Americans for Clean Energy v. Environmental Protection Agency

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 24, 2017 Decided July 28, 2017

No. 16-1005

AMERICANS FOR CLEAN ENERGY, ET AL.,

PETITIONERS

v.

ENVIRONMENTAL PROTECTION AGENCY AND E. SCOTT

PRUITT, ADMINISTRATOR,

RESPONDENTS

E.I. DU PONT DE NEMOURS AND COMPANY, ET AL.,

INTERVENORS

Consolidated with 16-1044, 16-1047, 16-1049, 16-1050,

16-1053, 16-1054, 16-1056

On Petitions for Review of Final Action of the

United States Environmental Protection Agency

Seth P. Waxman argued the cause for petitioners

Americans for Clean Energy, et al. With him on the briefs were

Edward N. Siskel, David M. Lehn, Saurabh Sanghvi, Andrew

R. Varcoe, Gary H. Baise, and Matthew W. Morrison. Mark C.

Kalpin and Robert J. McKeehan entered appearances.

2

David B. Salmons argued the cause for petitioner National

Biodiesel Board. With him on the briefs were Bryan M. Killian

and Sandra P. Franco.

Jerome C. Muys, Jr. was on the brief for amici curiae

American Soybean Association, et al., in support of petitioners

Americans for Clean Energy, et al., and National Biodiesel

Board.

Robert A. Long, Jr. argued the cause for Obligated Party

Petitioners on the cellulosic biofuel and biomass-based diesel

issues. With him on the briefs were Kevin F. King, Stacy R.

Linden, Thomas A. Lorenzen, Robert J. Meyers, David Y.

Chung, Richard S. Moskowitz, Thomas J. Perrelli, David W.

DeBruin, and Matthew E. Price.

Samara L. Kline argued the cause for Obligated Party

Petitioners on the point of obligation issue. With her on the

briefs were Evan A. Young, Shane Pennington, Lisa M. Jaeger,

Richard Alonso, LeAnn M. Johnson, Albert Ferlo, Thomas J.

Perrelli, David W. DeBruin, Matthew E. Price, Richard S.

Moskowitz, and Thomas A. Lorenzen. Krista Hughes and

Clara G. Poffenberger entered appearances.

Suzanne Murray, Jeremy Kernodle, and Alec Zacaroli

were on the brief for amicus curiae Small Retailers Coalition

in support of Obligated Party Petitioners on the point of

obligation issue.

Lee M. Smithyman was on the brief for amicus curiae CVR

Energy, Inc., in support of Obligated Party Petitioners on the

point of obligation issue.

Samara M. Spence, Attorney, U.S. Department of Justice,

argued the cause for respondent. With her on the brief were

3

John C. Cruden, Assistant Attorney General at the time the

brief was filed, and Lisa M. Bell, Attorney.

Thomas A. Lorenzen argued the cause for Obligated Party

Respondent-Intervenors. With him on the brief were Robert J.

Meyers, David Y. Chung, Richard S. Moskowitz, Robert A.

Long, Jr., Kevin F. King, Stacy R. Linden, Samara L. Kline,

Evan A. Young, Shane Pennington, Lisa M. Jaeger, Richard

Alonso, David W. DeBruin, Thomas J. Perrelli, and Matthew

E. Price.

Seth P. Waxman argued the cause for Respondent-

Intervenors Americans for Clean Energy, et al. With him on

the brief were Edward N. Siskel, David M. Lehn, Saurabh

Sanghvi, Andrew R. Varcoe, Gary H. Baise, and Matthew W.

Morrison.

Bryan M. Killian, Sandra P. Franco, and Daniel C. Taylor

were on the brief for intervenors E.I. du Pont de Nemours and

Company and National Biodiesel Board in support of

respondent. David B. Salmons entered an appearance.

Before: BROWN, KAVANAUGH, and MILLETT, Circuit

Judges.

Opinion for the Court filed by Circuit Judge

KAVANAUGH.

KAVANAUGH, Circuit Judge: The Clean Air Act’s

Renewable Fuel Program requires an increasing amount of

renewable fuel to be introduced into the Nation’s transportation

fuel supply each year. See 42 U.S.C. § 7545(o). By mandating

the replacement – at least to a certain degree – of fossil fuel

with renewable fuel, Congress intended the Renewable Fuel

4

Program to move the United States toward greater energy

independence and to reduce greenhouse gas emissions.

EPA is the federal agency primarily responsible for

implementing the Renewable Fuel Program’s requirements.

Congress has directed EPA to annually publish renewable fuel

requirements that apply to certain participants in the

transportation fuel market. In 2015, EPA promulgated a Final

Rule setting several renewable fuel requirements for the years

2014 through 2017. In this set of consolidated petitions,

various organizations, companies, and interest groups

challenge that EPA Final Rule on a number of grounds. Some

argue that EPA set the renewable fuel requirements too high.

Others argue that EPA set the renewable fuel requirements too

low.

We reject all of those challenges, except for one: We agree

with Americans for Clean Energy and its aligned petitioners

(collectively referred to as “Americans for Clean Energy”) that

EPA erred in how it interpreted the “inadequate domestic

supply” waiver provision. We hold that the “inadequate

domestic supply” provision authorizes EPA to consider supply-

side factors affecting the volume of renewable fuel that is

available to refiners, blenders, and importers to meet the

statutory volume requirements. It does not allow EPA to

consider the volume of renewable fuel that is available to

ultimate consumers or the demand-side constraints that affect

the consumption of renewable fuel by consumers. We

therefore grant Americans for Clean Energy’s petition for

review of the 2015 Final Rule, vacate EPA’s decision to reduce

the total renewable fuel volume requirements for 2016 through

use of its “inadequate domestic supply” waiver authority, and

remand the rule to EPA for further consideration in light of our

decision. We otherwise deny the petitions for review.

5

I

A

In 2005, Congress passed and President George W. Bush

signed the Energy Policy Act. Pub. L. No. 109-58, 119 Stat.

594 (2005). Among other things, that Act established the Clean

Air Act’s Renewable Fuel Program. Id. § 1501, 119 Stat. at

1067-76 (codified as amended at 42 U.S.C. § 7545(o)). In

2007, Congress and President Bush amended the Renewable

Fuel Program as part of the Energy Independence and Security

Act. See Pub. L. No. 110-140, §§ 201-202, 121 Stat. 1492,

1519-28 (2007) (codified at 42 U.S.C. § 7545(o)). As

amended, the Renewable Fuel Program requires that increasing

volumes of renewable fuel be introduced into the Nation’s

supply of transportation fuel each year. Congress enacted those

requirements in order to “move the United States toward

greater energy independence and security” and “increase the

production of clean renewable fuels.” Id. preamble, 121 Stat.

at 1492. Congress has vested EPA with primary responsibility

for administering the Renewable Fuel Program.

As relevant here (and at the risk of oversimplification),

there are six categories of actors in the renewable fuel market:

(i) refiners, who manufacture conventional gasoline and diesel;

(ii) renewable fuel producers, who produce fuels generated

from renewable biomass; (iii) importers, who import

conventional gasoline, diesel, and renewable fuels;

(iv) blenders, who mix renewable fuels with conventional

gasoline and diesel to create blends of more energy-efficient

transportation fuel for use in vehicles; (v) retailers, who

purchase the blended transportation fuel and sell it to

consumers at gas stations; and (vi) consumers, who purchase

transportation fuel for their vehicles at gas stations. Some

actors in the market are vertically integrated, meaning that a

6

refiner, for example, may also operate blending facilities or

fueling stations. Many market actors are not vertically

integrated, however.

The Renewable Fuel Program statute contemplates that

certain participants in the transportation fuel market – namely,

“refineries,” “blenders,” and “importers” – will be required to

satisfy annual “renewable fuel obligation[s].” 42 U.S.C.

§ 7545(o)(3)(B)(ii). To date, however, EPA has applied the

renewable fuel obligations only to refiners and importers – not

to blenders. See 40 C.F.R. § 80.1406(a)(1). When we refer to

“obligated parties” in this opinion, we are referring to refiners

and importers. To satisfy the renewable fuel obligations, each

refiner and importer must ensure that a certain amount of

renewable fuel is introduced into the Nation’s transportation

fuel supply. Each refiner and importer’s renewable fuel

obligation varies depending on how much fossil-based gasoline

or diesel fuel it produces or imports.

The renewable fuel obligations applicable to refiners and

importers mandate the introduction of four categories of

renewable fuel into the transportation fuel supply. Those

categories are: (i) cellulosic biofuel; (ii) biomass-based diesel;

(iii) advanced biofuel; and (iv) total renewable fuel. 42 U.S.C.

§ 7545(o)(2)(B)(i)(I)-(IV). Those four fuel categories vary

with respect to the renewable biomass sources from which they

are derived and their greenhouse gas emissions. See id.

§ 7545(o)(1)(B), (D), (E), (J) (defining “advanced biofuel,”

“biomass-based diesel,” “cellulosic biofuel,” and “renewable

fuel”). The statutory categories of fuel types are “nested,”

meaning that cellulosic biofuel and biomass-based diesel are

kinds of advanced biofuel, and advanced biofuel in turn is a

kind of renewable fuel that may be credited toward the total

renewable fuel obligation. For example, if one million gallons

of cellulosic biofuel are blended into the fuel supply, the statute

7

allows those one million gallons to be credited toward the

advanced biofuel and total renewable fuel obligations in

addition to the cellulosic biofuel obligation. See Monroe

Energy, LLC v. EPA, 750 F.3d 909, 912 (D.C. Cir. 2014).

EPA has the responsibility to promulgate rules informing

obligated parties (refiners and importers) of their annual

renewable fuel obligations. See 42 U.S.C. § 7545(o)(3)(B)(i)-

(ii). To do so, EPA first determines the annual volume

requirement – also known as the “applicable volume” – for

each category of renewable fuel. Id. § 7545(o)(2)(B). The

annual volume requirement represents the total volume of

renewable fuel that must be sold or introduced into the Nation’s

transportation fuel supply in a given year. See Monroe Energy,

750 F.3d at 912.

The statute contains tables that set forth the annual volume

requirements for each category of renewable fuel. See 42

U.S.C. § 7545(o)(2)(B)(i). The ranges of years covered by the

tables differ depending on the fuel type. For those years not

covered by the statutory tables, EPA must calculate the annual

volume requirements in the first instance. See id.

§ 7545(o)(2)(B)(ii). The statute requires EPA to determine

those volume requirements, “in coordination with the Secretary

of Energy and the Secretary of Agriculture, based on a review

of the implementation of the program” as well as an analysis of

several factors identified by statute. Id. EPA must promulgate

the volume requirements it establishes for years not covered by

the statutory tables “no later than 14 months before the first

year” in which the volume requirements will apply. Id.

Several statutory provisions guide EPA’s determination of

the annual renewable fuel volume requirements. Some

provisions either require or allow EPA to lower the statutory

8

volume requirements in specified circumstances. Three of

those provisions are relevant to this case.

First, the “general waiver provision” allows EPA to reduce

the statutory volume requirements in two circumstances. EPA

may invoke the general waiver provision (i) if EPA determines

that “implementation of the requirement would severely harm

the economy or environment of a State, a region, or the United

States” or (ii) if EPA determines that “there is an inadequate

domestic supply.” Id. § 7545(o)(7)(A).

Second, another provision sets forth procedures EPA must

follow when setting the cellulosic biofuel volume requirement.

EPA must determine the “projected volume” of cellulosic

biofuel that will be produced in a given compliance year. Id.

§ 7545(o)(7)(D)(i). If EPA’s projection falls short of the

statutory volume requirement for cellulosic biofuel, EPA has

no choice: It “shall reduce” the cellulosic biofuel statutory

volume requirement to EPA’s volume projection. Id.

Third, a reduction to the cellulosic biofuel volume

requirement triggers the “cellulosic waiver provision.” Under

that provision, when EPA must reduce the cellulosic biofuel

volume requirement due to its volume projections for cellulosic

biofuel, the agency “may also reduce” the advanced biofuel and

total renewable fuel volume requirements “by the same or a

lesser volume” as the cellulosic biofuel reduction. Id.

After EPA determines the volume requirements for the

various categories of renewable fuel, it has a “statutory

mandate” to “ensure[]” that those requirements are met. Id.

§ 7545(o)(3)(B)(i); Monroe Energy, 750 F.3d at 920. EPA

fulfills that mandate by translating the annual volume

requirements into “percentage standards.” The percentage

standards inform each obligated party of how much renewable

9

fuel it must introduce into U.S. commerce based on the

volumes of fossil-based gasoline or diesel it imports or

produces. See Monroe Energy, 750 F.3d at 912. The

percentage standards represent the percentage of transportation

fuel introduced into commerce that must consist of renewable

fuel. Id. If each obligated party meets the required percentage

standards, then the Nation’s overall supply of cellulosic

biofuel, biomass-based diesel, advanced biofuel, and total

renewable fuel will meet the total volume requirements set by

EPA.

For present purposes, it is sufficient to understand that the

percentage standards are used by obligated parties (refiners and

importers) to calculate their individual compliance obligations

under the Renewable Fuel Program. By statute, EPA is

required to promulgate the percentage standards for a given

year no later than November 30 of the preceding calendar year.

See 42 U.S.C. § 7545(o)(3)(B)(i).

Once EPA issues a rule informing obligated parties

(refiners and importers) of their renewable fuel obligations, it

is up to the obligated parties to comply with the statute. But

obligated parties need not themselves introduce renewable fuel

into transportation fuel to comply with their renewable fuel

obligations. Rather, to facilitate flexible and cost-effective

compliance with the Renewable Fuel Program’s requirements,

Congress directed EPA to establish a “credit program” through

which obligated parties can acquire and trade credits and

thereby comply with the statute. Id. § 7545(o)(5)

(capitalization altered); see also Monroe Energy, 750 F.3d at

912.

The credits in the trading program established by EPA are

known as “RINs” – short for “Renewable Identification

Numbers.” Monroe Energy, 750 F.3d at 913; see also 40

10

C.F.R. § 80.1401. To simplify for present purposes, each batch

of renewable fuel that is produced or imported for use in the

United States is assigned a unique set of RINs “that correspond

to the volume of ethanol-equivalent fuel gallons in that batch.”

Monroe Energy, 750 F.3d at 913. As relevant here, RINs

ordinarily remain attached to the fuel until the fuel is purchased

by an obligated party – that is, by a refiner or importer –

or blended into a transportation fuel. See 40 C.F.R.

§ 80.1429(b)(1)-(2). At that point, the RINs become

“separated” from the associated volumes of renewable fuel. Id.

§ 80.1429(b). Once separated, RINs may be retained by the

party who possesses them or sold or traded on the open RIN

market.

Obligated parties (refiners and importers) comply with

their renewable fuel obligations by accumulating or purchasing

the requisite number of RINs and then “retiring” the RINs in

an annual compliance demonstration with EPA. Monroe

Energy, 750 F.3d at 913 (citing 40 C.F.R. § 80.1427(a)). If an

obligated party has more RINs than it needs to meet its

renewable fuel obligation, the obligated party may sell or trade

the extra RINs or instead choose to “bank” the RINs for use in

the next compliance year. Id.; see also 42 U.S.C.

§ 7545(o)(5)(B); 40 C.F.R. §§ 80.1425-29. RINs “banked” by

an obligated party for use in the subsequent compliance year

are known in the industry as “carryover” RINs. If, by contrast,

an obligated party does not have enough RINs to meet its

renewable fuel obligation, it may: (i) attempt to purchase any

RINs it needs on the open RIN market; (ii) use carryover RINs

it has from the prior year to meet some portion of its obligation;

or (iii) carry a renewable fuel deficit forward into the next

compliance year, provided that some conditions are met. See

42 U.S.C. § 7545(o)(5)(D); 40 C.F.R. § 80.1427(b); see also

Monroe Energy, 750 F.3d at 913.

11

B

In December 2015, EPA promulgated the Final Rule that

is under review in this case. See Renewable Fuel Standard

Program: Standards for 2014, 2015, and 2016 and Biomass-

Based Diesel Volume for 2017, 80 Fed. Reg. 77,420 (Dec. 14,

2015) (hereinafter Final Rule). The Final Rule, which followed

a proposed rule issued by EPA in June 2015, established

volume requirements and the resulting percentage standards for

the years 2014, 2015, and 2016 for all four categories of

renewable fuel. See id. at 77,422 tbl.I-1, 77,512 tbl.V.B.3-2.

The Final Rule also set the biomass-based diesel volume

requirement for the year 2017. See id. at 77,422 tbl.I-1.

EPA began its analysis in the Final Rule by explaining the

competing concerns implicated by the Renewable Fuel

Program’s requirements. EPA noted that the “fundamental

objective” of the Renewable Fuel Program “is clear: To

increase the use of renewable fuels in the U.S. transportation

system every year through at least 2022.” Id. at 77,421.

According to EPA, Congress’s decision in the statute “to

mandate increasing and substantial amounts of renewable fuel”

use “clearly signals” that Congress intended “to create

incentives to increase renewable fuel supplies and overcome

constraints in the market.” Id. at 77,423.

EPA noted that the Renewable Fuel Program’s

requirements were “readily achieved” in the few years after

Congress created the program in 2005 and amended it in 2007.

Id. That was due in large part to the fact that the industry had

the capacity to produce – and the market had the capacity to

consume – increasing quantities of ethanol. Id. But by 2014,

ready compliance with the statutory volume requirements was

no longer possible. That is because the industry hit the “E10

blendwall”: an “infrastructure and market-related constraint on

12

ethanol demand” that “arises because most U.S. vehicle

engines were not designed to handle gasoline consisting of

more than 10 percent ethanol.” Monroe Energy, 750 F.3d at

913-14. Put differently, a few years into the amended

Renewable Fuel Program, the supply of ethanol was much

greater than the demand in the market.

Citing the E10 blendwall problem, EPA explained that

obligated parties must increasingly rely on “sustained growth

in the development and use of advanced, non-ethanol

renewable fuels” (referred to as advanced biofuels) to meet

their renewable fuel obligations. Final Rule, 80 Fed. Reg. at

77,423. However, EPA further noted that there were

significant “real-world constraints” on the market’s ability to

consume increasing volumes of advanced biofuel. Id. at

77,422. Those constraints, according to EPA, meant that “the

amount of renewable fuel that can be produced and imported is

larger than the volume that can be consumed.” Id. at 77,423.

EPA cited those demand-side constraints as evidence that

“[t]rying to force growth” at the rates set by the statutory

volume requirements would “prove infeasible.” Id.

In the Final Rule, EPA therefore adopted an approach that

it believed properly balanced its statutory duty to “drive

growth” in the supply of renewable fuels with the “real-world

constraints” on the market’s ability to produce and consume

renewable fuels. Id. at 77,422-23.

To start, EPA acknowledged that its Final Rule was late

given EPA’s statutory deadlines. As relevant here, EPA did

not meet the statutory deadlines for issuing the 2014 or the

2015 percentage standards or for issuing any of the biomass-

based diesel volume requirements. Id. at 77,430. EPA argued

that, despite its delay, it could permissibly promulgate all of the

standards and requirements in the Final Rule. See id.

13

As support for that conclusion, EPA cited this Court’s

decisions in National Petrochemical & Refiners Association v.

EPA, 630 F.3d 145 (D.C. Cir. 2010), and Monroe Energy, LLC

v. EPA, 750 F.3d 909 (D.C. Cir. 2014). EPA asserted that,

under those decisions, it had statutory authority to issue the late

requirements. EPA also asserted that it had exercised its

statutory authority reasonably by mitigating any unfair or

retroactive effects of the late rule. EPA claimed that it had done

so in part by: (i) setting the 2014 and 2015 volume

requirements based on the actual volumes of renewable fuel

that were introduced and available for compliance with the

renewable fuel volume obligations during those years and

(ii) extending the 2014 and 2015 compliance deadlines. See

Final Rule, 80 Fed. Reg. at 77,430-31, 77,491-92.

Because EPA concluded that its lateness did not deprive it

of authority to act, EPA proceeded with the task of setting the

annual volume requirements. With respect to cellulosic

biofuel, EPA projected that the volume of cellulosic biofuel

produced in the year 2016 would fall short of the statutory

volume requirement. See id. at 77,508 tbl.IV.F-4. As required

by the statute, EPA reduced the cellulosic biofuel volume

requirement to match its projection. See id. at 77,499 tbl.IV-1.

EPA also promulgated biomass-based diesel volume

requirements for 2014 through 2017. Id. at 77,422 tbl.I-1; see

also id. at 77,496 tbl.III-D.5-1.

EPA also set volume requirements for advanced biofuel

and total renewable fuel. In approaching that task, EPA

explained its view that the volume requirements should reflect

the amount of total renewable fuel and advanced biofuel that

could be incorporated into the market given the “real-world

constraints” on both the supply of and demand for renewable

fuel. Id. at 77,422; see also id. at 77,426, 77,431-39. For

14

purposes of determining the available supply of renewable fuel,

EPA considered only the actual volumes of renewable fuel both

introduced and available for compliance with the statutory

requirements in a given year. It did not consider the availability

of carryover RINs from prior years. See id. at 77,482-87.

Applying that approach, EPA concluded that “the volumes

for advanced biofuel and total renewable fuel specified in the

statute cannot be achieved in 2014, 2015, or 2016.” Id. at

77,431. EPA therefore relied upon its (i) cellulosic waiver

authority and (ii) general waiver authority to reduce the volume

requirements for total renewable fuel and advanced biofuel.

First, EPA used its cellulosic waiver authority to

significantly reduce the statutory volume requirements for

advanced biofuel and total renewable fuel. EPA noted that the

cellulosic waiver provision grants the agency “broad

discretion” to decide “when and under what circumstances to

reduce the advanced and total renewable fuel” volume

requirements when it reduces the cellulosic biofuel volume

requirement. Id. at 77,434. EPA determined that, due to

various constraints on the ability of the market to produce and

consume non-cellulosic advanced biofuels, non-cellulosic

advanced biofuels could not entirely make up for the shortfall

created by EPA’s reduction of the cellulosic biofuel volume

requirement. See id. at 77,426, 77,434. EPA therefore relied

on its cellulosic waiver authority to lower the advanced biofuel

and total renewable fuel volume requirements for the years

2014, 2015, and 2016. Id. at 77,434, 77,439.

Second, EPA made additional reductions to the total

renewable fuel volume requirements using the “inadequate

domestic supply” prong of its general waiver authority. See id.

at 77,434-39. EPA noted that it had “never before” interpreted

the “inadequate domestic supply” provision for purposes of

15

deciding whether to reduce a total renewable fuel volume

requirement. Id. at 77,435. Proceeding with its first-ever

interpretation, EPA concluded that the phrase “inadequate

domestic supply” is ambiguous because it “does not specify

what the general term ‘supply’ refers to.” Id.

Exercising its authority to resolve that purported

ambiguity, EPA concluded that the phrase “inadequate

domestic supply” is best read to refer to “the adequacy of

supply of renewable fuel” available to “the ultimate

consumer[s]” of renewable fuel blended into transportation

fuel. Id. at 77,436. EPA also concluded that its authority to

determine the adequacy of the renewable fuel “supply” allowed

the agency to look not only to supply-side factors in the market

for renewable fuel – such as constraints on the production or

import of renewable fuel – but also at factors affecting demand

for renewable fuel by consumers – such as vehicle engine

warranties and the effectiveness of those businesses marketing

renewable fuel products. See id. at 77,435, 77,452 tbl.II.E.1-1.

Analyzing those factors, EPA concluded that the available

supply of total renewable fuel still fell short of the statutory

volume requirements, even after those requirements were

reduced through use of the cellulosic waiver authority. Id. at

77,439. EPA therefore relied on the “inadequate domestic

supply” waiver provision to further reduce the 2014, 2015, and

2016 total renewable fuel volume requirements. Id.

Below is a table summarizing the total renewable fuel

volume requirements (in billions of gallons) issued by EPA in

the Final Rule. For each year, the table lists the statutory

volume requirements; the reduction to those statutory

requirements attributable to EPA’s use of the cellulosic waiver

provision and the general waiver provision; the final volume

requirements set by EPA; and the total reduction to the

16

statutory volume requirements made by EPA through use of its

waiver authorities.

Table 1.1 – Total Renewable Fuel Volume Requirements

(in billions of gallons)

Total Renewable Fuel Volume Requirements

Total

Cellulosic General

EPA Reduction

Year Statute Waiver Waiver

Rule from

Reduction Reduction

Waivers

2014 18.15 1.08 .79 16.28 1.87

2015 20.5 2.62 .95 16.93 3.57

2016 22.25 3.64 .5 18.11 4.14

Finally, although EPA in the Final Rule focused most of

its discussion on the volume requirements and percentage

standards, EPA did note that it had received comments

regarding the current “point of obligation” – that is, EPA’s

decision to place the compliance burden on refiners and

importers, but not blenders. EPA stated its view that those

comments were “beyond the scope” of the rulemaking because

EPA “did not propose any changes to the definition of an

obligated party” nor “seek comment on this issue.” Id. at

77,431; EPA Response to Comments on Final Rule, at 883

(Nov. 2015), J.A. 1027. EPA therefore declined to address

comments related to the point of obligation. See Final Rule, 80

Fed. Reg. at 77,431.

17

C

Following EPA’s issuance of the Final Rule in December

2015, a number of parties filed petitions for review in this

Court. Two petitions – one filed by National Biodiesel Board

and the other filed by a group of petitioners including

Americans for Clean Energy – challenge EPA’s Final Rule for

setting the renewable fuel volume requirements at too low a

level. From the other direction, a number of petitions – filed

by a group of obligated parties and industry associations that

we will call the “Obligated Party Petitioners” – challenge

EPA’s Final Rule for setting the renewable fuel volume

requirements at too high a level and for refusing to address the

proper point of obligation.

We now consider those petitions and the issues they

present. The opinion proceeds as follows.

In Part II, we address Americans for Clean Energy’s

challenge to EPA’s interpretation of the “inadequate domestic

supply” waiver provision. We agree with Americans for Clean

Energy that the term “inadequate domestic supply” refers to the

supply of renewable fuel available to refiners, blenders, and

importers to meet the statutory volume requirements. We hold

that EPA exceeded its authority under the “inadequate

domestic supply” provision when it interpreted the term

“supply” to allow it to consider demand-side constraints in the

market for renewable fuel. We therefore vacate EPA’s

decision to reduce the total renewable fuel volume

requirements for 2016 through use of the “inadequate domestic

supply” waiver authority and remand the rule to the agency for

further consideration in light of our decision.

We also consider Americans for Clean Energy’s argument

that EPA was required to consider “carryover RINs” for

18

purposes of determining whether there is an “inadequate

domestic supply” of renewable fuel. We reject that challenge,

as we conclude that the statute does not require EPA to consider

carryover RINs for purposes of the “inadequate domestic

supply” provision.

In Part III, we consider the issues arising from EPA’s delay

in promulgating the Final Rule. First, EPA used actual

renewable fuel volumes to set the 2014 and 2015 volume

requirements in order to minimize the hardship to obligated

parties caused by the late issuance of the Final Rule. In doing

so, EPA acted reasonably under the circumstances. We

therefore reject National Biodiesel Board’s and Americans for

Clean Energy’s arguments to the contrary. Second, EPA’s late

issuance of the biomass-based diesel volume requirements was

permissible. Contrary to the arguments of the Obligated Party

Petitioners, we conclude that EPA had statutory authority to

issue the late biomass-based diesel volume requirements and

exercised that authority reasonably.

In Part IV, we consider and reject the Obligated Party

Petitioners’ arbitrary and capricious challenges to the 2016

cellulosic biofuel projections. We conclude that EPA’s

cellulosic biofuel projection methodology was permissible

under our precedents and otherwise reasonable and reasonably

explained.

In Part V, we consider and reject National Biodiesel

Board’s contention that EPA violated its statutory authority

when interpreting and applying the cellulosic waiver provision.

Based on this Court’s analysis in Monroe Energy, we conclude

that the text of the cellulosic waiver provision affords EPA

“broad discretion” to consider a variety of factors – including

demand-side constraints in the market for advanced biofuel –

when determining “whether and in what circumstances to

19

reduce” volume requirements through use of the cellulosic

waiver authority. 750 F.3d at 915. We also deny National

Biodiesel Board’s related arbitrary and capricious challenges

to EPA’s projection of the volume of advanced biofuel

“reasonably attainable” in the market in the year 2016. Final

Rule, 80 Fed. Reg. at 77,427.

In Part VI, we conclude that we need not resolve whether

EPA’s failure to address the proper point of obligation in the

Final Rule necessitates a remand of the rule to the agency.

II

We first address whether EPA permissibly interpreted the

“inadequate domestic supply” prong of its general waiver

authority when lowering total renewable fuel volume

requirements for the years 2014, 2015, and 2016. Americans

for Clean Energy argues that EPA’s interpretation of the phrase

“inadequate domestic supply,” under which EPA considered

demand-side factors affecting the amount of renewable fuel

available to consumers, is inconsistent with the statute. We

agree with Americans for Clean Energy.

Americans for Clean Energy also contends that EPA is

required to consider carryover RINs for purposes of

determining whether there is an “inadequate domestic supply”

of renewable fuel during a given year. On that point, we side

with EPA and conclude that the agency permissibly declined to

consider carryover RINs for purposes of determining the

available supply of total renewable fuel for the years 2014,

2015, and 2016.

20

A

1

The Renewable Fuel Program requires increasing volumes

of renewable fuel to be introduced into the Nation’s

transportation fuel market. That market consists of a number

of actors that play a part in delivering transportation fuel to

consumers for use in their vehicles. There are refiners and

importers, who manufacture and import conventional fossil-

based gasoline and diesel fuels. In addition, there are biofuel

producers, who manufacture the various categories of

renewable fuel mandated by the Renewable Fuel Program.

There are fuel blenders, who purchase fossil-based fuels and

renewable fuels and mix the two together to create blended

transportation fuels. There are retail fueling stations, who

purchase blended transportation fuels and sell those fuels to

consumers. And there are the consumers, who purchase

transportation fuels for use in their vehicles. Although some

market participants are vertically integrated – a refining

company may also operate blending facilities or fueling

stations, for example – many are not.

In enacting the Renewable Fuel Program, Congress chose

not to place any compliance burdens on the fueling stations or

consumers of transportation fuel. Instead, the statute allows

EPA to designate three categories of upstream market

participants – “refineries,” “blenders,” and “importers” – as

“obligated parties” responsible for ensuring that the renewable

fuel volume requirements are met. 42 U.S.C.

§ 7545(o)(3)(B)(ii)(I). To date, EPA has applied the renewable

fuel obligations only to refiners and importers of fuel – not to

blenders. See 40 C.F.R. § 80.1406(a)(1). By requiring

upstream market participants such as refiners and importers to

introduce increasing volumes of renewable fuel into the

21

transportation fuel supply, Congress intended the Renewable

Fuel Program to be a “market forcing policy” that would create

“‘demand pressure’ to increase consumption” of renewable

fuel. Final Rule, 80 Fed. Reg. at 77,423; Monroe Energy, LLC

v. EPA, 750 F.3d 909, 917 (D.C. Cir. 2014) (quoting

Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel

Standards, 78 Fed. Reg. 49,794, 49,821 (Aug. 15, 2013)).

Refiners and importers demonstrate their compliance with

the statute by accumulating the requisite number of renewable

fuel credits, known as RINs. Each set of RINs corresponds to

a batch of renewable fuel produced or imported for use in the

United States. As relevant here, RINs generally remain

attached to a volume of fuel until the fuel is: (i) purchased by

an obligated party – that is, by a refiner or importer – or

(ii) blended into a transportation fuel by a blender. 40 C.F.R.

§ 80.1429(b)(1)-(2). When either of those two things occurs,

RINs become “separated” from the associated volume of

renewable fuel. Id. § 80.1429(b). Those separated RINs, in

turn, are accumulated by refiners and importers in order to

demonstrate compliance with the Renewable Fuel Program’s

requirements. See id. § 80.1427(a)(1).

Therefore, individual refiners and importers have options

when it comes to demonstrating compliance with their statutory

obligations. Some may choose to comply with the statute by

purchasing or blending renewable fuel themselves. Other

parties may comply with the statute by purchasing the

separated RINs generated, among other ways, when blenders

mix renewable and fossil-based fuels to create blended

transportation fuels. No matter how individual obligated

parties choose to comply with the statute, however, the key

point for present purposes is this: Refiners and importers are

able to meet the Renewable Fuel Program’s industry-wide

22

statutory volume requirements only if an adequate volume of

renewable fuel is available to refiners, importers, and blenders.

2

Although the Renewable Fuel Program statute establishes

the annual volume requirements for the different categories of

renewable fuel, Congress also granted EPA “waiver” power to

reduce the statutory volume requirements in certain

circumstances. Here, we consider the statute’s “inadequate

domestic supply” waiver provision. That provision is located

within a section establishing EPA’s general waiver authority.

The provision gives EPA discretion to “waive” the statutory

requirements applicable to obligated parties “in whole or in

part” by “reducing the national quantity of renewable fuel

required under paragraph (2) . . . based on a determination by

the Administrator, after public notice and opportunity for

comment, that there is an inadequate domestic supply.” 42

U.S.C. § 7545(o)(7)(A) (emphasis added).1

1

The general waiver provision reads in full:

The Administrator, in consultation with the Secretary of

Agriculture and the Secretary of Energy, may waive the

requirements of paragraph (2) in whole or in part on petition by

one or more States, by any person subject to the requirements of

this subsection, or by the Administrator on his own motion by

reducing the national quantity of renewable fuel required under

paragraph (2) –

(i) based on a determination by the Administrator, after public

notice and opportunity for comment, that implementation of

the requirement would severely harm the economy or

environment of a State, a region, or the United States; or

23

Before the 2015 Final Rule, EPA had never relied upon the

“inadequate domestic supply” waiver provision to reduce a

statutory volume requirement. See Final Rule, 80 Fed. Reg. at

77,435. In the 2015 Final Rule, EPA relied on that provision

to reduce the total renewable fuel volume requirements for the

years 2014, 2015, and 2016. See id. at 77,439. In so doing,

EPA issued its first-ever interpretation of the term “inadequate

domestic supply” for the purposes of establishing a renewable

fuel volume requirement. Id. at 77,435.

EPA began by noting its view that the statutory phrase

“inadequate domestic supply” is ambiguous. Id. That is so,

according to EPA, because the text “does not specify” what

“product” or “person” the “general term ‘supply’ refers to.” Id.

Having concluded that the phrase “inadequate domestic

supply” is ambiguous, EPA stated that it had interpretive

authority to adopt a reading of the waiver provision that would

best align with “the overall policy goals” of the Renewable

Fuel Program. Id. at 77,436. That “best” reading has two

important elements that we consider here. Id. at 77,435.

First, EPA concluded that the best reading of the

“inadequate domestic supply” provision is that it refers to the

supply of renewable fuel available to consumers for use in their

vehicles – not to the supply of renewable fuel available to

refiners, blenders, and importers for use in meeting the

statutory volume requirements. See id. at 77,435-36. Under

that interpretation, EPA considered all factors that would affect

the amount of renewable fuel available for sale to consumers

(ii) based on a determination by the Administrator, after public

notice and opportunity for comment, that there is an

inadequate domestic supply.

42 U.S.C. § 7545(o)(7)(A).

24

including, among other things, the capacity and incentives of

transportation fuel distributors and retail gas stations to

distribute and sell blended transportation fuel. See id. at 77,452

tbl.II.E.1-1.

Second, EPA concluded that the “inadequate domestic

supply” waiver provision grants it authority not only to

consider supply-side constraints affecting the availability of

renewable fuel – such as renewable fuel production or import

capacity – but also to consider demand-side factors affecting

consumers’ desire or ability to consume renewable fuels. Id. at

77,435-36. Those demand-side factors included, among other

things, the “existence of and expansion of” vehicles and

engines “capable of using” renewable fuel; the number of

“retail outlets that offer renewable fuels blends”; “the

attractiveness” of renewable fuel blends “to consumers”; and

the “marketing effectiveness” of those promoting renewable

fuel products. Id. at 77,452 tbl.II.E.1-1, 77,460 (capitalization

altered).

An example helps crystallize the effects of EPA’s

interpretation. Suppose four things for a given year: (i) the

statutory volume requirement is 10 million gallons; (ii) a

supply of 10 million gallons of renewable fuel is available for

use by refiners, blenders, and importers to meet the statutory

volume requirement; (iii) due to distribution constraints, fuel

retailers can make nine million gallons of renewable fuel

available to consumers; and (iv) consumers can use – and

therefore demand – eight million gallons of renewable fuel.

Under EPA’s interpretation of the “inadequate domestic

supply” provision, EPA would be authorized: (i) to reduce the

statutory volume requirement by one million gallons based on

the distribution constraints that limit the amount of fuel offered

by fuel retailers to consumers and (ii) to further reduce the

volume requirement by an additional one million gallons to

25

reflect consumer demand for renewable fuel. Those reductions

could be made, according to EPA, notwithstanding the fact that

the renewable fuel supply of 10 million gallons would be

adequate to allow refiners, blenders, and importers to introduce

enough renewable fuel into the Nation’s fuel supply to meet the

statutory volume requirement.

3

Americans for Clean Energy argues that EPA’s

interpretation of the phrase “inadequate domestic supply” is

inconsistent with the text, structure, and purpose of the

Renewable Fuel Program. According to Americans for Clean

Energy, the scope of EPA’s “inadequate domestic supply”

waiver authority is clear: It authorizes EPA to consider supply-

side factors affecting the volume of renewable fuel that is

available to refiners, blenders, and importers to meet the

statutory volume requirements. It does not, according to

Americans for Clean Energy, allow EPA to consider factors,

such as distribution capacity, affecting the supply of renewable

fuel available to ultimate consumers for use in their vehicles.

Nor does it allow EPA to consider demand-side constraints on

the consumption of renewable fuel when determining the

available renewable fuel supply.

We agree with Americans for Clean Energy that EPA’s

interpretation of the “inadequate domestic supply” waiver

provision is inconsistent with the statute. See Chevron U.S.A.

Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837,

843 & n.9 (1984).

To begin, EPA was wrong when it concluded that

“inadequate domestic supply” may be read to refer to the

supply of renewable fuel available to consumers for use in their

vehicles rather than to the supply of renewable fuel available

26

to refiners, blenders, and importers to meet the statutory

volume requirements. EPA’s interpretation rests on the

premise that the “inadequate domestic supply” waiver

provision is ambiguous with respect to the “product” and

“person” at issue. Final Rule, 80 Fed. Reg. at 77,435. That is

not the case.

The “inadequate domestic supply” provision authorizes

EPA to “reduc[e] the national quantity of renewable fuel

required” by the statute “based on a determination by” EPA

“that there is an inadequate domestic supply.” 42 U.S.C.

§ 7545(o)(7)(A) (emphasis added). Reading the “inadequate

domestic supply” provision together with the section it

modifies, the only reasonable interpretation is that the

“product” at issue is the only product referenced in the

provision: “renewable fuel.”

Nor is the “inadequate domestic supply” waiver provision

ambiguous with respect to the “person” at issue. Recall that

the statute allows EPA to apply the annual renewable fuel

obligations to three kinds of entities – refiners, blenders, and

importers. See id. § 7545(o)(3)(B)(ii)(I). As discussed, EPA

has chosen to obligate only refiners and importers. But all three

entities – refiners, blenders, and importers – play a part in

ensuring that statutory volume requirements are met: refiners

and importers by purchasing or importing sufficient volumes

of renewable fuel, and blenders by blending sufficient volumes

of renewable fuel with fossil-based fuel to produce

transportation fuels. See 40 C.F.R. § 80.1429(b)(1)-(2). Thus,

it is the refiners, blenders, and importers – not consumers –

who must “use” the statutorily required volumes of renewable

fuel by incorporating that fuel into the Nation’s supply of

transportation fuel. It follows that it is the refiners, blenders,

and importers – not consumers – who must have access to an

adequate “supply” of renewable fuel in order to meet the

27

Renewable Fuel Program’s statutory volume requirements.

When the supply of renewable fuel is “inadequate” to allow

refiners, blenders, and importers to introduce enough

renewable fuel to meet the statutory volume requirements, the

“inadequate domestic supply” waiver provision allows EPA to

reduce those requirements to reflect that fact. That reduction,

in turn, benefits obligated parties – not consumers.

In other words, the “inadequate domestic supply” waiver

provision is just that: a waiver provision. It authorizes EPA to

ease the Renewable Fuel Program’s requirements when

complying with those requirements would be infeasible. With

that understanding of how the “inadequate domestic supply”

provision operates in the statutory scheme, EPA’s reading of

the provision makes little sense: Whether consumers have an

adequate supply of renewable fuel to fill their cars is not

relevant to whether refiners, blenders, and importers have an

adequate supply of renewable fuel to meet the statutory volume

requirements. For purposes of measuring available “supply,”

the “persons” at issue are refiners, blenders, and importers.

A comparison of the “inadequate domestic supply”

provision with other statutory provisions related to renewable

fuel supports that conclusion. As discussed, under EPA’s

interpretation of the “inadequate domestic supply” provision,

the agency may consider factors relating to the ability of

distributors and fuel retailers to distribute and sell renewable

fuel to downstream consumers. But in a number of nearby

provisions, Congress explicitly authorized EPA to consider

constraints on both the supply and distribution of a material.

See, e.g., 42 U.S.C. § 7545(o)(8)(B) (directing Secretary of

Energy to evaluate the “supply and distribution system

capabilities” to help assist EPA in making a waiver

determination for the first year of the Renewable Fuel

Program) (emphasis added); id. § 7545(m)(3)(C) (authorizing

28

EPA to delay oxygenated fuel requirements if “there is, or is

likely to be, for any area, an inadequate domestic supply of, or

distribution capacity for, oxygenated gasoline meeting the

requirements” and requiring EPA to “consider distribution

capacity separately from the adequacy of domestic supply”)

(emphasis added). Those examples reveal that when Congress

intended to allow EPA to consider downstream distribution

capacity in addition to supply, it “left little doubt in the matter.”

Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718,

1723, slip op. at 6 (2017).

The drafting history of the “inadequate domestic supply”

provision, to the extent it is relevant, counts as yet another

strike against EPA’s interpretation. The version of the Energy

Policy Act passed by the House would have allowed EPA to

reduce the statutory volume requirements “based on a

determination by the Administrator, after public notice and

opportunity for comment, that there is an inadequate domestic

supply or distribution capacity to meet the requirement.” H.R.

6, 109th Cong. sec. 1501(a)(2), § 7545(o)(8)(A)(ii) (as

calendared in Senate, June 9, 2005) (emphasis added). The

latter portion of the waiver provision – which would have

allowed EPA to consider “distribution capacity” – was dropped

in the version of the bill passed by the Senate. See H.R. 6,

109th Cong. sec. 211(a)(2), § 7545(o)(7)(A)(ii) (as passed by

Senate, June 28, 2005). As relevant here, the House agreed to

the Senate’s amendment to the bill. See H.R. Rep. No. 109-

190, at 1, 486 (2005) (Conf. Rep.). The “distribution capacity”

language does not appear in the final version of the Act. See

Energy Policy Act of 2005, Pub. L. No. 109-58, sec.

1501(a)(2), § 7545(o)(7)(A)(ii), 119 Stat. 594, 1072.

Congress’s decision to drop the “distribution capacity”

language counsels against EPA’s reading in this case, which in

effect would add that kind of language back into the waiver

29

provision by allowing EPA to consider factors affecting the

distribution of renewable fuel to retailers and consumers.

Therefore, it is evident that the “inadequate domestic

supply” waiver provision refers to the supply of renewable fuel

available to refiners, blenders, and importers to meet the

statutory volume requirements. Under that reading, EPA may

consider factors affecting the availability of renewable fuel to

refiners, blenders, and importers. Those factors may include,

for example, the availability of feedstocks used to make

renewable fuel, the production capacity of renewable fuel

producers, the amount of renewable fuel available for import

from foreign producers, or the infrastructure capacity needed

to get renewable fuel from producers to refiners, importers, and

blenders. See Final Rule, 80 Fed. Reg. at 77,451-52 tbl.II.E.1-

1. EPA may not consider, however, those factors affecting the

availability of renewable fuel to market actors downstream

from refiners, importers, and blenders, such as fuel retailers or

consumers. Those prohibited factors include, for example,

constraints on the infrastructure needed to distribute fuel from

blenders to gas stations or the number of retail outlets that offer

renewable fuel blends.

The problems with EPA’s interpretation do not end there.

In the Final Rule, EPA concluded that the “inadequate

domestic supply” waiver provision gives it authority not only

to evaluate those factors affecting the supply of renewable

fuel – such as feedstock availability, renewable fuel production

capacity, and renewable fuel import capacity – but also to

consider factors affecting the demand for renewable fuel – such

as pricing of renewable fuel, prevalence of vehicle engines that

can use renewable fuel, and marketing efforts of those

promoting renewable fuel products. See id. at 77,435-36,

77,451-52 tbl.II.E.1-1. That interpretation, which in effect

amends “inadequate domestic supply” to read “inadequate

30

domestic supply and demand,” also exceeds EPA’s statutory

authority.

The text of the “inadequate domestic supply” waiver

provision all but resolves this issue. As even EPA concedes,

the “common understanding” of the term “supply” is “an

amount of a resource or product that is available for use by the

person or place at issue.” Id. at 77,435; see also id. at 77,435

n.32 (collecting dictionary definitions); THE AMERICAN

HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE (5th ed.

2017 online) (an “amount available or sufficient for a given

use”). When it comes to the “inadequate domestic supply”

provision, we have already established: (i) that the “resource or

product” is renewable fuel; (ii) that the “use” is compliance

with the statute; and (iii) that the “persons” “at issue” are

refiners, blenders, and importers. Putting that together,

“supply” as used in the “inadequate domestic supply” provision

refers to the “amount” of renewable fuel that is “available for

use” by refiners, blenders, and importers in meeting the

statutory volume requirements.

Importantly, whether a thing is “available” to someone has

nothing to do with whether he or she decides to use it. (The

fact that a person is on a diet does not mean that there is an

inadequate supply of food in the refrigerator.) So too here:

Whether there is an adequate amount of renewable fuel

available to allow refiners, blenders, and importers to meet the

statutory volume requirements has little to do with how much

renewable fuel that refiners, blenders, and importers – much

less consumers at the pump – ultimately decide to use.

EPA counters that, as a practical matter, it is unrealistic to

delink “supply” and “demand.” EPA argues that the “supply”

of a product is a function of the “demand” for that product, and

that it may therefore consider demand-side factors when

31

deriving the available supply of renewable fuel. EPA’s

argument falls apart in view of the operation and structure of

this statute’s renewable fuel requirements.

The central problem with EPA’s “supply equals demand”

argument (in addition to the text of the statute, of course) is that

it runs contrary to how the Renewable Fuel Program is

supposed to work. By setting annual renewable fuel volume

requirements that increase progressively each year, Congress

adopted a “market forcing policy” intended to “overcome

constraints in the market” by creating “demand pressure to

increase consumption” of renewable fuels. Final Rule, 80 Fed.

Reg. at 77,423; Monroe Energy, 750 F.3d at 917 (internal

quotation marks omitted). Therefore, as EPA recognized in a

previous rulemaking, demand for renewable fuel “will be a

function of the” renewable fuel standards “set” by EPA.

Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel

Standards, 75 Fed. Reg. 76,790, 76,803 (Dec. 9, 2010). In

other words, the Renewable Fuel Program’s increasing

requirements are designed to force the market to create ways to

produce and use greater and greater volumes of renewable fuel

each year. EPA’s interpretation of the “inadequate domestic

supply” provision flouts that statutory design: Instead of the

statute’s volume requirements forcing demand up, the lack of

demand allows EPA to bring the volume requirements down.

“No argument” that EPA has “offered here supports that goal-

defying (much less that text-defying) statutory construction.”

Advocate Health Care Network v. Stapleton, 137 S. Ct. 1652,

1662, slip op. at 14 (2017).

In short, applying the “traditional tools” of statutory

interpretation, we conclude that the “inadequate domestic

supply” waiver provision refers to the supply of renewable fuel

available to refiners, blenders, and importers to meet the

statutory volume requirements. Chevron, 467 U.S. at 843 n.9.

32

We also conclude that, for purposes of examining whether the

supply of renewable fuel is adequate, the “inadequate domestic

supply” provision authorizes EPA to consider only supply-side

factors – such as production and import capacity – affecting the

available supply of renewable fuel. The “inadequate domestic

supply” provision does not authorize EPA to consider demand-

side factors affecting the demand for renewable fuel.

4

EPA presses three primary arguments in an attempt to

counter the conclusion dictated by the text and structure of the

Renewable Fuel Program statute. None is convincing.

First, EPA argues that the statutory definition of

“renewable fuel” supports its position. The statute defines

“renewable fuel” as “fuel that is produced from renewable

biomass and that is used to replace or reduce the quantity of

fossil fuel present in a transportation fuel.” 42 U.S.C.

§ 7545(o)(1)(J) (emphasis added). Latching on to the words

“that is used,” EPA argues that biofuel qualifies as “renewable

fuel” only if it is “actually used to replace fossil-based

transportation fuels.” Final Rule, 80 Fed. Reg. at 77,435. From

that premise, EPA argues that its interpretation of “inadequate

domestic supply” is permissible because it focuses on the point

at which renewable fuel is “actually used” to replace fossil-

based transportation fuels – namely, when “ultimate

consumers” fuel their cars at the gas pump. Id.; see also id. at

77,435 n.33.

We reject EPA’s attempt to bootstrap the definition of

“renewable fuel” into a boundless general waiver authority.

Contrary to EPA’s contention, the phrase “that is used” in the

definition of “renewable fuel” does not mean that biofuel

transforms into renewable fuel only when it is actually pumped

33

into gas tanks. Rather, as Americans for Clean Energy

explains, the “term ‘used’ merely defines the qualifying uses to

which the biofuel may be put.” Americans for Clean Energy

Br. 15. The definition clarifies, for instance, that “renewable

fuel” is biofuel used in “transportation fuel,” whereas

“additional renewable fuel” is biofuel used in “home heating

oil or jet fuel.” Compare 42 U.S.C. § 7545(o)(1)(J), with id.

§ 7545(o)(1)(A). Notably, it is EPA’s reading of the

“renewable fuel” definition that glosses over the statutory text:

For the most part, biofuel “is used to replace or reduce the

quantity of fossil fuel present in a transportation fuel” when

blenders mix biofuel with fossil-based fuel to create a blended

transportation fuel – not, as EPA claims, when consumers

pump transportation fuels into their cars. Id. § 7545(o)(1)(J)

(emphasis added).

Second, EPA contends that interpreting “supply” to refer

to the amount of renewable fuel available to refiners, blenders,

and importers in effect reads “supply” to mean “production.”

That interpretation is not correct, according to EPA, because

“other fuel related provisions of the Clean Air Act” distinguish

between “capacity to produce” and “capacity to supply” fuel.

Final Rule, 80 Fed. Reg. at 77,436 (comparing 42 U.S.C.

§ 7545(k)(6)(A)(ii) with id. § 7545(k)(6)(B)(iii)(I)). EPA is

correct that, in practice, the supply of renewable fuel available

to refiners, blenders, and importers will be dictated to a large

extent by the production capacity of the producers who make

renewable fuel. But that does not mean that “supply” includes

only production capacity. On the contrary, our interpretation

of supply allows EPA to consider the amount of renewable fuel

available through import, for example. In addition, as

Americans for Clean Energy explains, the correct interpretation

of “supply” leaves EPA room to consider “non-production

factors” – such as a natural disaster – that would affect “a

biofuel-fuel producer’s ability to deliver its product” to

34

refiners, blenders, and importers. Americans for Clean Energy

Reply 9; see also Tr. of Oral Arg. at 5-6. The correct reading

of “supply,” therefore, does not conflate “supply” with

“production.”

Third, EPA contends that its interpretation better aligns

with the “overall policy goals” of the Renewable Fuel Program.

Final Rule, 80 Fed. Reg. at 77,436. EPA argues that reading

“inadequate domestic supply” to refer only to the available

supply of biofuel – without consideration of whether that fuel

can be consumed – could “impose large compliance costs on

obligated parties with no corresponding increase in the use of

renewable fuels, contrary to the purposes of the Act.” EPA Br.

52. According to EPA, its interpretation of “inadequate

domestic supply” is therefore necessary to avoid causing

harmful effects in the renewable fuel market such as “a

significant increase in renewable fuel and RIN prices,” “RIN

deficits,” or “non-compliance” by obligated parties. Final

Rule, 80 Fed. Reg. at 77,453.

To the extent that application of the statutory volume

requirements may lead to negative economic effects, we note

that such effects could be addressed through other provisions

of the statute. In particular, Congress authorized EPA to reduce

the statutory renewable fuel volume requirements upon a

determination that implementation of those requirements

“would severely harm the economy or environment of a State,

a region, or the United States.” 42 U.S.C. § 7545(o)(7)(A)(i).

EPA has not explained why Congress would have established

the severe-harm waiver standard “only to allow waiver under

the inadequate-supply” provision based on “lesser degrees” of

economic harm. Americans for Clean Energy Reply 6. The

statute provides other protections against economic harm, too.

In the years following 2016, if EPA concludes that the statutory

volume requirements for a category of renewable fuel need to

35

be reduced by more than 20 percent for two consecutive years

or by 50 percent in any one year, the statute allows EPA to reset

the volume requirements. See 42 U.S.C. § 7545(o)(7)(F). The

statute also provides a safe harbor for individual obligated

parties struggling to comply with a year’s requirements. The

statute mandates that EPA allow those parties to carry a

renewable fuel deficit forward into the next compliance year,

so long as certain conditions are satisfied. See id.

§ 7545(o)(5)(D); 40 C.F.R. § 80.1427(b). In light of those

provisions, we are not convinced that EPA’s strained

interpretation of “inadequate domestic supply” is necessary to

avoid the parade of horribles that EPA identifies.

Taking a step back, moreover, we reject EPA’s purposive

argument on its own terms. That is because EPA’s proposed

interpretation of the “inadequate domestic supply” waiver

provision – in which the demand for renewable fuel largely

dictates the volume requirements – turns the Renewable Fuel

Program’s “market forcing” provisions on their head. Final

Rule, 80 Fed. Reg. at 77,423. To be sure, EPA and obligated

parties have raised serious concerns that the Renewable Fuel

Program is not actually functioning as intended and that, as a

result, the statute’s requirements will only become more and

more impractical to meet. But the fact that EPA thinks a statute

would work better if tweaked does not give EPA the right to

amend the statute. Cf. Utility Air Regulatory Group v. EPA,

134 S. Ct. 2427, 2445, slip op. at 21 (2014) (“An agency has

no power to ‘tailor’ legislation to bureaucratic policy goals by

rewriting unambiguous statutory terms. Agencies exercise

discretion only in the interstices created by statutory silence or

ambiguity; they must always give effect to the unambiguously

expressed intent of Congress.”) (internal quotation marks

omitted).

36

Some – including the Obligated Party Petitioners – say that

the statute sets up a crazy regime that requires production of a

product that few people want and that therefore will never be

consumed. “Even if we were persuaded” by those “policy

arguments, those arguments could not overcome the statute’s

plain language, which is our primary guide to Congress’

preferred policy.” Sandoz Inc. v. Amgen Inc., 137 S. Ct. 1664,

1678, slip op. at 18 (2017) (internal quotation marks omitted).

If the regime is indeed flawed, it is up to Congress and the

President to “reenter the field” and fix it. Henson, 137 S. Ct.

at 1725, slip op. at 10; see U.S. CONST. art. I, § 7, cl. 2.

In conclusion, we hold that the statute forecloses EPA’s

interpretation of the “inadequate domestic supply” waiver

provision. We therefore vacate EPA’s decision to reduce the

total renewable fuel volume requirements for 2016 through use

of the “inadequate domestic supply” waiver provision and

remand the Final Rule to the agency for further consideration

in light of our decision.2

B

We now turn to Americans for Clean Energy’s argument

that EPA was required to consider carryover RINs as a supply

source of renewable fuel for purposes of exercising its

“inadequate domestic supply” waiver authority. EPA’s failure

to consider carryover RINs as a source of supply, according to

2

Having reached that conclusion, we need not consider

Americans for Clean Energy’s alternative arbitrary and capricious

challenge to the 2016 total renewable fuel requirement. That

challenge was based on EPA’s allegedly incorrect calculation of the

demand for E85 fuel. Because we conclude that EPA does not have

statutory authority to consider demand under the “inadequate

domestic supply” waiver provision, the issue of how EPA calculated

demand is a moot point.

37

Americans for Clean Energy, led EPA to set the total renewable

fuel volume requirements at too low a level. We reject that

argument.

To review: The Renewable Fuel Program requires refiners

and importers of gasoline and diesel fuel to satisfy an annual

“renewable fuel obligation” issued by EPA. 42 U.S.C.

§ 7545(o)(3)(B)(ii). In the course of setting the annual

renewable fuel obligation, EPA must establish the volume

requirements for each category of renewable fuel. Those

volume requirements represent the total volumes of renewable

fuel that must be sold or introduced into United States

commerce in a given year. See Monroe Energy, 750 F.3d at

912. Although the statute sets forth annual volume

requirements for certain years, EPA may reduce those statutory

volume requirements in specified circumstances. As just

discussed, one component of the statute’s general waiver

provision allows EPA to reduce the statutory volume

requirements when it concludes that there is an “inadequate

domestic supply” of renewable fuel. 42 U.S.C.

§ 7545(o)(7)(A)(ii).

Once EPA issues the annual renewable fuel obligations,

the obligated parties must satisfy those obligations. To

facilitate the compliance process, Congress directed EPA to

establish a credit program through which obligated parties may

satisfy their renewable fuel obligations by accumulating

renewable fuel credits. Id. § 7545(o)(5). Of importance here,

Congress specified that any credits generated for use in the

credit trading program “shall be valid to show compliance for

the 12 months as of the date of generation.” Id.

§ 7545(o)(5)(C).

Under the credit program established by EPA, obligated

parties comply with their renewable fuel obligations by

38

acquiring permits known as RINs. Each set of RINs

corresponds to a batch of renewable fuel that is produced or

imported for use in the United States. Monroe Energy, 750

F.3d at 913. To fulfill their statutory requirements, obligated

parties accumulate the number of RINs needed to comply with

their annual renewable fuel obligations and then retire the RINs

in an annual compliance demonstration with EPA. 40 C.F.R.

§ 80.1427(a). If an obligated party has more RINs than it needs

to meet its renewable fuel obligation, the obligated party may

sell or trade the extra RINs or instead choose to “bank” the

RINs for use in the next compliance year. Monroe Energy, 750

F.3d at 913; see also 42 U.S.C. § 7545(o)(5)(B); 40 C.F.R.

§§ 80.1425-29. The industry refers to those saved RINs as

“carryover” RINs.

The key question for present purposes is this: When

evaluating the available “supply” of renewable fuel for

purposes of the “inadequate domestic supply” waiver

provision, must EPA consider carryover RINs as a supply

source of renewable fuel? Americans for Clean Energy argues

yes. EPA says no. We agree with EPA that the statute is better

read not to require EPA to consider carryover RINs.

We look first to the text of the statute. The Renewable

Fuel Program allows EPA to reduce the total renewable fuel

volume requirement upon a finding that there is an “inadequate

domestic supply” of renewable fuel. 42 U.S.C.

§ 7545(o)(7)(A)(ii). In a separate provision, Congress required

EPA to create a “credit program.” Id. § 7545(o)(5)

(capitalization altered). Congress contemplated that an

obligated party would be allowed to carry over credits from one

year into the next: One of the credit program’s provisions

states that credits generated in the credit program “shall be

valid to show compliance for the 12 months as of the date of

generation.” Id. § 7545(o)(5)(C). But nothing in the text of

39

either provision indicates that the “supply” of renewable fuel

available in a year must include any available “carryover”

credits from the prior year. See Final Rule, 80 Fed. Reg. at

77,484 (statute gives “no guidance in the text” regarding

“whether or not carryover RINs should be deemed part of the

‘supply’ referenced” in the general waiver provision).

Americans for Clean Energy counters that a different

provision of the statute – EPA’s statutory duty to “ensure[]”

that the mandated volume requirements are met – requires EPA

to consider carryover RINs as a supply source of renewable

fuel. 42 U.S.C. § 7545(o)(3)(B)(i). It argues that considering

carryover RINs as a source of supply in a given year will lead

EPA to make a lesser reduction to the statutory volume

requirement for total renewable fuel. Congress, however, did

not “pursue[] its purposes” of increased renewable fuel

generation “at all costs.” American Express Co. v. Italian

Colors Restaurant, 133 S. Ct. 2304, 2309, slip op. at 4 (2013)

(quoting Rodriguez v. United States, 480 U.S. 522, 525-26

(1987) (per curiam)). It included waiver provisions that allow

EPA to lessen the Renewable Fuel Program’s requirements in

specified circumstances, including when EPA concludes that

there is an “inadequate domestic supply” of renewable fuel to

meet those requirements. It is therefore the text of the

“inadequate domestic supply” waiver provision that controls

our analysis here. And that text does not reference carryover

RINs as a source of supply of renewable fuel.

EPA’s proposed interpretation reads “inadequate domestic

supply” of renewable fuel to refer only to the “actual renewable

fuel” available in a given year and not to carryover RIN credits

representing renewable fuel generated the prior year. Final

Rule, 80 Fed. Reg. at 77,484. Put differently, EPA’s

interpretation reads “supply” of renewable fuel to mean just

that – “supply of renewable fuel” – rather than “supply of

40

renewable fuel and supply of carryover credits.” EPA’s

interpretation is consistent with the statutory text, not contrary

to it.

EPA’s interpretation makes eminent sense, moreover,

when considered in light of the purposes of the Renewable Fuel

Program statute. In promulgating its interpretation, EPA

explained the critical importance of carryover RINs to the

functioning of the renewable fuel market and to the ability of

obligated parties to comply with their obligations. Id. at

77,483-84. EPA pointed out that the “bank of carryover RINs”

at the time of the Final Rule’s issuance was “substantially less,

both in absolute numbers and as a percentage of the applicable

standards, than was the case in prior actions.” Id. at 77,486.

EPA further noted that, were it to consider carryover RINs as a

supply source of renewable fuel for purposes of the

“inadequate domestic supply” provision, the number of

carryover RINs in the market would be reduced to almost zero.

See id. at 77,484. Without the flexibility and liquidity provided

by carryover RINs, EPA reasoned that obligated parties facing

unexpected shortfalls or increased demand for transportation

fuel may be left with no way to comply with the statute. Id. at

77,483. That situation, in turn, could “lead to the need for a

new waiver of the standards” and thereby undermine “the

market certainty so critical to the long term success” of the

Renewable Fuel Program. Id. According to EPA, those

concerns counseled in favor of interpreting the phrase

“inadequate domestic supply” to refer only to the actual

volumes of renewable fuel available in the relevant compliance

year. Id. at 77,484-85.3

3

Americans for Clean Energy sprinkles a few arbitrary and

capricious challenges into its argument regarding EPA’s

interpretation. Even assuming that those arguments are not

foreclosed by the text of the statute, they still lack merit. First,

Americans for Clean Energy argues that EPA “did not explain why”

41

EPA’s interpretation also reasonably balances the need to

drive growth in the renewable fuel industry with the need to

ensure that obligated parties have sufficient flexibility to

comply with the statute. EPA stresses that, under its

interpretation, EPA may still consider carryover RINs when

determining whether it should exercise its “inadequate

domestic supply” waiver authority to reduce statutory volume

requirements. Id. According to EPA, the presence of a large

amount of carryover RINs in the market will make EPA less

likely to reduce the statutory volume requirements. Id. at

77,485; cf. Monroe Energy, 750 F.3d at 917 (EPA may

consider “availability of carryover RINs” when determining

whether to exercise waiver authority to reduce total renewable

the carryover RIN bank “must have at least 1.74 billion RINs” or

explain why EPA could not “safely” reduce the bank to a lesser

amount. Americans for Clean Energy Br. 31. EPA explained,

however, that “the result” of interpreting “supply” in the manner

proposed by Americans for Clean Energy “would be a complete

drawdown in the collective bank of carryover RINs in a relatively

short time period.” Final Rule, 80 Fed. Reg. at 77,484. That is,

Americans for Clean Energy’s interpretation of “supply” as

including carryover RINs would leave EPA no choice but to reduce

the carryover RIN bank to almost zero. EPA concluded that such a

result threatened the interests of the Renewable Fuel Program.

Second, contrary to Americans for Clean Energy’s contentions, EPA

adequately explained why its interpretation will not discourage

obligated parties from investing in new generation of renewable fuel.

EPA noted, for example, that the statute’s increasing volume

requirements have made it “increasingly difficult” for obligated

parties to “over-comply and create carryover RINs” – meaning that

obligated parties will need to invest in new renewable fuel sources to

generate sufficient RINs for compliance. Id. at 77,485. EPA also

cited evidence from 2013 showing that parties generated new RINs,

rather than relying exclusively on carryover RINs, to meet their

compliance burdens. Id. at 77,486.

42

fuel volume requirement). EPA also pointed out that its

regulations specify “that obligated parties may only satisfy 20

percent” of their annual renewable fuel obligations with

carryover RINs. Final Rule, 80 Fed. Reg. at 77,485. EPA

reasonably concluded that those considerations will mitigate

the possibility that obligated parties will comply with their

obligations through large amounts of carryover RINs rather

than through investment in increased renewable fuel

generation. See id. at 77,484-86.4

Given all of the above, we uphold EPA’s interpretation of

the “inadequate domestic supply” waiver provision. EPA need

not consider carryover RINs as a supply source of renewable

fuel for purposes of determining the supply of renewable fuel

available in a given year.5

III

In this section, we address two challenges arising from

EPA’s lateness in issuing the Final Rule. First, EPA cited its

own lateness – and the need to avoid imposing retroactive

burdens on obligated parties – as a reason to set the 2014 and

2015 volume requirements based on the volume of renewable

4

Because EPA sufficiently explained the practical and policy-

based reasons for its decision to maintain the carryover RIN bank,

we also reject National Biodiesel Board’s argument that EPA’s

carryover RIN analysis was irrational. See National Biodiesel Board

Br. 18-19.

5

Because we agree with EPA that its reading of this provision

is the better reading, we need not consider whether it is

unambiguously the better reading for Chevron purposes such that

EPA could not alter its interpretation in the future. Cf. Coventry

Health Care of Missouri, Inc. v. Nevils, 137 S. Ct. 1190, 1198 n.3,

slip op. at 9 n.3 (2017); Action Alliance of Senior Citizens v. Sebelius,

607 F.3d 860, 863 n.2 (D.C. Cir. 2010).

43

fuel actually supplied in those years. National Biodiesel Board

and Americans for Clean Energy argue that this was error.

Second, EPA missed the relevant statutory deadlines to issue

biomass-based diesel volume requirements for the years 2014

through 2017. The Obligated Party Petitioners argue that this

was error. We reject both of those challenges.

A

As explained above, the Renewable Fuel Program requires

obligated parties – namely, refiners and importers of gasoline

or diesel fuel – to meet an annual renewable fuel obligation for

four categories of renewable fuel. Obligated parties calculate

their annual compliance obligations using percentage standards

set by EPA. The percentage standards, in turn, are based on

volume requirements, also set by EPA. The volume

requirements represent the total volume of renewable fuel that

must be introduced into the Nation’s transportation fuel supply

in a given year.

In the Renewable Fuel Program, Congress provided

statutory tables setting annual volume requirements for four

categories of renewable fuel. The statutory tables for three

categories – cellulosic biofuel, advanced biofuel, and total

renewable fuel – provide volume requirements through the year

2022. See 42 U.S.C. § 7545(o)(2)(B)(i)(I)-(III). The statutory

table for biomass-based diesel, in contrast, provides volume

requirements only through the year 2012. Id.

§ 7545(o)(2)(B)(i)(IV). For subsequent years, the statute sets

a baseline volume requirement at one billion gallons. See id.

§ 7545(o)(2)(B)(v). The statute vests EPA with the

responsibility to promulgate an annual volume requirement

over and above that baseline. In making that determination,

EPA must consider a number of statutory factors. See id.

§ 7545(o)(2)(B)(ii).

44

EPA must meet two different statutory deadlines when

promulgating volume requirements and percentage standards.

First, EPA must promulgate all renewable fuel percentage

standards for a given year by November 30 of the preceding

year. Id. § 7545(o)(3)(B)(i). Second, EPA must promulgate

the volume requirements for those years not covered by the

statutory tables “no later than 14 months before the first year”

for which such volume requirements will apply. Id.

§ 7545(o)(2)(B)(ii).

As it relates to the challenges in this section, EPA therefore

faced the following deadlines for the volume requirements and

percentage standards set in the Final Rule: (i) EPA was

required to promulgate the percentage standards (and

associated volume requirements) for cellulosic biofuel,

advanced biofuel, and total renewable fuel for the year 2014 by

November 30, 2013, and for the year 2015 by November 30,

2014; and (ii) EPA was required to promulgate the volume

requirements for biomass-based diesel by October 2012 for

year 2014; October 2013 for year 2015; and so on.

EPA issued the Final Rule in December 2015. Therefore,

as relevant here, EPA failed to meet the statutory deadlines for

all of the 2014 and 2015 percentage standards and also missed

the statutory deadlines for the biomass-based diesel volume

requirements for the years 2014 through 2017. See Final Rule,

80 Fed. Reg. at 77,430.

Despite its delay, EPA stated that it was issuing percentage

standards for the years 2014 and 2015 and biomass-based

diesel volume requirements for the years 2014 through 2017.

EPA stated that it had authority to issue the late standards and

requirements under this Court’s precedents in National

Petrochemical & Refiners Association v. EPA, 630 F.3d 145

45

(D.C. Cir. 2010), and Monroe Energy, LLC v. EPA, 750 F.3d

909 (D.C. Cir. 2014). According to EPA, those decisions

authorize EPA to issue late renewable fuel standards with

retroactive effect so long as EPA reasonably mitigates any

burdens that its lateness imposes on obligated parties. See

Final Rule, 80 Fed. Reg. at 77,430.

In the Final Rule, EPA explained the steps it had taken to

mitigate any burdens imposed by the late issuance of the Final

Rule. See id. at 77,430-31, 77,491-92. In particular, EPA set

the volume requirements (and associated percentage standards)

for all fuel types for the years 2014 and 2015 based on the

volumes of renewable fuel that were actually introduced and

available for compliance during those years. See id. at 77,440.6

EPA asserted that its approach meant that there would be “an

adequate quantity of RINs available to satisfy” the 2014 and

2015 requirements and thus would prevent the Final Rule from

imposing an “unreasonable burden” on obligated parties. Id. at

77,430, 77,431; see also id. at 77,446-47. With respect to the

late biomass-based diesel requirements, EPA concluded that

obligated parties had adequate notice of their obligations and

would have sufficient time to acquire the necessary RINs to

comply with their obligations. See id. at 77,491; see also EPA

Br. 103.

Two sets of parties now challenge EPA’s analysis. First,

National Biodiesel Board and Americans for Clean Energy

6

To determine the actual volumes of renewable fuel that were

introduced and available for compliance during 2014 and the

relevant months of 2015, EPA looked to the “net” number of

renewable fuel RINs generated during those years. The “net”

number of renewable fuel RINs equals the total number of renewable

fuel RINs generated “minus RINs retired for non-compliance reasons

such as exports of renewable fuel or spills.” Final Rule, 80 Fed. Reg.

at 77,440; see also id. at 77,447-48.

46

argue that EPA erred by citing its delay as a reason to set the

2014 and 2015 volume requirements lower than the statutory

volume requirements. Second, the Obligated Party Petitioners

argue that EPA lacked authority to issue the late biomass-based

diesel volume requirements for the years 2014 through 2017.

We now address, and ultimately reject, each of those

arguments.

B

EPA relied on its lateness in issuing the 2014 and 2015

renewable fuel requirements as a reason to set those

requirements based on the actual volumes of renewable fuel

that were introduced and available for compliance during those

years. National Biodiesel Board and Americans for Clean

Energy say that was impermissible. Based on our precedents,

we reject their challenge.

In National Petrochemical & Refiners Association v. EPA,

630 F.3d 145 (D.C. Cir. 2010), this Court held that EPA has

statutory authority to issue late renewable fuel requirements,

even when they have retroactive effects. See id. at 154-58.

EPA’s authority to issue late renewable fuel requirements is not

unlimited, however. Rather, we specified in National

Petrochemical that EPA must exercise its authority reasonably

by considering the “benefits and the burdens attendant to its

approach” of issuing late renewable fuel requirements. Id. at

166. Applying that standard, we concluded that EPA’s

issuance of a late volume requirement with retroactive effects

was reasonable. That was so because EPA considered, among

other things, whether obligated parties had adequate lead time

and access to a sufficient number of RINs to comply with the

delayed requirement. Id. at 165.

47

We followed the same approach a few years later in

Monroe Energy, LLC v. EPA, 750 F.3d 909 (D.C. Cir. 2014).

In that case, we concluded that EPA’s decision to issue late

renewable fuel standards was reasonable because EPA

“considered various ways to minimize the hardship caused to

obligated parties” by its delay and chose to extend the

compliance deadline. Id. at 920.

National Petrochemical and Monroe Energy together

establish that EPA may promulgate late renewable fuel

requirements – and even apply those standards retroactively –

so long as EPA reasonably considers and mitigates any

hardship caused to obligated parties by reason of the lateness.

According to National Biodiesel Board and Americans for

Clean Energy, EPA erred by treating its lateness “as license” to

reduce the 2014 and 2015 statutory volume requirements to

reflect the actual volumes of renewable fuel that were

introduced and available for compliance during those years.

Americans for Clean Energy Br. 25; see also National

Biodiesel Board Br. 16. That argument, however, overlooks

the fact that 2014 and most of 2015 had already passed by the

time EPA issued the Final Rule. Although EPA determined

that it was duty-bound to issue volume requirements and

percentage standards for those years – even though they were

late – EPA also recognized its duty to consider and mitigate

any hardships caused to obligated parties by reason of its

lateness.

EPA took a number of steps to minimize the harm and

retroactive effects caused by its late issuance of the 2014 and

2015 standards. The most important of those steps was EPA’s

choice to set the volume requirements for the years 2014 and

2015 based on the actual volumes of renewable fuel that were

introduced and available for compliance. By setting the 2014

48

and 2015 standards based on actual renewable fuel volumes –

as measured by the number of RINs that were both generated

and available for compliance during those years – EPA ensured

that there would be a sufficient supply of RINs available to

allow obligated parties to satisfy the requirements. Final Rule,

80 Fed. Reg. at 77,430; see also id. at 77,439-40. EPA

explained that setting the standards based on the statutory

volume requirements would be an “unreasonable approach”

because it would “require either noncompliance” on the part of

obligated parties or create dysfunction in the renewable fuel

market. See id. at 77,439.

Therefore, contrary to the contention advanced by

National Biodiesel Board and Americans for Clean Energy,

this is not a simple case of EPA using its delay as an excuse to

shirk its statutory duties. EPA’s decision regarding the 2014

and 2015 volume requirements instead reflects the fact that

EPA was bound by our precedents (not to mention basic

principles of due process) to mitigate the hardships to obligated

parties caused by late promulgation and retroactive application

of the 2014 and 2015 standards. In a perfect world, agencies

such as EPA would never miss their deadlines. But once they

have, our precedents in this area require that EPA reasonably

balance its statutory duties with the rights of the entities it

regulates.7

7

National Biodiesel Board counters that, even if EPA were

authorized to set the 2014 and 2015 volume requirements based on

actual fuel volumes generated during those years, EPA improperly

focused on the volumes of fuel that were “available for compliance.”

National Biodiesel Board Br. 18. National Biodiesel Board argues

that EPA should have set the volume requirements based on “gross”

RIN generation – that is, the total number of renewable fuel RINs

generated without subtracting any RINs that were exported or put to

non-qualifying uses. Id. We do not agree. As EPA explained, its

approach to setting the late 2014 and 2015 volume requirements

49

In conclusion, EPA’s decision to set the late 2014 and

2015 volume requirements based on the actual volumes of fuel

introduced and available for compliance during those years was

reasonable in light of EPA’s duty to mitigate any effects of its

delay on obligated parties.

C

We next consider whether EPA permissibly issued the

biomass-based diesel volume requirements for the years 2014

through 2017. Answering that question requires us to

determine (i) whether EPA had statutory authority to issue late

biomass-based diesel volume requirements and (ii) if so,

whether EPA exercised that authority reasonably. Contrary to

the arguments of the Obligated Party Petitioners, the answer to

both of those questions is yes.

1

In the December 2015 Final Rule, EPA promulgated the

biomass-based diesel volume requirements for the years 2014

through 2017. The statutory volume tables do not contain

volume requirements for biomass-based diesel after the year

2012. Rather, the biomass-based diesel table sets a minimum

ensures that obligated parties will be able to meet those requirements

by buying and selling RINs. That method of compliance would not

be available under National Biodiesel Board’s proposed approach,

which would set the volume requirements at levels higher than the

number of RINs available in the market. National Biodiesel Board’s

approach of using gross RIN generation to set the 2014 and 2015

volume requirements therefore suffers from the same problem as

using the statutory volume requirements – it would require

noncompliance or create dysfunction in the renewable fuel market.

See Final Rule, 80 Fed. Reg. at 77,439-40, 77,445.

50

volume requirement at one billion gallons. See 42 U.S.C.

§ 7545(o)(2)(B)(v). For each year following 2012, EPA must

determine the biomass-based diesel volume requirement in the

first instance after considering a number of statutory factors.

See id. § 7545(o)(2)(B)(ii). EPA promulgated the following

biomass-based diesel requirements in the Final Rule: 1.63

billion gallons (year 2014); 1.73 billion gallons (year 2015);

1.90 billion gallons (year 2016); and 2.0 billion gallons (year

2017). See Final Rule, 80 Fed. Reg. at 77,422 tbl.I-1.

By statute, EPA must promulgate volume requirements for

years not covered by the statutory volume tables “no later than

14 months before the first year” for which the volume

requirement will apply. 42 U.S.C. § 7545(o)(2)(B)(ii). EPA

did not promulgate the Final Rule until December 2015. It

therefore missed the statutory deadlines for promulgating the

biomass-based diesel volume requirements.

Notwithstanding those missed deadlines, EPA argues that

it had authority to promulgate the biomass-based diesel

requirements under this Court’s decisions in National

Petrochemical and Monroe Energy. We agree with EPA.

As discussed in the previous section, this Court held in

National Petrochemical and again in Monroe Energy that

Congress authorized EPA to issue late renewable fuel volume

requirements under the Renewable Fuel Program. In reaching

that outcome, we looked first to the text of the statute. We

noted that Congress “did not state” in the statutory text “what

would happen if EPA failed to meet the statutory deadline for

promulgating” renewable fuel regulations. National

Petrochemical, 630 F.3d at 154. We explained that “where

there are less drastic remedies available for an agency’s failure

to meet a statutory deadline, courts should not assume

51

Congress intended for the agency to lose its power to act.” Id.

(citing Brock v. Pierce County, 476 U.S. 253, 260 (1986)).

Applying that principle, we concluded that it was “highly

unlikely” that Congress intended EPA’s delay to prevent EPA

from fulfilling its statutory mandate to “promulgate regulations

to ensure” that transportation fuel contains “at least the

applicable volume of renewable fuel, advanced biofuel,

cellulosic biofuel, and biomass-based diesel, determined in

accordance with subparagraph (B).” Id. at 153, 156 (emphasis

omitted) (quoting 42 U.S.C. § 7545(o)(2)(A)(i)). Declining to

endorse such a “drastic” and “incongruous result,” we instead

held that EPA may issue late volume requirements so long as

it acts reasonably in doing so. Id. at 157 (quoting Brock, 476

U.S. at 258); see also Monroe Energy, 750 F.3d at 920. Here

we confront that “same issue” – EPA’s authority to issue late

volume requirements under the Renewable Fuel Program.

LaShawn A. v. Barry, 87 F.3d 1389, 1393 (D.C. Cir. 1996) (en

banc) (emphasis omitted). Therefore, we are bound by stare

decisis to reach the “same result” – EPA may issue delayed

volume requirements so long as it acts reasonably in doing so.

Id. (emphasis omitted).

The Obligated Party Petitioners counter that National

Petrochemical and Monroe Energy do not control our analysis

of EPA’s authority to issue the delayed biomass-based diesel

volume requirements. They say that the industry parties in

those cases were on notice of their potential statutory

obligations before EPA issued the delayed volume

requirements. The Obligated Party Petitioners claim that the

notice provided by the statutory volume tables in National

Petrochemical and Monroe Energy was a pre-condition to the

Court’s conclusion that EPA had statutory authority to issue the

delayed volume requirements at issue in those cases. Because

such notice is lacking in this case, the Obligated Party

52

Petitioners contend that EPA had no authority to set the

biomass-based diesel requirements at levels above the statutory

floor of one billion gallons or, in the alternative, above the 2013

biomass-based diesel volume requirement of 1.28 billion

gallons.

That argument is not persuasive. The general rule that

National Petrochemical and Monroe Energy establish – that

EPA has authority to issue late renewable fuel volume

requirements – was based on the Court’s reading of the statute

and on congressional intent. Specifically, the Court pointed to:

(i) Congress’s failure to specify the consequences of EPA’s

failure to meet a statutory deadline; (ii) the principle that

“where there are less drastic remedies available for an agency’s

failure to meet a statutory deadline, courts should not assume

Congress intended for the agency to lose its power to act”;

(iii) EPA’s “statutory mandate” to “ensure” that the annual

volume requirements are met; and (iv) the notion that it would

be “drastic” and “incongruous” to preclude EPA from fulfilling

that “statutory mandate” based on its delay. National

Petrochemical, 630 F.3d at 154, 157; Monroe Energy, 750 F.3d

at 920. Each of those rationales applies when it comes to

EPA’s duty to promulgate biomass-based diesel volume

requirements.

Applying the analysis set forth in National Petrochemical

and Monroe Energy, we therefore conclude that EPA had

statutory authority to issue the late biomass-based diesel

volume requirements for the years 2014 through 2017.

2

Having determined that EPA had statutory authority to

issue the delayed biomass-based diesel volume requirements,

we must also examine whether EPA exercised its authority “in

53

a reasonable manner.” Monroe Energy, 750 F.3d at 920.

Answering that question requires us to decide whether EPA

adequately “considered various ways to minimize the hardship

caused to obligated parties” by virtue of EPA’s delay. Id.; see

also National Petrochemical, 630 F.3d at 166 (EPA must

consider and balance any “burdens attendant to its approach”

of issuing delayed renewable fuel requirements). We conclude

that EPA passed that test when promulgating the biomass-

based diesel volume requirements.

EPA’s approach – and therefore our analysis of the

question – differs with respect to the 2016 and 2017 volume

requirements, which applied only prospectively, and the 2014

and 2015 requirements, which did have retroactive effects. We

address each set of requirements in turn.

First, we consider EPA’s decision to promulgate late

biomass-based diesel requirements for the years 2016 and

2017. Because those requirements were issued before the start

of 2016, they did not impose any retroactive compliance

burdens on obligated parties. Although conceding that point,

the Obligated Party Petitioners nonetheless argue that EPA’s

delay burdened obligated parties by leaving them without

sufficient notice to plan for and meet the 2016 and 2017 volume

requirements. Given that hardship, the Obligated Party

Petitioners contend that EPA must set the 2016 and 2017

volume requirements at the one billion gallon statutory

minimum or, alternatively, the 1.28 billion gallon volume

requirement applicable to 2013.

We do not agree. EPA’s June 2015 proposed rule would

have set the 2016 and 2017 biomass-based diesel volume

requirements at 1.8 billion and 1.9 billion gallons, respectively.

See Renewable Fuel Standard Program: Standards for 2014,

2015, and 2016 and Biomass-Based Diesel Volume for 2017,

54

80 Fed. Reg. 33,100, 33,105 tbl.I.A-3 & n.13 (June 10, 2015).

Therefore, contrary to the Obligated Party Petitioners’

contentions, obligated parties had many months’ notice of

EPA’s intent to issue volume requirements much higher than

either the statute’s one billion gallon minimum volume

requirement or the 1.28 billion gallon volume requirement

applicable in 2013. See Final Rule, 80 Fed. Reg. at 77,491.

True, the proposed volume requirements were each 100 million

gallons less than the final 2016 and 2017 biomass-based diesel

volume requirements. But as EPA explained, even the late

Final Rule left obligated parties with 15 months to acquire the

necessary RINs to comply with the 2016 requirements. See id.

In 2017, the delay had even less effect: The Final Rule was

issued more than 13 months before the 2017 compliance year

even began. Given the industry’s notice of EPA’s intent to

issue volume requirements greater than the statutory minimum

and the significant amount of time obligated parties had to

comply with the 2016 and 2017 requirements, the Obligated

Party Petitioners have failed to demonstrate how EPA’s delay

meaningfully affected their ability to satisfy the biomass-based

diesel obligations. We therefore conclude that EPA reasonably

exercised its authority when issuing the delayed biomass-based

diesel volume requirements for 2016 and 2017.

Second, we consider EPA’s decision to promulgate late

biomass-based diesel requirements for the years 2014 and

2015. Those requirements, unlike the 2016 and 2017

requirements, do have retroactive effects. But in the Final

Rule, EPA “acknowledged” that fact and reasonably

considered “ways to minimize the hardship” associated with

the delayed and retroactive standards. Monroe Energy, 750

F.3d at 920. Most importantly for present purposes, EPA

avoided placing an unreasonable burden on obligated parties

by setting the 2014 and 2015 requirements based on the actual

volumes of biomass-based diesel available in those years. EPA

55

noted that setting the volume requirements at higher volumes

than those actually available would be an “unreasonable

approach” in part because it might require “noncompliance” on

the part of obligated parties. Final Rule, 80 Fed. Reg. at

77,439. By contrast, EPA’s choice to use actual fuel volumes

to set the 2014 and 2015 volume requirements ensured that

there would “be an adequate quantity of RINs available to

satisfy those portions of the final requirements.” Id. at 77,430;

see also id. at 77,446-47. Indeed, given that obligated parties

had been “acquiring RINs since the beginning of 2014 in

anticipation of the final volume requirements and standards,”

EPA noted that some obligated parties likely were already in

compliance with the 2014 and 2015 biomass-based diesel

standards. Id. at 77,430.

The Obligated Party Petitioners counter that the fact that

some obligated parties may find themselves already in

compliance with the 2014 and 2015 biomass-based diesel

standards does not mean that all obligated parties would be in

compliance. Applying the requirements to the parties who had

not acquired enough RINs to meet the 2014 and 2015

requirements, according to the Obligated Party Petitioners,

results in impermissibly retroactive compliance burdens.

In the Final Rule, EPA gave a number of responses to that

objection, however. First, EPA stated that parties who need to

“adjust the types” of RINs they own will be able to do so. Id.

at 77,491; see also id. at 77,446-47. Those parties “will be able

to sell” their non-biomass-based diesel advanced biofuel RINs

“for a nearly identical price” as the biomass-based diesel RINs

that they will need to purchase. Id. at 77,491. Second, to allow

obligated parties “additional time” to acquire the biomass-

based diesel RINs needed for compliance, EPA provided “very

extensive extensions of the normal compliance demonstration

deadlines.” Id. at 77,447, 77,491; cf. Monroe Energy, 750 F.3d

56

at 920-21. Third, to the extent that any obligated party could

not acquire a sufficient number of biomass-based diesel RINs

to comply with the requirements, EPA noted that the obligated

party had “two additional compliance flexibility options.”

Final Rule, 80 Fed. Reg. at 77,491. Specifically, EPA pointed

out that those parties could (i) utilize carryover biomass-based

diesel RINs to meet their compliance obligation or (ii) take

advantage of the “carry-forward deficit provision” of the

Renewable Fuel Program “to carry forward the deficit for one

year on the condition that it be met the following year.” Id. at

77,492; see also id. at 77,447, 77,491.

EPA’s analysis in the Final Rule reveals that EPA

“considered various ways to minimize the hardship caused to

obligated parties” by the delayed issuance of the 2014 and 2015

biomass-based diesel volume requirements. Monroe Energy,

750 F.3d at 920. Under our precedents, the Final Rule reflects

EPA’s reasonable use of its authority to issue delayed

Renewable Fuel Program volume requirements.

In short, based on our precedents, we conclude that EPA

had statutory authority to issue the late biomass-based diesel

standards and exercised that authority reasonably.

IV

We now address the Obligated Party Petitioners’ challenge

to EPA’s projection of cellulosic biofuel production for the

year 2016. The Obligated Party Petitioners assert that EPA’s

projection methodology is arbitrary and capricious in a variety

of ways. We reject those arguments.

57

A

Before examining the merits of the Obligated Party

Petitioners’ challenge, it is helpful to have a bit of background

on: the cellulosic biofuel market; the statutory provisions and

precedents governing EPA’s duties when making cellulosic

biofuel projections; and the projection methodology that EPA

employed in the Final Rule.

1

In 2007, Congress amended the Renewable Fuel Program

to include volume requirements for cellulosic biofuel.

Cellulosic biofuel is a kind of advanced biofuel. It is derived

from sources of cellulose, such as switchgrass and agricultural

wastes, as well as from biogas from landfills, municipal waste-

water treatment facilities, agricultural digesters, and separated

municipal solid waste digesters. Cellulosic biofuel is the

“greenest” form of renewable fuel mandated by the Renewable

Fuel Program: It must have greenhouse gas emissions that “are

at least 60 percent less than” the greenhouse gas emissions of

conventional gasoline or diesel fuel, as determined by EPA. 42

U.S.C. § 7545(o)(1)(E); see also id. § 7545(o)(1)(C); 40 C.F.R.

§ 80.1426 tbl.1. At the time the cellulosic biofuel requirements

were introduced by Congress in 2007, “there was no

commercial-scale production” of cellulosic biofuel “at all.”

American Petroleum Institute v. EPA, 706 F.3d 474, 476 (D.C.

Cir. 2013). In light of the “technological challenges”

associated with the generation of cellulosic biofuel, the statute

directs EPA to follow distinct procedures when setting

cellulosic biofuel standards. Id.

When setting the annual percentage standards for

cellulosic biofuel, EPA must first calculate a “projected

volume of cellulosic biofuel production” for the relevant

58

calendar year. 42 U.S.C. § 7545(o)(7)(D)(i). Those

projections must be “based on” the Energy Information

Administration’s estimate of the volume of “cellulosic biofuel

projected to be sold or introduced into commerce in the United

States.” Id. § 7545(o)(7)(D)(i), (3)(A). If EPA’s projected

volume of cellulosic biofuel falls short of the statutory volume

requirement, then EPA “shall reduce the applicable volume of

cellulosic biofuel required . . . to the projected volume

available during that calendar year.” Id. § 7545(o)(7)(D)(i).

2

In the Final Rule, EPA projected the amount of cellulosic

biofuel likely to be produced in 2016. (EPA did not need to

make projections for 2014 and 2015 because EPA set volume

requirements for those years based on the actual volumes of

renewable fuel that were introduced during those years.) In

making projections for 2016, EPA factored in significant

changes that had occurred in the development and EPA’s

regulation of the cellulosic biofuel market in 2014.

Until 2014, there was only one type of biofuel that

qualified as “cellulosic biofuel” under the Renewable Fuel

Program: liquid cellulosic biofuel, “an advanced biofuel

derived from sources of lignocellulose such as switchgrass and

agricultural wastes” such as corn stalks. American Petroleum

Institute, 706 F.3d at 476. As previously discussed, when

Congress amended the Renewable Fuel Program to include a

cellulosic biofuel requirement, no company had the

technological capacity to produce liquid cellulosic biofuel on a

commercial scale. Indeed, as of late 2013, there were few

companies in the country that had the potential to consistently

produce any volumes of cellulosic biofuel.

59

In 2014, however, EPA promulgated a rule under which

certain types of liquefied and compressed natural gas – we will

refer to both types as “biogas” for simplicity’s sake – could

qualify as cellulosic biofuels for purposes of the Renewable

Fuel Program’s requirements. See Regulation of Fuels and

Fuel Additives: RFS Pathways II, and Technical Amendments

to the RFS Standards and E15 Misfueling Mitigation

Requirements, 79 Fed. Reg. 42,128, 42,137 (July 18, 2014);

see also Final Rule, 80 Fed. Reg. at 77,499. The technology

for producing biogas was, and remains, much more widespread

than the technology for producing liquid cellulosic biofuel. See

Final Rule, 80 Fed. Reg. at 77,505-06. Indeed, in the Final

Rule, EPA projected that biogas would make up around 90

percent of the cellulosic biofuel market in 2016. See id. at

77,501. In addition, the production of liquid cellulosic biofuel

increased substantially in 2014 with the opening of new

commercial-scale liquid cellulosic biofuel production

facilities. For those reasons, the amount of cellulosic biofuel

available to meet the Renewable Fuel Program standards has

substantially increased since late 2014.

EPA’s approach to projecting the 2016 cellulosic biofuel

production levels reflects those recent changes to the cellulosic

biofuel market. As required by statute, EPA first looked to the

Energy Information Administration’s 2016 cellulosic biofuel

estimates. But for two reasons, EPA concluded that those

estimates were incomplete. First, although the estimates

included projections for liquid cellulosic biofuel, they did not

include any projections for biogas. See id. at 77,501. That was

a problem because, as just noted, biogas would make up the

dominant percentage of the cellulosic biofuel market in 2016.

Second, the Energy Information Administration’s estimates did

not include data from certain cellulosic biofuel production

plants that EPA independently determined to be potential

sources of cellulosic biofuels in 2016. Compare id. at 77,501

60

tbl.IV.B.3, with id. at 77,501 tbl.IV.C-1. Given those

omissions, EPA was largely on its own when projecting the

amount of cellulosic biofuel likely to be produced in 2016.

EPA’s 2016 projection methodology followed a number of

steps, as described below. At the end of those steps, EPA had

calculated a total volume projection for each of the two main

categories of cellulosic biofuel: liquid cellulosic biofuel and

biogas. EPA then added those two volume amounts together

to generate a single cellulosic biofuel volume projection for the

year 2016.

First, EPA determined which renewable fuel production

plants had the potential to produce “commercial scale

volumes” of cellulosic biofuel in 2016. Id. at 77,499; see also

id. at 77,501 tbl.IV.B.3 (listing projected producers of

cellulosic biofuel). EPA considered both domestic and foreign

producers of cellulosic biofuel. See id. at 77,500; see also

Cellulosic Biofuel Producer Company Descriptions,

Memorandum from Dallas Burkholder to EPA Air and

Radiation Docket EPA-HQ-OAR-2015-0111 (Nov. 2015), J.A.

814.

Second, EPA divided those producers into four groups:

(i) liquid cellulosic biofuel producers that have not achieved

consistent commercial production; (ii) liquid cellulosic biofuel

producers that have achieved consistent commercial

production; (iii) biogas producers that have not achieved

consistent commercial production; and (iv) biogas producers

that have achieved consistent commercial production. See

Final Rule, 80 Fed. Reg. at 77,505; id. at 77,508 tbl.IV.F-4.

Third, EPA calculated a range of likely production from

each individual cellulosic biofuel producer. See id. at 77,503.

EPA set the low end of each producer’s range “based on the

61

volume of RIN-generating cellulosic biofuel the company has

produced in the most recent 12 months for which data is

available.” Id. To arrive at the high end of each producer’s

range, EPA “considered a variety of factors,” including “the

expected start-up date and ramp-up period” as well as “facility

capacity.” Id. EPA used those factors to calculate a high-end

production volume based on an “optimistic ramp-up scenario”

of six months. Id. EPA then compared its high-end volume

estimates to any volume projections provided by the producers

or industry associations. If the high-end volume projections

were different, EPA used the lesser of the two volume

projections. Id. at 77,504.

Fourth, after EPA had individual ranges for each producer,

it then aggregated the ranges of the producers by category.

That is, for each of the four categories of producers, EPA

generated a single range of likely cellulosic biofuel production.

See id. at 77,508 tbl.IV.F-1 to tbl.IV.F-4. EPA stated that its

approach of generating a range for each category helped

minimize any potential skewing effect caused by an over- or

under-estimation of a single company’s range. Id. at 77,505-

06.

Fifth and finally, EPA chose a specific volume projection

from within each aggregated production range. EPA did so

through use of what it called a “percentile” method.8 Under

that approach, EPA chose a number from within each

production range that reflected the fact that less-proven

producers were less likely to produce cellulosic biofuel at the

high end of their ranges, while the more proven producers were

8

Although EPA refers to its approach as the “percentile”

method, EPA did not utilize “percentiles” as that term is typically

understood. We nonetheless retain EPA’s terminology for ease of

reference.

62

more likely to do so. Id. at 77,506 & tbl.IV.E-5. In particular,

EPA chose specific volumes from within each volume range as

follows: (i) for liquid cellulosic biofuel producers without

consistent commercial production, EPA chose the value that

was the one-quarter point between the low end and high end of

the range; (ii) for liquid cellulosic biofuel producers with

consistent commercial production, EPA chose the value that

was the midpoint between the low end and high end of the

range; (iii) for biogas producers without consistent commercial

production, EPA also chose the value that was the midpoint

between the low end and high end of the range; and (iv) for

biogas producers with consistent commercial production, EPA

chose the value that was the three-quarter point between the

low end and high end of the range. Id.

An example helps illustrate EPA’s approach. Suppose that

for all four groups of producers, the aggregated ranges of

projected cellulosic biofuel production are zero to 10 million

gallons. Under EPA’s approach, the final projected volume

from each group would be: (i) 2.5 million gallons (25 percent

of 10 million) for liquid cellulosic biofuel producers without

consistent commercial production; (ii) five million gallons (50

percent of 10 million) for liquid cellulosic biofuel producers

with consistent commercial production; (iii) five million

gallons (again, 50 percent of 10 million) for biogas producers

without consistent commercial production; and (iv) 7.5 million

gallons (75 percent of 10 million) for biogas producers with

consistent commercial production. Adding those amounts

together, EPA’s final cellulosic biofuel projection in this

example would be 20 million gallons.

Using that methodology, EPA calculated projected

volumes for each group of producers for the year 2016: (i) 19

million gallons of liquid cellulosic biofuel from liquid

cellulosic biofuel producers that have not achieved consistent

63

commercial production; (ii) four million gallons of liquid

cellulosic biofuel from liquid cellulosic biofuel producers that

have achieved consistent commercial production; (iii) 32

million gallons of biogas from biogas producers that have not

achieved consistent commercial production; and (iv) 175

million gallons of biogas from biogas producers that have

achieved consistent commercial production. See id. at 77,508

tbl.IV.F-4. Adding those numbers together, EPA projected a

final total cellulosic biofuel volume of 230 million gallons – a

figure 4.02 billion gallons less than the statutory volume

requirement for 2016. Compare id., with id. at 77,499

tbl.IV.A-1. The statute was a bit optimistic, to put it

generously.

B

The Obligated Party Petitioners challenge EPA’s 2016

projections of both liquid cellulosic biofuel and biogas. They

argue that EPA’s projection methodology failed to take a

“neutral aim at accuracy” as required by this Court’s decision

in American Petroleum Institute, 706 F.3d at 476. They also

argue that certain aspects of EPA’s decisionmaking were

arbitrary and capricious.

We employ the deferential State Farm standard of review

when reviewing arguments based on allegedly arbitrary or

unreasoned agency action. See Motor Vehicle Manufacturers

Association of United States, Inc. v. State Farm Mutual

Automobile Insurance Co., 463 U.S. 29, 43 (1983). Under that

standard, EPA “must examine the relevant data and articulate

a satisfactory explanation for its action including a rational

connection between the facts found and the choice made.” Id.

(internal quotation marks omitted). In other words, the

“question is not what we would have done, nor whether we

agree with the agency action. Rather, the question is whether

64

the agency action was reasonable and reasonably explained.”

Jackson v. Mabus, 808 F.3d 933, 936 (D.C. Cir. 2015).

Applying that standard of review, we reject the Obligated Party

Petitioners’ challenges.

1

We first address the Obligated Party Petitioners’ challenge

to EPA’s liquid cellulosic biofuel projection for 2016. On that

score, the Obligated Party Petitioners’ central contention is that

EPA’s 2016 projection methodology fails to take a “neutral aim

at accuracy” as required by American Petroleum Institute, 706

F.3d at 476. The Obligated Party Petitioners also raise several

arbitrary and capricious challenges to EPA’s decisionmaking.

None of their arguments has merit.

First, the Obligated Party Petitioners advance an

overarching argument that EPA’s methodology fails to take a

“neutral aim at accuracy” as required by this Court’s decision

in American Petroleum Institute. See id. We do not agree. In

American Petroleum Institute, the Court evaluated an EPA

cellulosic biofuel projection methodology that erred on the side

of overestimation in order to “provide the appropriate

economic conditions for the cellulosic biofuel industry to

grow.” Id. at 478. The Court concluded that EPA’s projection

methodology was improper because it failed to take a “neutral

aim at accuracy.” Id. at 476. Instead, EPA issued projections

with a “special tilt” toward promoting cellulosic biofuel

growth. Id. at 478. Therefore, American Petroleum Institute’s

requirement that EPA take “neutral aim at accuracy” has a

distinct meaning: It prevents EPA from using a projection

methodology with a “special tilt” – that is, a methodology that

errs on the side of “overestimation” – in order to promote

growth in the cellulosic biofuel industry. Id. at 476, 478, 479.

65

Here, by contrast to American Petroleum Institute, EPA’s

methodology does not reflect a “non-neutral purpose” to favor

(or disfavor) growth in the cellulosic biofuel industry. Id. at

478. Instead, the Obligated Party Petitioners argue that

particular components of EPA’s methodology, and thus EPA’s

final projections, are flawed. But those arguments are garden-

variety arbitrary and capricious challenges directed at EPA’s

“technocratic exercise of agency discretion.” Id. at 477. They

do not demonstrate that EPA has violated its duty to take a

“neutral aim at accuracy,” at least as that duty was articulated

by this Court in American Petroleum Institute. Id. at 476.

Second, the Obligated Party Petitioners argue that EPA’s

decision to use the 2016 liquid cellulosic biofuel projection

methodology was arbitrary and capricious because EPA’s prior

projections significantly overestimated the production of liquid

cellulosic biofuel. Citing American Petroleum Institute, the

Obligated Party Petitioners contend that EPA’s continued use

of a methodology that has failed to produce accurate

projections was arbitrary and capricious. See id. at 477 (“a

methodology used for prediction” can “look more arbitrary the

longer it is applied” unsuccessfully) (emphasis omitted). That

argument, however, is grounded on an incorrect premise:

EPA’s 2016 projection methodology has not been applied in

the past. Rather, the majority of EPA’s prior overestimations

occurred following EPA’s use of the methodology rejected in

American Petroleum Institute – that is, one that systematically

erred on the side of overestimation. See id. at 478. Nor does

EPA’s methodology track the 2014 cellulosic biofuel

projection methodology originally proposed in the withdrawn

2014 rule (a methodology that the Obligated Party Petitioners

contend resulted in overestimation of cellulosic biofuel

production for the year 2014). Compare Final Rule, 80 Fed.

Reg. at 77,499-508, with 2014 Standards for the Renewable

Fuel Standard Program, 78 Fed. Reg. 71,732, 71,746 (Nov. 29,

66

2013); see also Tr. of Oral Arg. at 115. Therefore, contrary to

the Obligated Party Petitioners’ contention, this is not a

situation in which EPA has arbitrarily refused to reconsider a

projection methodology that has proven unsuccessful in the

past.

Third, the Obligated Party Petitioners argue that EPA erred

by relying on liquid cellulosic biofuel producers’ own forecasts

of their start-up dates. The Obligated Party Petitioners note

that such facility-provided data has proved unreliable in the

past. Perhaps so. But EPA took that into account. Rather than

just blindly adopting the facilities’ own forecasts, EPA

performed its own investigation of each plant’s ability to

produce liquid cellulosic biofuel during the year 2016. See

Final Rule, 80 Fed. Reg. at 77,500-01; Cellulosic Biofuel

Producer Company Descriptions, Memorandum from Dallas

Burkholder to EPA Air and Radiation Docket EPA-HQ-OAR-

2015-0111 (Nov. 2015), J.A. 814; see also Final Rule, 80 Fed.

Reg. at 77,504 (past experience “strongly suggests that we

should view the individual company projections as something

other than the most likely outcomes”). Then, in recognition of

the challenges in the liquid cellulosic biofuel industry, EPA set

the volume requirement for new liquid cellulosic biofuel

producers with the assumption that the producers would

produce at the lower end of their aggregate volume range. See

Final Rule, 80 Fed. Reg. at 77,506 tbl.IV.E-5. In doing so, EPA

reasonably accounted for the uncertainty and unreliability

identified by the Obligated Party Petitioners.

Fourth, the Obligated Party Petitioners contend that EPA

erred by utilizing a six-month “ramp-up” period when

determining the companies’ production ranges. But EPA

supported its decision to use a six-month ramp-up period by

citing the example of a company that had recently “achieved

levels of production that met and in some cases exceeded the

67

nameplate capacity” for liquid cellulosic biofuels “within the

expected six month ramp-up period.” EPA Response to

Comments on Final Rule, at 557 (Nov. 2015), J.A. 1005. EPA

did not impose a six-month ramp-up period across the board,

moreover. EPA instead set that six-month ramp-up period as

an “optimistic” scenario that would determine the high end of

a producer’s volume range. Final Rule, 80 Fed. Reg. at 77,503.

More importantly, if a company gave a volume projection

lower than EPA’s high-end volume projection, EPA chose to

use the company’s projection as the high end of the range. Id.

at 77,504. Conversely, if the company’s volume projection

was higher than EPA’s high-end volume projection, EPA stuck

with its own projection as the high end of the range. Id. EPA’s

individualized approach to setting the “optimistic” production

volume scenarios was reasonable.

Fifth, the Obligated Party Petitioners assert that EPA

overstated the low end of the established liquid cellulosic

producers’ volume ranges by relying on data from the most

recent 12 months of those facilities’ operation. But EPA

explained that relying on prior data would provide EPA with

an “objective methodology for calculating the low end of the

potential production range for each company.” Id. at 77,503.

Although EPA acknowledged that an unforeseen technical

problem could prevent a producer from meeting the volume of

liquid cellulosic biofuel it produced in the prior year, EPA

concluded that it was reasonable to assume that a company’s

output would grow year-over-year as the company gained

experience. See id. Moreover, EPA left room for “exceptions”

to its reliance on prior years’ data for those cases in which

“available information indicates” that reliance on that data

would be improper. Id. EPA therefore fulfilled its duty to

articulate a “reasonable and reasonably explained” approach to

setting the low end of the production ranges. Communities for

68

a Better Environment v. EPA, 748 F.3d 333, 335 (D.C. Cir.

2014).

Sixth, the Obligated Party Petitioners argue that EPA failed

to provide a reasoned explanation for its “percentile”

methodology. That claim is off base. EPA explained the

details of its percentile approach, including its decision to

generate total volume ranges for each of the four groups of

cellulosic biofuel producers. See Final Rule, 80 Fed. Reg. at

77,502-07. EPA stated that its approach was appropriate in

light of the “uncertain and variable nature” of cellulosic biofuel

production. Id. at 77,503. In addition, EPA explained how it

chose the final volumes for each group of cellulosic biofuel

producers: It selected volumes based on the differing

“technology risk” and “challenges” faced by the types of

companies within each group. Id. at 77,506. EPA’s

explanation therefore articulates a “rational connection

between the facts found and the choice made” and is sufficient

for purposes of our deferential arbitrary and capricious review.

State Farm, 463 U.S. at 43.

Seventh, the Obligated Party Petitioners protest that EPA

failed to generate a projection “based on” the cellulosic biofuel

estimates provided by the Energy Information Administration.

42 U.S.C. § 7545(o)(3)(B)(i); see also American Petroleum

Institute, 706 F.3d at 478 (EPA must give sufficient “respect”

to Energy Information Administration estimates). As EPA

noted, however, its cellulosic biofuel projections were “very

similar” to those that were provided by the Energy Information

Administration when the scope of EPA’s projection was

limited to the companies assessed by the Energy Information

Administration. Final Rule, 80 Fed. Reg. at 77,501. EPA

explained that the majority of the difference between EPA’s

projections and the Energy Information Administration’s

estimates was attributable to the fact that EPA examined a

69

larger number of cellulosic biofuel producers. Id. Indeed, the

Energy Information Administration’s estimates did not contain

figures for compressed and liquefied natural gas production –

production that accounts for the vast majority of cellulosic

biofuel. Id. Given those considerations, we do not agree that

EPA failed to generate projections “based on” the Energy

Information Administration’s estimates.

To sum up, we conclude that EPA’s 2016 liquid cellulosic

biofuel projection took a “neutral aim at accuracy” and was

otherwise reasonable and reasonably explained for purposes of

arbitrary and capricious review. We therefore reject the

Obligated Party Petitioners’ challenges to EPA’s 2016 liquid

cellulosic biofuel projection.

2

The Obligated Party Petitioners also argue that EPA’s

2016 projection of biogas production was arbitrary and

capricious for three reasons. We again disagree.

First, the Obligated Party Petitioners claim that EPA’s

“percentile” methodology is inadequately explained. That

argument fails for the same reasons given in the previous

section. EPA adequately explained its methodology,

including: (i) EPA’s decision to divide cellulosic biofuel

producers into four groups; (ii) the way in which EPA

calculated total volume ranges for each group; and (iii) EPA’s

use of the mid-point and three-quarter-point approach when

calculating the volume requirement for each group of biogas

producers. See Final Rule, 80 Fed. Reg. at 77,504-06. In

addition, EPA reasonably explained that it chose to set the

volumes at the mid-point and three-quarter-point for each set

of producers based on data and comments it received as well as

the fact that many of the biogas producers had commercial

70

experience generating biogas and employed well-tested

technology. Id. EPA’s explanation is reasonable for purposes

of arbitrary and capricious review.

Second, the Obligated Party Petitioners argue that EPA’s

projections overlook the fact that many biogas producers are

incapable of producing the type of transportation-grade

cellulosic biofuel that is required to generate RINs and satisfy

the Renewable Fuel Program’s requirements. However, EPA

limited its analysis of biogas producers to those producers that

had the capacity to generate cellulosic biofuel RINs. See

November 2015 Assessment of Cellulosic Biofuel Production

from Biogas (2015-2016), Memorandum from Dallas

Burkholder to Air and Radiation Docket EPA-HQ-OAR-2015-

0111 (Nov. 2015), J.A. 821; see also Final Rule, 80 Fed. Reg.

at 77,501 n.205. So that challenge fails.

Third, the Obligated Party Petitioners take issue with

EPA’s reliance on a biogas estimate provided by the Coalition

for Renewable Natural Gas. But EPA noted that it did “not

think it would be appropriate to simply adopt” the Coalition’s

projections. EPA Response to Comments on Final Rule, at 569

(Nov. 2015), J.A. 1017. EPA instead reached its own

projections applying the reasonable projection methodology

discussed above. So that claim is likewise without merit.9

9

The Obligated Party Petitioners also ask this Court to remand

the cellulosic biofuel projections to EPA because EPA failed to

disclose critical information – namely, 2014 and 2015 production

data for the separate categories of liquid cellulosic biofuel and

biogas – when EPA promulgated the Final Rule. By statute, to

prevail on that type of a procedural argument, the Obligated Party

Petitioners must show that EPA’s alleged failure to disclose that data

was “so serious” that there is a “substantial likelihood that the rule

would have been significantly changed if” EPA had disclosed the

data. 42 U.S.C. § 7607(d)(8); see id. § 7607(d)(9)(D)(iii). The

71

We conclude that EPA’s biogas projection for 2016 was

reasonable and adequately explained. We therefore reject the

Obligated Party Petitioners’ arbitrary and capricious

challenges to that projection.

V

In this section, we consider National Biodiesel Board’s

challenge to EPA’s interpretation and use of its cellulosic

waiver authority to lower the advanced biofuel volume

requirements for the years 2014, 2015, and 2016. EPA

interpreted the cellulosic waiver provision as granting the

agency broad discretion to consider a variety of factors –

including demand-side constraints in the advanced biofuels

market – when determining whether to exercise its cellulosic

waiver authority. National Biodiesel Board argues that EPA’s

interpretation is contrary to the statute. National Biodiesel

Board also asserts that EPA’s calculation of the volume of

advanced biofuel likely to be available in 2016 was arbitrary

and capricious. Both arguments are without merit.

A

As explained in the previous section, Congress enacted a

number of provisions that EPA must follow when setting

cellulosic biofuel volume requirements under the Renewable

Fuel Program. EPA must first project the amount of cellulosic

biofuel likely to be produced in the relevant calendar year. See

42 U.S.C. § 7545(o)(7)(D)(i). If that EPA projection falls short

of the statutory volume requirement for cellulosic biofuel, then

Obligated Party Petitioners have failed to articulate how EPA’s

alleged error in omitting the 2014 and 2015 data satisfies that

heightened standard.

72

EPA “shall reduce” the cellulosic biofuel volume requirement

“to the projected volume available during that calendar year.”

Id.

EPA’s reduction of the cellulosic biofuel volume

requirement triggers its authority under the “cellulosic waiver

provision.” That provision states: “For any calendar year in

which” EPA reduces the cellulosic biofuel volume

requirement, EPA “may also reduce” the total renewable fuel

and advanced biofuel volume requirements “by the same or a

lesser volume.” Id. The cellulosic waiver provision reflects

the nested nature of the renewable fuel categories: Because

cellulosic biofuel is a subcategory of advanced biofuel, a

reduction to the cellulosic biofuel volume requirement leaves a

gap in the supply of advanced biofuel available to satisfy the

advanced biofuel volume requirement. See id.

§ 7545(o)(1)(B)(ii).

In the Final Rule, EPA determined that the cellulosic

biofuel levels would fall short of the statutory requirements for

the years 2014, 2015, and 2016. See Final Rule, 80 Fed. Reg.

at 77,422; see also Part IV, supra.10 As required by statute,

EPA reduced the cellulosic biofuel volume requirements for

those years. See Final Rule, 80 Fed. Reg. at 77,499.

Specifically, EPA reduced the statutory volume requirements

by 1.72 billion gallons for 2014; by 2.88 billion gallons for

2015; and by 4.02 billion gallons for 2016. See id. By statute,

EPA’s reduction of the cellulosic biofuel volume requirements

meant that the agency had discretion to reduce the volume

10

By the time EPA issued the Final Rule in December 2015, all

of 2014 and most of 2015 had passed. For that reason, EPA chose to

base its cellulosic biofuel “projections” for those years on the actual

number of cellulosic biofuel RINs generated. See Final Rule, 80 Fed.

Reg. at 77,439. We considered issues relating to EPA’s late issuance

of the Final Rule above in Part III.

73

requirements for advanced biofuel and total renewable fuel

using its cellulosic waiver authority.

EPA noted that it had “broad discretion” to determine

“when and under what circumstances” to use its cellulosic

waiver authority. Id. at 77,434 (citing Monroe Energy, LLC v.

EPA, 750 F.3d 909, 915 (D.C. Cir. 2014)). EPA stated,

however, that it would reduce the advanced and total renewable

fuel volume requirements through use of the cellulosic waiver

authority only if it had a “substantial justification” to do so. Id.

A “substantial justification” would exist, according to EPA, if

EPA determined that the reduction in cellulosic biofuel would

create a gap in the Nation’s supply of renewable fuel that could

not be filled with other (non-cellulosic) types of advanced

biofuel. Id. To make that determination, EPA stated that it

would consider a variety of factors, including supply-side

constraints on the production and import of advanced biofuels

as well as demand-side limitations on the ability of the market

to use advanced biofuel. See id.

In the Final Rule, EPA considered those supply-side and

demand-side factors. After doing so, EPA determined that

“constraints (including distribution and infrastructure

constraints) that limit the use of non-cellulosic advanced

biofuels” would prevent those fuels from completely filling the

gap created by the reduction in cellulosic biofuel. Id.

According to EPA, because the market could not support

consumption of the advanced biofuel volumes required by the

statute, setting the volumes at the statutory targets would only

lead to “noncompliance and/or additional petitions for a waiver

of the standards.” Id. at 77,442. EPA therefore decided to use

its cellulosic waiver authority “to reduce the advanced biofuel

applicable volume to a level” that the agency determined “to

be reasonably attainable” in the renewable fuel market. Id. at

77,434. Specifically, EPA reduced the statutory volume of

74

advanced biofuel by 1.08 billion gallons for 2014; by 2.62

billion gallons for 2015; and by 3.64 billion gallons for 2016.

Compare id. at 77,424 tbl.I.A-1, with id. at 77,432 tbl.II-1.

National Biodiesel Board challenges EPA’s interpretation

and use of its cellulosic waiver authority to reduce the

advanced biofuel requirements. National Biodiesel Board also

contends that EPA’s calculations of the supply of advanced

biofuel likely to be available in 2016 were arbitrary and

capricious. We now address, and reject, those arguments in

turn.11

B

We first consider National Biodiesel Board’s challenge to

EPA’s interpretation and use of its cellulosic waiver authority.

National Biodiesel Board argues that EPA’s interpretation –

under which EPA considered demand-side constraints in the

market for advanced biofuels when considering whether to

make reductions under the cellulosic waiver provision –

exceeds EPA’s statutory authority. We do not agree.

This Court previously considered the scope of the

cellulosic waiver provision in Monroe Energy, LLC v. EPA,

11

In “prior actions,” EPA interpreted the cellulosic waiver

provision “as authorizing EPA to reduce both total renewable fuel

and advanced biofuel, by the same amount, if EPA reduces the

volume of cellulosic biofuel.” Final Rule, 80 Fed. Reg. at 77,433.

EPA therefore reduced the volume requirements for total renewable

fuel by the same amounts as it reduced the volume requirements for

advanced biofuel. Id. at 77,434. National Biodiesel Board does not

challenge that facet of EPA’s interpretation of the cellulosic waiver

provision nor EPA’s reduction of the total renewable fuel volume

requirements. We therefore focus on EPA’s reduction of the

advanced biofuel statutory volume requirements.

75

750 F.3d 909 (D.C. Cir. 2014). The Court noted that, in

contrast to other EPA waiver authorities, the text of the

cellulosic waiver provision does not “prescribe any factors that

EPA must consider in making its decision” about whether to

use its cellulosic waiver authority. Id. at 915. Given “the

absence of any express or implied statutory directive to

consider particular factors,” the Monroe Energy Court said that

EPA “reasonably concluded that it enjoys broad discretion

regarding whether and in what circumstances to reduce the

advanced biofuel and total renewable fuel volumes under the

cellulosic biofuel waiver provision.” Id. Applying that

principle, the Court approved EPA’s decision to consider the

“ability of” advanced biofuels “to be consumed” in the market

when determining whether to exercise its cellulosic waiver

authority. Id. at 916.

Citing Monroe Energy, EPA asserts that its interpretation

of the cellulosic waiver provision – including EPA’s reading of

the provision as granting it authority to consider demand-side

constraints on the market for advanced biofuels – is permissible

under the statute.

National Biodiesel Board disagrees. It states that EPA’s

interpretation of the cellulosic waiver provision circumvents

the limits that Congress placed on EPA’s authority. According

to National Biodiesel Board, EPA’s discretion under the

cellulosic waiver provision is limited by the other waiver

provisions in the statute – including, as relevant here, the

“inadequate domestic supply” prong of EPA’s general waiver

provision. See 42 U.S.C. § 7545(o)(7)(A)(ii). Under National

Biodiesel Board’s reading of the cellulosic waiver provision,

EPA has the authority to reduce the advanced biofuel volume

requirements if – and only if – there is an inadequate supply of

advanced biofuel in the market to meet those statutory

volumes. National Biodiesel Board argues that EPA cannot

76

consider demand-side constraints on the ability of the market

to consume advanced biofuel because doing so would

contravene the limitations in EPA’s general waiver provision.

In our view, EPA has the better of the argument. The text

of the cellulosic waiver provision, the structure of the

Renewable Fuel Program, and this Court’s decision in Monroe

Energy all point in the same direction: The cellulosic waiver

provision grants EPA “broad discretion” to consider a variety

of factors – including constraints on the demand for advanced

biofuel – when determining “whether and in what

circumstances” to reduce the advanced biofuel volume

requirement. Monroe Energy, 750 F.3d at 915.

We start with the text of the cellulosic waiver provision.

That text places only one limitation on EPA’s cellulosic waiver

authority: Any reduction EPA makes to the advanced biofuel

or total renewable fuel volume requirements may not exceed

the amount of EPA’s reduction to the cellulosic biofuel volume

requirement. See 42 U.S.C. § 7545(o)(7)(D)(i). Beyond that,

the provision does not “prescribe any factors that EPA must

consider in making its decision” to lower the advanced biofuel

or total renewable fuel volume requirements. Monroe Energy,

750 F.3d at 915. Where, as here, “a statute is silent with respect

to all potentially relevant factors, it is eminently reasonable to

conclude that the silence is meant to convey nothing more than

a refusal to tie the agency’s hands.” Id. (quoting Catawba

County v. EPA, 571 F.3d 20, 37 (D.C. Cir. 2009)).

Structural considerations also support EPA’s reading of

the cellulosic waiver provision. As just discussed, the

cellulosic waiver provision does not contain “any express or

implied statutory directive to consider particular factors.” Id.

By contrast, other waiver provisions in nearby subsections of

the statute detail the considerations and procedural steps that

77

EPA must take before waiving fuel requirements. See, e.g., 42

U.S.C. § 7545(o)(7)(A) (EPA may lower total renewable fuel

volumes based on determination “after public notice and

opportunity for comment” (i) that requirements would

“severely harm the economy or environment of a State, a

region, or the United States” or (ii) that there is “inadequate

domestic supply” of renewable fuel); id. § 7545(o)(7)(E)(ii)

(EPA may lower biomass-based diesel requirements upon

determination “that there is a significant renewable feedstock

disruption or other market circumstances that would make the

price of biomass-based diesel fuel increase significantly”). In

addition, even though the cellulosic waiver provision cross-

references two other statutory provisions, it does not cross-

reference or otherwise incorporate by reference any limitations

on EPA’s waiver authority. See id. § 7545(o)(7)(D)(i). The

fact that Congress knew how to cabin EPA’s discretion or

reference other statutory provisions when it wanted to do so –

and did not pursue either of those “ready alternative[s]” in the

cellulosic waiver provision – further confirms that the

cellulosic waiver provision means what it says. Advocate

Health Care Network v. Stapleton, 137 S. Ct. 1652, 1659, slip

op. at 8 (2017).12

12

National Biodiesel Board counters with a structural argument

of its own. Positing that “Congress presumably intended” the

general waiver provision and cellulosic waiver provision “to

harmonize without specifically cross-referencing the two,” National

Biodiesel Board contends that EPA’s interpretation must be wrong

because it renders the “inadequate domestic supply” prong of the

general waiver provision superfluous. National Biodiesel Board

Reply 4. National Biodiesel Board is correct that our reading of the

cellulosic waiver provision allows EPA to reduce the advanced

biofuel or total renewable fuel volume requirements based on factors

it cannot consider for purposes of the “inadequate domestic supply”

provision. But that result follows from the fact that Congress chose

78

Our precedents accord with the text and structure of the

statute. Observing that the text of the cellulosic waiver

provision does not direct EPA to “consider particular factors,”

the Monroe Energy Court held that EPA enjoys broad

discretion regarding “whether and in what circumstances to

reduce the advanced biofuel and total renewable fuel volumes”

under the cellulosic waiver provision. 750 F.3d at 915.

Applying that interpretation, the Court approved EPA’s

decision to consider “the ability of” advanced biofuels “to be

consumed” for purposes of determining whether to exercise the

cellulosic waiver authority. Id. at 916; see also id. (EPA

permissibly considered “the constraints imposed by the E10

blendwall” when deciding whether to use cellulosic waiver

authority). That same reasoning controls here: EPA had

discretion to consider “a range of factors” in determining

whether to exercise its cellulosic waiver authority, including

demand-side constraints that affect “the ability” of advanced

biofuels “to be consumed.” Id.

National Biodiesel Board attempts to distinguish Monroe

Energy on the basis that EPA in that case declined to use its

cellulosic waiver authority. National Biodiesel Board points

out that courts generally give more deference to an agency’s

failure to act than to an agency’s decision to act, and that

Monroe Energy should be read in light of that principle. See

Tr. of Oral Arg. at 31 (citing Heckler v. Chaney, 470 U.S. 821

(1985)). According to National Biodiesel Board, this Court

should adopt a different rule for cases in which EPA chooses

to make reductions under the cellulosic waiver provision.

to grant EPA two textually distinct waiver authorities that operate in

different scenarios pursuant to different limitations.

79

We are not persuaded. Nothing in the Monroe Energy

Court’s discussion of the cellulosic waiver provision turned on

the fact that EPA was declining to exercise its authority in that

case. Rather, the Court relied on the text of the cellulosic

waiver provision itself, which grants EPA “broad discretion

regarding whether and in what circumstances to reduce the

advanced biofuel and total renewable fuel volumes under the

cellulosic biofuel waiver provision.” Monroe Energy, 750 F.3d

at 915 (emphasis added). Neither the text of the cellulosic

waiver provision – nor the Monroe Energy Court’s

interpretation of that text – supports the position that EPA’s

cellulosic waiver authority is narrower when EPA actually

wants to use it.

National Biodiesel Board’s argument boils down to the

contention that “any result consistent with” its “account of the

statute’s overarching goal must be the law.” Henson v.

Santander Consumer USA Inc., 137 S. Ct. 1718, 1725, slip op.

at 9 (2017). We take a different approach, instead presuming

that “the legislature says what it means and means what it

says.” Id., slip op. at 10 (internal quotation mark and

alterations omitted). Applying the cellulosic waiver provision

that Congress chose to enact, we conclude that EPA’s decision

to lower the advanced biofuel volumes for the years 2014,

2015, and 2016 was within the agency’s discretion and

otherwise lawful.13

13

National Biodiesel Board also contends that EPA erred

because it determined the amount of advanced biofuel available in

the market only after determining the appropriate requirements for

total renewable fuel. That is not accurate. EPA explained that its

“assessment of the use of the cellulosic waiver authority alone

focused on a case in which advanced biofuel and total renewable fuel

are both reduced only to the degree necessary to yield an appropriate

volume of advanced biofuel.” Final Rule, 80 Fed. Reg. at 77,443.

Based on an analysis of the projected production and import of

80

C

On the way to determining whether to use its cellulosic

waiver authority, EPA calculated the volume of advanced

biofuel that was “reasonably attainable” in the market in 2016.

Final Rule, 80 Fed. Reg. at 77,476. EPA did so by taking into

account supply-side and demand-side constraints in the

markets for different types of advanced biofuel, including

(i) advanced ethanol, the largest source of which is sugarcane

ethanol from Brazil, and (ii) advanced biodiesel and renewable

diesel. National Biodiesel Board raises three arbitrary and

capricious challenges to EPA’s calculation of the volume of

advanced biofuel “reasonably attainable” in the market in

2016. National Biodiesel Board argues that: (i) EPA failed to

articulate a clear standard for setting advanced biofuel

volumes; (ii) EPA provided no support for its assessment of

projected imports of sugarcane ethanol from Brazil; and

(iii) EPA did not address data showing that biomass-based

diesel was available in greater volumes than EPA estimated.

To survive arbitrary and capricious review, as we have

said, an agency decision must be “reasonable and reasonably

advanced biofuel, as well as market constraints on the ability of

advanced biofuel to be used, EPA determined that the “reasonably

attainable” supply of advanced biofuel in 2016 was 3.61 billion

gallons – an amount that was 3.64 billion gallons short of the

statutory volume of advanced biofuel. See id. at 77,443-44. Only

after deriving the advanced biofuel projection did EPA reduce the

advanced biofuel statutory volume amount to match that projection.

EPA then explained that it was making the same 3.64 billion gallon

reduction to the total renewable fuel volume requirement. See id. at

77,444 & tbl.II.B.6-1. It was therefore the available volumes of

advanced biofuel – not total renewable fuel – that drove EPA’s

cellulosic waiver decision. Id. at 77,443.

81

explained.” Communities for a Better Environment v. EPA,

748 F.3d 333, 335 (D.C. Cir. 2014); see also Motor Vehicle

Manufacturers Association of United States, Inc. v. State Farm

Mutual Automobile Insurance Co., 463 U.S. 29, 43 (1983) (An

agency “must examine the relevant data and articulate a

satisfactory explanation for its action.”). Applying that

deferential standard, we reject National Biodiesel Board’s

arguments.

First, we disagree with National Biodiesel Board that EPA

failed to reasonably explain its standard for setting advanced

biofuel volumes. National Biodiesel Board focuses on EPA’s

statement that it was setting the advanced biofuel volume

requirement at a “reasonably attainable” level, as if that were

the only explanation given by EPA in the Final Rule. But EPA

explained at length the various factors it considered when

calculating the “reasonably attainable” volume of advanced

biofuel, including, among other things: (i) the quantity of

feedstock available to produce advanced biofuel, see Final

Rule, 80 Fed. Reg. at 77,466; (ii) production capacity of the

facilities capable of producing advanced biofuel, see id. at

77,467; (iii) advanced biofuel import capacity, see id. at

77,467-69; and (iv) the market’s capacity to produce,

distribute, and consume biomass-based diesel, see id. at

77,470-75. EPA’s detailed explanation of its method for

determining the “reasonably attainable” volume of advanced

biofuel was “satisfactory,” to say the least. State Farm, 463

U.S. at 43.

Second, we reject National Biodiesel Board’s argument

that EPA acted unreasonably by failing to explain its projection

of the amount of sugarcane ethanol that was likely to be

imported from Brazil in 2016. According to National Biodiesel

Board, EPA erred when it concluded that only 200 million

gallons of sugarcane ethanol would be imported from Brazil.

82

National Biodiesel Board argues that EPA’s projection placed

too much emphasis on the “low levels of imports seen in 2014

and 2015” because no advanced biofuel standards were in place

for those years – a fact that drove down advanced biofuel

imports. Final Rule, 80 Fed. Reg. at 77,478. EPA did point to

data showing that imports of sugarcane ethanol from Brazil

were on the decline, having reached only 64 million gallons in

2014 and approximately 55 million gallons in 2015. But EPA

did not rely solely on that historical data to reach its

projections. Rather, EPA examined a number of factors

affecting Brazil’s exports of sugarcane ethanol into the United

States. Those factors included “total gasoline consumption in

Brazil,” which EPA explained was outpacing the growth rate

of sugarcane ethanol production, as well as the “worldwide

demand for sugar.” Id. at 77,477, 77,478. Citing all of those

considerations, EPA concluded that “a somewhat lower level

of imports will occur than the historic average” of 300 million,

and EPA opted to set the projection at 200 million instead. Id.

at 77,478. That conclusion was “reasonable and reasonably

explained” for purposes of arbitrary and capricious review.

Communities for a Better Environment, 748 F.3d at 335.

Third, we disagree with National Biodiesel Board that

EPA’s projection of the available amounts of biomass-based

diesel was arbitrary and capricious. National Biodiesel

Board’s basic contention on this point is that EPA ignored

factors showing that the market could supply a higher volume

of biomass-based diesel than the volume determined by EPA.

In particular, EPA allegedly overlooked factors related to

biomass-based diesel production capacity, import capacity,

distribution capacity, and consumption capacity.

On the contrary, however, EPA did discuss “the many

different factors that may constrain the supply of biodiesel and

renewable diesel in 2016.” Final Rule, 80 Fed. Reg. at 77,466.

83

EPA explained that production capacity was constrained by the

limited availability of biomass-based diesel feedstock and by

the middling utilization rates of biomass-based diesel

production facilities. See id. at 77,466-67. EPA also explained

its considerations regarding import capacity. Although EPA

conceded that the amount of biodiesel imports “is difficult to

predict,” EPA walked through a number of factors to support

its projection of biomass-based diesel imports. Id. at 77,468.

Those factors included, among other things: historical data on

imports; the considerations that would lead other countries to

export their fuel to the United States; and whether the imports

from foreign countries would qualify as biomass-based diesel.

See id. at 77,468-70. EPA also discussed the assorted

constraints on distribution capacity – such as limitations on

transporting biodiesel through existing pipelines, the need for

specialized storage facilities to preserve biodiesel in winter

months, and the minimal number of retailers that sell biodiesel

– that prevent biomass-based diesel from getting to consumers.

See id. at 77,470-71. Finally, EPA noted that many engine

manufacturers do not warrant the use of certain biomass-based

diesel fuels, a fact that further constrains the consumption of

biomass-based diesel by consumers. Id. at 77,471-72.

EPA’s analysis, more of which appears in the Final Rule,

demonstrates that EPA fulfilled its duty to “examine the

relevant data and articulate a satisfactory explanation for” its

biomass-based diesel projections, “including a rational

connection between the facts found and the choice made.”

State Farm, 463 U.S. at 43 (internal quotation marks omitted).

In such a situation, this Court “is not to substitute its judgment”

(nor National Biodiesel Board’s) “for that of the agency.” Id.

We conclude that EPA’s calculation of the volume of

advanced biofuel “reasonably attainable” in the market in 2016

was not arbitrary or capricious. Final Rule, 80 Fed. Reg. at

84

77,476. We reject National Biodiesel Board’s arguments to the

contrary.

VI

The final issue raised by the Obligated Party Petitioners is

whether EPA was required to consider the appropriateness of

the current “point of obligation” – that is, EPA’s choice to

apply the statute’s renewable fuel requirements to refiners and

importers, but not blenders – in the Final Rule.

The Obligated Party Petitioners argue that EPA’s failure

to reconsider the point of obligation requires us to remand the

Final Rule to the agency. But we need not decide whether a

remand is required because, as discussed in Part II, we are

already remanding the Final Rule to EPA for further

proceedings in light of our interpretation of the “inadequate

domestic supply” waiver provision. With the Final Rule back

before the agency, EPA will have an opportunity to address the

Obligated Party Petitioners’ arguments regarding the point of

obligation. In addition, EPA is currently considering

comments on its proposed denial of a set of petitions – petitions

filed by some of the Obligated Party Petitioners – seeking

reconsideration of EPA’s current point of obligation

regulation. See Notice of Opportunity to Comment on

Proposed Denial of Petitions for Rulemaking to Change the

RFS Point of Obligation, 81 Fed. Reg. 83,776 (Nov. 22, 2016).

Given the stage of that proceeding, we leave it up to EPA to

determine whether to address the point of obligation issue

there, on remand in this case, or in both proceedings.

***

We agree with Americans for Clean Energy that the statute

forecloses EPA’s reading of the “inadequate domestic supply”

85

waiver provision. We therefore grant Americans for Clean

Energy’s petition for review of the 2015 Final Rule, vacate

EPA’s decision in the Rule to reduce the total renewable fuel

volume requirements for 2016 through use of the “inadequate

domestic supply” waiver authority, and remand the rule to EPA

for further consideration in light of our interpretation.

We have considered all of the parties’ other arguments and

have found them to be without merit. We deny the remainder

of the petitions for review.

So ordered.