By Ayesha Rascoe
WASHINGTON (Reuters) - Probable legal challenges to proposed cuts in the 2014 U.S. biofuel mandate could focus on a two-word phrase dropped from the U.S. law establishing the renewable fuel program back in 2005: distribution capacity.
Biofuel producers have argued for months that the Environmental Protection Agency's justification for potential cuts to 2014 targets is incompatible with federal law and that the legislative history of the mandate will prove this.
A bill passed by U.S. House of Representatives in April 2005 that created the Renewable Fuel Standard included a clause allowing the EPA to lower the targets contained in the statute if it deems there is "inadequate domestic supply or distribution capacity." But, the final law dropped the term "distribution capacity."
The omission could be the crux of a fight over how the EPA can administer the program going forward, because the agency based its 2014 proposal on a shortage of fuel pumps able to dispense higher blends of ethanol in gasoline.
Bob Dineen, now president of the Renewable Fuels Association, advocated for the biofuel industry in 2005. He said the phrase was intentionally deleted from the law.
"We fought the inclusion of that," Dineen said.
If lawmakers had wanted the EPA to consider infrastructure when setting the targets, the law would have said so explicitly, Dineen said. "They had the language to do just that and yet they chose not to."
The RFS requires increasing amounts of ethanol and biodiesel to be blended into U.S. fuel supplies.
The EPA has argued that "inadequate domestic supply," referenced in the law, can be interpreted broadly to include any constraints that would keep biofuels away from consumers.
Renewable fuel producers maintain that if the agency can cut biofuel use targets based on the availability of fuel pumps, oil companies have no incentive to invest in new equipment.
The 2014 targets have not been finalized, but the EPA has acknowledged that changes to an earlier draft will be limited because it is so late in the year.
"When renewable groups inevitably challenge the reductions to the RFS, it seems inevitable that this argument will be a primary basis for their challenge," said David McCullough of Sutherland Asbill and Brennan, a law firm that represents clients in the biofuel and oil industries.
The contention that distribution capacity was deliberately excluded from the law's waiver provision "seems like a credible argument," he said.
Oil companies dispute biofuel producers' version of the mandate's history. Stephen Brown, vice president of government affairs at oil refiner Tesoro Corp, was a lobbyist for the oil industry in 2005.
"I just don't think it holds any water," Brown said, arguing the EPA's authority to consider distribution when setting the targets was nonetheless implied in the final version.
Regardless of how the law was worded, Brown said the mandate would be challenged: "You could have Moses handing down the RFS on stone tablets and some one is going to sue."
(Reporting by Ayesha Rascoe, editing by Ros Krasny and Marguerita Choy)