U.S. Court of Appeals: Food, Fuel Groups not Injured by EPA’s Approval of E15, Hence Lack Standing to Sue — Huh?

by Marlo Lewis on August 17, 2012

in Blog, Features

Post image for U.S. Court of Appeals: Food, Fuel Groups not Injured by EPA’s Approval of E15, Hence Lack Standing to Sue — Huh?

Today, the D.C. Circuit Court of Appeals found in a 2-1 decision that automakers, petroleum refiners, and food producers lack standing to challenge the Environmental Protection Agency’s (EPA’s) approval of E15 — a blend of gasoline and 15% ethanol — for motor vehicles manufactured after 2000.

Petitioners argued that the EPA acted illegally. Section 211(f) of the Clean Air Act (CAA) prohibits the introduction of new fuels and additives into the U.S. motor fuel supply unless the manufacturer demonstrates that such fuels or additives “will not cause or contribute to a failure of any emission control device or system” of any motor vehicle, motor vehicle engine, nonroad vehicle, or nonroad engine manufactured after model year 1974. By the EPA’s own admission, E15 can contribute to emission failures in vehicles manufactured between 1975 and 2000. Petitioners argued that CAA 211(f) gives the EPA no authority to grant a “partial waiver” for the sale of new fuels or additives to a subset of vehicles (e.g., model years 2001 and later).

Chief Justice David Sentelle and Judge David Tatel held that petitioners lack standing to sue. According to Sentelle and Tatel, petitioners could not show that the EPA’s approval of E15 would likely cause a ‘concrete’ and ‘imminent’ injury to any automaker, refiner, or food producer.

I’ll grant that the automakers’ asserted injury may be ‘speculative’ or ‘conjectural.’ However, it is hard to fathom how the EPA’s approval of E15 would not impose substantial costs on both petroleum refiners and food producers. The switch from E10 to E15 means a 50% increase in the quantity of ethanol blended into the nation’s motor fuel supply, potentially increasing ethanol sales from 14 billion gallons a year to 21 billion gallons. Since nearly all U.S. ethanol today comes from corn, the switch to E15 could substantially increase demand for corn, corn prices, and the quantity of corn diverted from feed and food production to motor fuel production.

Sentelle and Tatal argued that refiners and food producers are not injured because the EPA is merely giving refiners the ‘option’ to blend and sell E15, not forcing them to do so. But this is a distinction without a difference. As the justices acknowledge, the Renewable Fuel Standard (RFS) will soon require refiners to sell more ethanol than can be blended as E10. Thus, if the EPA waiver is upheld, refiners will have no real choice but to blend and sell E15, and this will impose substantial, predictable costs on both refiners and food producers. Their injury is concrete and imminent. The Court, therefore, should have reviewed the case on the merits and struck down the waiver as exceeding the EPA’s authority under CAA Section 211.

Judge Brett Kavanaugh’s dissent is so powerful and convincing that I will be surprised if the case is not appealed and overturned. Excerpts from Kavanaugh’s dissent follow.  

KAVANAUGH, Circuit Judge, dissenting:

In order to issue the waiver under the statute, EPA had to find that E15 would not cause any car models made after 1974 to fail to meet emissions standards. EPA found that E15 could cause emissions failures in some cars made after 1974 (namely, in cars made between 1975 and 2000). Nonetheless, EPA still granted the waiver. For the first time ever, EPA granted what it termed a “partial waiver,” meaning that the waiver allowed E15 use only in cars made after 2000.

In this suit, members of the food industry and the petroleum industry contend that EPA’s E15 waiver is illegal. The food group is suing because, as a result of EPA’s E15 waiver, ethanol production will increase and demand for corn (a necessary raw material for ethanol) will rise significantly. In turn, corn prices will rise. Therefore, food producers, which compete directly with ethanol producers in the upstream market for purchasing corn, will have to pay more for corn. The petroleum group is suing because, as a result of EPA’s E15 waiver and the statutory renewable fuel mandate, those in the petroleum industry now must refine, sell, transport, and store E15, incurring significant costs to do so. 

Despite the fact that two enormous American industries will be palpably and negatively affected by EPA’s allegedly illegal E15 waiver, the majority opinion tosses the case for lack of standing.

The food group includes producers of processed food made with corn and those who raise livestock fed with corn. It is hard to overestimate the significance of corn to the American food industry. And petitioners’ submissions to EPA and this Court reveal the following about the effects of EPA’s E15 waiver on the food industry: In E10, up to 10% of gasoline is made up of ethanol. In E15, up to 15% of gasoline is made up of ethanol. That’s a 50% increase in the amount of ethanol used. In hard numbers, with only E10 on the trade market, 14 billion gallons of ethanol could be produced each year for the Nation’s gasoline supply. With E15 on the market, 21 billion gallons of ethanol can be produced each year. That’s an additional 7 billion gallons of ethanol annually produced for use in the U.S. gasoline supply. As a result of the E15 waiver, there is likely – indeed, nearly certain in the current market – to be a significant increase in demand for corn to produce ethanol. The extra demand means that corn producers can charge a higher price. Therefore, the E15 waiver will likely cause higher corn prices, and members of the food group that depend on corn will be injured.

This is Economics 101 and requires no elaborate chain of reasoning. It is no surprise that EPA – which is typically quite aggressive in asserting standing objections in lawsuits against it – has not contested the food group’s standing in this case.

When an agency illegally regulates an entity’s competitor in a way that harms the entity – for example, by loosening regulation of the competitor – we have said that the entity has Article III standing to challenge the allegedly illegal regulation. . . .Here, EPA’s E15 waiver loosens a prohibition on gasoline and ethanol producers and thereby harms entities such as the food group that directly compete with gasoline and ethanol producers in the upstream market for purchase of corn.

To show causation, the petroleum group must demonstrate a “substantial probability” that the E15 will cause at least one of its members to incur higher costs. Sierra Club v. EPA, 292 F.3d 895, 899 (D.C. Cir. 2002). To be sure, the E15 waiver alone does not require the petroleum group to use E15, make changes, and incur costs. But we cannot consider the E15 waiver in some kind of isolation chamber. The Energy Independence and Security Act imposes a renewable fuel mandate that requires a certain amount of renewable fuel to be introduced into the market every year. Pursuant to that law, an increasing amount of renewable fuel such as ethanol – rising to 36 billion gallons in 2022 – must be introduced into the market. 42 U.S.C. § 7545(o)(2)(B)(i)(I). EPA regulations identify petroleum refiners and importers who produce gasoline as “obligated” parties – they are responsible for introducing a percentage of the required amount into the market each year. 40 C.F.R. § 80.1406; see also 40 C.F.R. §§ 80.1407, 80.1427.

Before the E15 waiver, however, petroleum producers likely could not meet the requirement set by the statutory renewable fuel mandate. Now that EPA has allowed E15 onto the market, producers likely can meet the renewable fuel mandate – but they must produce E15 in order to do so. So the combination of the renewable fuel mandate and the E15 waiver will force gasoline producers to produce E15. In tort law, when two acts combine to create an injury, both acts are considered causes of the injury. So it is here. In the current market, there is at least a “substantial probability” that, in the wake of the E15 waiver, gasoline producers will have to use E15 in order to meet the renewable fuel mandate. And that’s all that the petroleum group needs to show to carry its burden on the causation issue. . . .On those facts, the petroleum group’s injury is not self-imposed, but is directly caused by the agency action under review in this case. For those reasons, the petroleum group has Article III standing to challenge the E15 waiver provision.

The majority opinion concludes otherwise. But the fundamental flaw in the majority opinion’s reasoning is its belief that petroleum producers could meet the renewable fuel mandate without using E15. In the current market, the majority opinion’s assumption is simply incorrect as a matter of fact. One way to answer the causation question in this case is to ask the following: In the real world, does the petroleum industry have a realistic choice not to use E15 and still meet the statutory renewable fuel mandate? The answer is no, and  intervenor Growth Energy’s claim to the contrary seems rooted in fantasy.

Having found that there is standing, I turn to the merits of this case. The merits are not close. In granting the E15 partial waiver, EPA ran roughshod over the relevant statutory limits.

Section 211(f)(1) of the Clean Air Act prohibits manufacturers of fuel or fuel additives from introducing new fuels or fuel additives into commerce for use in car models made after 1974, unless the new fuel or fuel additive is “substantially similar” to certain fuels or fuel additives already in use. 42 U.S.C. § 7545(f)(1)(B). All agree that E15 is not substantially similar to fuels already in use. But Section 211(f)(4) allows EPA to waive that prohibition if EPA “determines that the applicant has established that such fuel or fuel additive or a specified concentration thereof, and the emission products of such fuel or fuel additive or specified concentration thereof, will not cause or contribute to a failure of any emission control device or system (over the useful life of the motor vehicle, motor vehicle engine, nonroad engine or nonroad vehicle in which such device or system is used) to achieve compliance by the vehicle or engine with the emission standards with respect to which it has been certified.” 42 U.S.C. § 7545(f)(4) (emphasis added). Put in plain English, in order to approve a waiver, EPA must find that the proposed new fuel will not cause any car model made after 1974 to fail emissions standards.

Here, EPA issued a waiver for E15 even though it acknowledged that E15 likely would contribute to the failure of some cars made after 1974 (namely, those made between 1975 and 2000) to achieve compliance with emissions standards. EPA maintains that E15 will not contribute to the failure of emissions control systems in cars built in 2001 and later. But EPA concedes that E15 likely will contribute to the failure of emissions control systems in some cars built before 2001. EPA’s E15 waiver thus plainly runs afoul of the statutory text. EPA’s disregard of the statutory text is open and notorious – and not much more needs to be said.

EPA does throw out a few arguments to try to get around the text of the statute. None is persuasive.

First, EPA tries to weave ambiguity out of clarity in the statutory text. EPA contends that the statute does not expressly address partial waivers. But as petitioners aptly  respond in their brief, to suggest “‘that Chevron step two is implicated any time a statute does not expressly negate the existence of a claimed administrative power (i.e., when the statute is not written in ‘thou shalt not’ terms), is both flatly unfaithful to the principles of administrative law, and refuted by precedent.’” Petitioners’ Reply Br. 8-9 (quoting API v. EPA, 52 F.3d 1113, 1120 (D.C. Cir. 1995)). There is no plausible way to read this statute as allowing partial waivers of the kind granted by EPA here.

EPA also suggests that a plain text reading of the statute would be absurd – “[c]learly Congress did not mean to require testing of every vehicle or engine.” EPA Br. 23. But that argument confuses methods with standards. As to methods, the statute may allow EPA to test a reasonable sample of vehicles and extrapolate from those results to conclude that a new fuel will not cause any vehicles to fail their emissions tests. But the standard remains that a new fuel cannot cause any vehicles to fail their emissions tests. Just because EPA can restrict its testing to a reasonable sample does not mean that EPA can restrict its waivers to a subset.

If Congress wanted to authorize this kind of partial waiver, it could easily have said so (and going forward, could still easily do so). After all, the statute elsewhere allows EPA to partially waive other statutory requirements.

The food group petitioners and the petroleum group petitioners each independently have standing to challenge EPA’s E15 waiver. On the merits, EPA’s E15 waiver is flatly contrary to the plain text of the statute. I would grant the petition for review and vacate EPA’s E15 waiver decision. I respectfully dissent.

 

Previous post:

Next post: