of cellulosic biofuel yet
none was produced, would not have found relief in 2011,
when the agency predicted 6.6 million and actual production
was again zero.
Further, the Act’s requirement that EPA’s projection be
“based on” EIA’s estimate similarly implicates an outcome-
neutral methodology over an aspirational one. Though we
above rejected API’s advocacy of apparently near carbon-
copy reliance on EIA, EPA’s effort to kickstart cellulosic
biofuel production does not look like the sort of
“supplemental analysis” in pursuit of the same regulatory
objective that we found permissible in Sierra Club, 356 F.3d
at 306 n.7, but rather like the adoption of an entirely new goal.
Our prior decisions relating to technology-forcing
standards are no bar to this conclusion. We recognize here, as
we have recognized in the past, that an agency may base a
standard or mandate on future technology when there exists a
rational connection between the regulatory target and the
presumed innovation. In National Petrochemical & Refiners
Ass’n v. EPA, 287 F.3d 1130 (D.C. Cir. 2002), for example,
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we upheld EPA’s adoption of a technology-forcing standard
for diesel engines on the reasoning that “[i]n the absence of
theoretical objections to the technology, the agency need only
identify the major steps necessary for development of the
device, and give plausible reasons for its belief that the
industry will be able to solve those problems in the time
remaining.” Id. at 1144 (quoting Natural Resources Defense
Council v. EPA, 655 F.2d 318, 333 (D.C. Cir. 1981). We
invoked similar principles in rejecting challenges to emissions
standards in Natural Resources Defense Council v. Thomas,
805 F.2d 410, 428-430 (D.C. Cir. 1986), and Sierra Club v.
Costle, 657 F.2d 298, 364 (D.C. Cir. 1981).
In all these cases, government pressure joined forces with
industry specialization and competence. Here, by contrast,
EPA applies the pressure to one industry (the refiners), see
Regulation of Fuels and Fuel Additives: Changes to
Renewable Fuel Standard Program, 75 Fed. Reg. 14,670,
14,731 (Mar. 26, 2010); see also 42 U.S.C. § 7545(d)(1); 40
C.F.R. § 80.1463, yet it is another (the producers of cellulosic
biofuel) that enjoys the requisite expertise, plant, capital and
ultimate opportunity for profit. Apart from their role as
captive consumers, the refiners are in no position to ensure, or
even contribute to, growth in the cellulosic biofuel industry.
“Do a good job, cellulosic fuel producers. If you fail, we’ll
fine your customers.” Given this asymmetry in incentives,
EPA’s projection is not “technology-forcing” in the same
sense as other innovation-minded regulations that we have
upheld.
Although an agency may flesh out the interstices of a
technical regime, Catawba Cnty. v. EPA, 571 F.3d 20, 36-38
(D.C. Cir. 2009), that discretion does not entitle the agency to
arrogate to itself purposes outside the statutory provision it is
applying. See also Railway Labor Executives’ Ass’n v. Nat’l
Mediation Bd., 29 F.3d 655, 671 (D.C. Cir. 1994) (“Were
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courts to presume a delegation of power absent an express
withholding of such power, agencies would enjoy virtually
limitless hegemony . . . . ”). Yet that is precisely what EPA
appears to have done in projecting cellulosic biofuel
production for 2012.
Advanced biofuels volume. Section 7545(o)(7)(D)(i)
states that in any year where EPA reduces the applicable
volume of cellulosic biofuel, “the Administrator may also
reduce the applicable volume of renewable fuel and advanced
biofuels.” 42 U.S.C. § 7545(o)(7)(D)(i) (emphasis added). In
the 2012 RFS rule, EPA concluded that other sources of
advanced biofuels, in particular imported sugarcane ethanol
and biomass-based diesel, could make up for the 490 million
gallon shortfall in cellulosic biofuel it had projected for 2012.
77 Fed. Reg. at 1,331-37. The agency accordingly declined to
reduce the applicable volume of advanced biofuels. Id. EPA,
however, did not specify precisely how much sugarcane
ethanol or biomass-based diesel it thought would be available,
nor did it indicate in what combination these two sources
would amount to 490 million gallons. API asserts that this
failure to provide numerical projections “reveals the arbitrary
nature” of EPA’s findings and “violates the agency’s duty to
provide a reasoned explanation for its decisions.” Pet’r Br. at
45.
We find these arguments unpersuasive. Nothing in the
text of § 7545(o)(7)(D)(i), or any other applicable provision of
the Act, plainly requires EPA to support its decision not to
reduce the applicable volume of advanced biofuels with
specific numerical projections. This stands in contrast to the
Act’s explicit instruction that EPA make a numerical
projection for cellulosic biofuel. Certainly EPA must provide
a reasoned explanation for its actions, but rationality does not
always imply a high degree of quantitative specificity.
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Turning to the explanation that EPA did provide, we
think EPA has “articulate[d] a satisfactory explanation for its
action including a rational connection between the facts found
and the choice made.” Motor Vehicle Mfrs. Ass’n v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quotations
removed). The agency adequately grounded its determination
in historical data on sugarcane ethanol imports and biodiesel
production, as well as governmental and non-governmental
projections for future production of those fuels. See 77 Fed.
Reg. at 1,331-37. We find especially relevant EIA’s
projection of 300 million gallons of sugarcane ethanol imports
for 2012 and EPA’s estimation of 2.4 billion gallons in U.S.
biodiesel production capacity. See id. at 1,332, 1,334. These
data plausibly suggest that some combination of the two
sources of advanced biofuels will be available to make up for
the shortfall in cellulosic biofuel. Moreover, in sharp
distinction with cellulosic biofuel, there appears to be no great
obstacle to the production of advanced biofuel generally; to
the extent that estimates in the record are relatively low, that
seems to be based on want of a market, which of course
continued pressure will tend to solve. Id. at 1,334-35.
* * *
For the reasons set out above, we reject API’s challenge
to EPA’s refusal to lower the applicable volume of advanced
biofuels for 2012. However, we agree with API that EPA’s
2012 projection of cellulosic biofuel production was in excess
of the agency’s statutory authority. We accordingly vacate
that aspect of the 2012 RFS rule and remand for further
proceedings consistent with this opinion.
So ordered.