Ethanol, Agriculture and the Courts

by Doug Durante, Clean Fuels Development Coalition

SCOTUS. Not just another Washington, D.C., acronym where everything is given an alphabetized name – USDA, DOE, EPA, DOJ, FBI, DOC – there is no end to the acronyms of our government. But few, if any, have the clout and impact on our lives as SCOTUS, the Supreme Court of the United States. This is the last stop in our judicial process where their word is final. And man, have they been busy.

The latest decision announced in June was the overturning of the Chevron Doctrine. While many in the energy, ag and environmental sectors were aware of this issue, it is safe to say the overwhelming majority of the public or even the rank and file within these sectors has no idea what this is, or what it may mean to their livelihood, but they should.

In short, the Chevron Doctrine was a longstanding ruling by the court following a Chevron challenge to a permitting rule by EPA back in 1984. The court ruling essentially defended EPA’s ability to interpret legislation, particularly when it was vague in details or ambiguous. This extended to all federal agencies, and it gave considerable power to regulators to develop rules, regulations, requirements and penalties they determine necessary to carry out the law Congress passed, or, in some cases, to develop a rule without any legislative directive.

The Scotus Blog, an independent online news and analysis publication on the workings of the court, noted there had been several efforts to overturn the doctrine but none had been successful. However, the court agreed last year to look again at this based on a rule issued by the National Marine Fisheries Service that had been upheld by two federal courts of appeals. The agency had required the herring industry to pay for the costs, estimated at $710 per day, associated with carrying observers on board their vessels to collect data about their catches and monitor for overfishing.

Two sets of commercial fishing companies came to the Supreme Court, asking the justices to weigh in. Which brings us to the current situation, and based on this fisheries case, the court reversed its 1984 ruling.

So, what does this mean for agriculture? The fisheries example is an extreme, but accurate, illustration of the problems that come with agency interpretation. But is it all bad when an agency develops rules?  How interesting that our column last month on labeling wrestled with the same issue as we noted how labels can be used as a positive thing or a negative.

In this case of the fishing companies, the court ruling clearly addresses an extreme requirement that any reasonable person would agree is overreach. It would be no different in this era of carbon reduction extremism if USDA required farmers to hire observers to ensure you are not overfertilizing or doing something else they don’t approve of. So, in this case the court ruling would seem to be a very positive thing given the fact that there are countless examples of how an agency has burdened the very constituencies they are supposed to serve with crushing and impractical regulations.

The other side of the argument is equally compelling. Congress is not so smart that they think everything through from beginning to end. The Renewable Fuel Standard is a prime example. Certainly, they got it right in requiring that a small part of our motor fuel mix be comprised of renewables, but the details of exactly how that is accomplished is left to the EPA.

While we may not be thrilled with everything EPA has done to implement the RFS, ethanol and agriculture would be unified in saying the program is working, 10 percent or more of our gasoline is renewable ethanol. Under this new interpretation by SCOTUS, everything from the Renewable Volume Obligations to the credit and trading system could be a target for challenge. All in all it is hard to argue from an ethanol and ag perspective that the rules are what make the program work.

Another example of an agency taking a positive proactive step within an agency’s authority would be USDA’s Rural Energy for America Program. (REAP). It is a loan and grant program for agriculture producers and rural small businesses to implement renewable energy systems or to make energy efficient improvements. USDA interpreted this program to include funding blender pumps for higher ethanol blends. A good thing, right? Well, not for everyone.

In both these examples, opposition was intense. The petroleum industry, environmental groups and other special interests came unglued. For the REAP program, many argued that blender pumps did not fall under the definition of the law, even though they were not addressed one way or the other. In the case of the RFS, attacks began immediately and continue to this day, challenging everything from the volumes set by EPA to the eligibility of certain fuels and feedstocks. 

What the new decision by the Supreme Court does is open the door for every and any action by a federal agency to be challenged if it is not defensible by the authorizing language in the legislation. Anyone who feels slighted by a federal rule can challenge it and it is likely to unleash an unprecedented flood of lawsuits. Without getting too deep in the weeds, all of this is happening as another SCOTUS decision called the Major Questions Doctrine passed last year with the same core argument as Chevron. This ruling concluded EPA had failed to consider all the ramifications of its GHG rule for stationary sources, raising too many “major questions.”  These could include questions of cost, displaced workers and timelines.

The recently finalized multipollutant rule that essentially requires 70 percent of new cars to be electric is a prime example of a target. The rule is already facing more than a dozen lawsuits and the one-two punch of Chevron and Major Questions could easily be used to strike down the rule. So once again, is that good for ethanol and agriculture or bad? It is good in that the rule had ignored ethanol but could be bad in that under another administration there might not be a rule at all. At least under the original rule. we had a chance to fix it.

One twist in this situation is that if the new law of the land is that we cannot do anything unless Congress specifically and clearly spells it out, we have a whole card we have been trying to play for decades that turns the two SCOTUS rulings on their ears: The provision in the Clean Air Act requiring refiners to replace their toxic octane enhancers with ethanol. This “clean octane” requirement, unlike many laws that simply call for reductions in a particular pollutant, specifically identifies ethanol as a readily available, high octane solution that is the opposite of everything the courts claim is lacking in many other instances.

It not only tells the agency – in this case EPA – what to do but how to do it. The legislative history clearly addresses “major questions” such as cost, implementation and other factors. Moreover, the health benefits of reducing these carcinogenic compounds are well understood and address the reduction in fine particulate matter which EPA says is one of its top priorities.

SDFU has been a leading voice in the need to protect public health through a clean octane program. The new rules by the Supreme Court will have an enormous impact on a range of industries and there will be good and bad decisions in the future. But forcing EPA to increase octane and ensure it does not come from the toxic compounds currently used would open the door to truly higher blends that could significantly increase corn demand. And SCOTUS would have a hard time explaining how this does not meet their own criteria.