.

Client Alert

As EPA Sets 2017 Renewable Fuel Volumes, Future Is Unclear

December 8, 2016

Download as a PDF

Share this page

On November 23, 2016, the Environmental Protection Agency (EPA) released its final 2017 volumes under the Renewable Fuel Standard (RFS), an ever-controversial program established by Congress to spur the development and use of biofuels in the U.S. transportation sector.

Specifically, the EPA published final volumes for cellulosic biofuel, biomass-based diesel (biodiesel), advanced biofuel and total renewable fuel well below statutorily-prescribed volumes but at the highest levels to date, demonstrating the agency’s intent to continue driving development, distribution and use of these fuels.

Notably, the EPA increased from its Spring 2016 proposal the final volume for total renewable fuel — for the first time up to the statutory ceiling for conventional (corn-based) ethanol — as well as the volume for advanced biofuel, while slightly reducing the volume for cellulosic biofuel and holding steady its proposed volume for biodiesel.

In finalizing these volumes, the EPA utilized largely the same methodology it employed in late 2015 (the 2015 rule) when it retroactively set levels for 2014 and 2015 and established volumes for 2016 for these categories of fuels, but it tweaked the authority on which it relied for waiving the statutorily-prescribed volume for total renewable fuel.

As with its spring 2016 proposal and earlier rules, the agency has again sought a middle ground that it believes will encourage further production of cellulosic, biodiesel and other advanced biofuels by increasing volume requirements while recognizing the existing constraints to distribution and use of the fuels.

And as with its prior rules, the EPA will likely face legal challenge once it publishes the final rule in the Federal Register. More significantly, it is also possible the entire RFS program may face restructuring by the EPA itself or by the new Republican-led Congress.

RFS In a Nutshell

The RFS program, codified in Clean Air Act section 211(o), was intended to increase the use of renewable fuels in the U.S. transportation sector in order to reduce greenhouse gas (GHG) emissions and increase energy security. Congress established statutory volumes for these fuels by category, which increase yearly in order to stimulate further growth in advanced biofuels, which have a lower GHG lifecycle than conventional fuels.

The program also incentivizes the production and use of non-advanced or conventional renewable fuels, but these volumes are to remain constant in 2015 and beyond, again to focus on stimulating advanced biofuels production. Under the RFS, each November, the EPA is to set the following year’s volumes of RFS fuels, except for biodiesel, which is to be set 14 months in advance.

Each of the categories of biofuels is “nested,” meaning cellulosic and biodiesel volumes can also meet advanced biofuel volume requirements, and all three can meet total renewable fuel volume requirements.

Although Congress mandated minimum volumes for each of the fuels through 2022, it provided two statutory waivers in case the specified volumes could not be met in a given year. The first, known as the “cellulosic waiver,” section 211(o)(7)(D)(i), allows the EPA to reduce the volume of total renewable fuel and advanced biofuel to address any shortfall in volumes the agency calculates as available for cellulosic biofuel compared to statutory levels.

The second, referred to as the “general waiver,” section 211(o)(7)(A), authorizes the EPA to reduce volumes by finding there is an inadequate supply of renewable fuel (or to avoid severe economic or environmental harm) to meet statutorily-prescribed renewable fuel levels.

Once volumes are finalized, the agency translates them into compliance obligations that refiners and importers must meet each year through production or purchase and blending of renewable fuels, or, alternatively, through the purchase of renewable identification numbers (RINs), which are generated by other renewable fuel producers. Hence, the RFS obligation and resulting costs fall directly on refiners and importers which must utilize annually increasing amounts of biofuels to produce transportation fuels in the U.S.

The intended benefits accrue to biofuel producers and importers in terms of an increased market, and ultimately to the public through an increase in fuel diversity and energy security and a reduction in GHG emissions.

Opposing Views

The refining industry has long been critical of the RFS program for its imposition of costs on the industry to benefit renewable fuel producers and its belief that the EPA has set volumes that are unjustifiably costly and largely unattainable.

A chief argument is that ethanol cannot be blended into the nation’s transportation fuel supply in an amount greater than 10 percent of that supply for a number of legal (e.g., warranty) and practical reasons (e.g., lack of demand and distribution infrastructure), a phenomenon called the “E10 blend wall” (named after the predominantly marketed gasoline/ethanol blend).

The biofuels industry, on the other hand, sees the steadily increasing volumes of mandated biofuels as absolutely critical to driving the market toward greater production and use, particularly of advanced biofuels, which are generally more expensive than conventional fuels. They argue that reductions in volume undercut the development of the biofuels market, in violation of congressional intent.

2015 “Compromise” Rule Sets the Standard

Neither side was satisfied with the 2015 rule, which finalized volumes for the RFS fuels belatedly for 2014 and 2015, and for 2016 (and for biodiesel in 2017) well below statutory volumes. See Figure 1 below. 

 2014 statutory2014 final2015 statutory2015 final2016 statutory2016 final2017 statutory2017 projected2017 final
Cellulosic biofuel (million gallons)

1.75 (billion)

33 3 (billion)1234.25 (billion)2305.5 (billion)312311
Biodiesel (billion gallons)  ≥11.63   ≥1 1.73 ≥1 1.9 ≥1 2.0 (final for 2017); 2.1 proposed for 20182.1 (final for 2018)
Advanced biofuels (billion gallons) 3.75 2.675.52.887.253.61944.28
Total renewable fuels (billion gallons) 18.1516.2820.516.9322.518.112418.819.28

The EPA utilized actual gallons produced for the 2014 and (most of) 2015 figures. But for 2016, the agency determined that volumes for cellulosic biofuel were far below statutory limits and there were not sufficient volumes of advanced biofuel and total renewable fuel available or able to make up the shortfall.

As to conventional ethanol, the EPA agreed that the practical and legal constraints imposed by the “blend wall” prevented significantly higher volumes of total renewable fuel. Hence, the agency used a portion of the cellulosic waiver to reduce volumes of advanced biofuel from statutory levels, and combined the cellulosic and general waivers to reduce volumes of total renewable fuel from a statutory total.

The EPA asserted that constraints on distribution could be considered part of a finding of inadequate domestic supply under the general waiver. However, the agency set the volume for total renewable fuels at a level that would slightly exceed the “blend wall,” and stated its intention to go beyond that amount in future rules to help spur the market to overcome these constraints.

This was the first time the EPA used these waivers to reduce the advanced biofuel and total renewable fuel volumes. The agency’s acknowledged compromise was challenged by the refining industry generally as setting volumes too high and by the biofuel industry generally as setting volumes too low.

Judicial challenges to the rule and the EPA’s methodology are pending in the D.C. Circuit.

Final 2017 Volumes Continue Compromise but Push Past “Blend Wall”

In its proposed volumes, issued in May 2016, the EPA used largely the same methodology to set 2017 volumes (and 2018 volume for biodiesel) which continued the small but steady increase in volume of biofuels over time, yet far below the statutory levels. See Figure 1 above.

Its calculations were largely driven by an anticipation of a significant shortfall in cellulosic biofuels (a proposed 312 million gallons versus a statutory 5.5 billion gallons) After reviewing additional production data and comments, the agency lowered the final cellulosic volume for 2017 to 311 million gallons.

With this shortfall, the EPA finds it impossible to achieve the numbers and timeline set forth by Congress for the other fuels. This final volume for cellulosic biofuels still represents a 35 percent increase over the 2016 figure.

As to advanced biofuels, the EPA determined, as it did in 2015, that there is insufficient supply through domestic production and imports to meet the 9 billion gallon statutorily-mandated volume. The agency then chose to use most, but not all, of the reductions allowed under the cellulosic waiver authority to reduce the 2017 volume to a “reasonably achievable supply” of 4.28 billion gallons.

The final 2017 volume is a slight increase over the proposed 4 billion figure, but a 19 percent increase over the final 2016 volume. The EPA based the increase from the proposed volume on “updated information” and a review of public comments that showed an increase in production of biodiesel and renewable diesel.

As to total renewable fuel, the EPA changed its position from the May 2016 proposal and 2015 rule, again based on updated information showing additional renewable fuel available in the market. The agency determined that conventional ethanol production would meet the implied statutory cap for that fuel (total renewable fuel minus advanced biofuel) of 15 billion gallons.

This meant fewer reductions were needed from the statutory cap for total renewable fuel, and the EPA could rely exclusively on the cellulosic waiver authority to reduce the reduce the statutory volume from 24 billion gallons to 19.28 billion gallons. The agency did not need to utilize the general waiver authority to reduce volumes further below the cellulosic shortfall, nor did it even use the maximum reduction permitted by the cellulosic waiver.

This change is significant, since the EPA no longer needed to find that there was an inadequate domestic supply to meet statutory volumes, based on the alleged practical and legal constraints on demand due to the “blend wall,” a novel interpretation of its authority now being challenged in court.

The 19.28 billion figure represents the EPA’s view of the maximum reasonably attainable volume of total renewable fuel, a 6.5 percent increase from the 2016 final volume of 18.11 billion gallons.

In contrast to the other volumes, biodiesel volumes are expected to increase above statutory levels. The EPA finalized its proposal for a 100 million gallon increase from the 2017 final volume so that the level in 2018 will be 2.1 billion gallons compared to the 1 billion gallon statutory floor.

As in the prior rule, the agency has chosen not to set volumes for any of the fuels at a level that would draw down the substantial bank of existing RINs so as to allow the bank to provide compliance flexibility.

The EPA ultimately concludes that the final volumes will drive growth in renewable fuels and that Congress did not intend such growth to be stopped by “supply challenges,” including those associated with the “blend wall.” As with the 2015 rule, the EPA does not view the “blend wall” as a permanent constraint on the market, but rather a challenge that can be met by providing the market with incentives to further investment in renewable fuel use.

Indeed, the agency recently proposed measures to further ease barriers to the RFS program. On Nov. 16, 2016, it published a proposed rule that would increase the efficiency of biofuel production by allowing sequential processing at separate facilities, by revising its fuel regulations to expand the availability of higher ethanol fuels for use in flex fuel vehicles, and by considering fuel from other GHG-reducing technologies and sources to qualify under the program.

A Future Reset … or More?

There has been significant pressure on Congress to reform the RFS, whether by lowering the statutory volumes permanently, relieving the refiners of compliance obligations and placing them elsewhere, or simply scrapping the whole program. To date, congressional proponents of the program have blocked such efforts, and the EPA has followed suit.

For example, on Nov. 10, 2016, the EPA issued for public comment a proposed denial of petitions seeking to move the compliance obligation from refiners/importers to blenders.

However, the recent elections could significantly change the calculus. First, the EPA itself may take action to alter the program. The RFS provides for a statutory reset under section 211(o)(7)(F), starting in 2016, when the agency has waived any applicable volume requirement below 20 percent for two consecutive years, or at least 50 percent for a single year.

This finding would require the EPA to promulgate a rule within a year from issuing the waiver to modify the statutory volumes through 2022. The agency has gone above the 20 percent trigger for advanced biofuels for 2015, 2016 and now 2017, and also exceeds the 50 percent trigger for that fuel in 2017.

The total renewable fuel final volume is just below the 20 percent threshold, but would have triggered it as originally proposed. Significantly, the EPA’s final rule makes no mention of the statutory reset or how it would address this provision, but it is likely to need to do so in the near future.

Indeed, were a Trump EPA hostile to the RFS program, the agency could use its statutory authority to significantly lower the advanced biofuel statutory levels, and might seek to use that opportunity to change the total renewable fuel volume and other key parts of its prior regulations.

At this time, it is unclear what position a Trump EPA might take. For one thing, the president-elect has only recently stated he would nominate Scott Pruitt, attorney general of Oklahoma, as his EPA administrator, and it is not clear what direction Pruitt would go on the RFS program if nominated and confirmed.

Moreover, Trump has taken differing positions on the RFS program over time, supporting it as a candidate in Iowa and then later opposing key parts of the program. One of Trump’s trusted advisors, Carl Icahn, is the owner of several refineries and has strongly criticized the RFS program, and in particular the fluctuating cost of the RIN.

Moreover, the RFS program, in large part, aims to reduce GHG emissions from the transportation sector, making it vulnerable to a Trump administration that may seek to root out costly GHG-reducing regulations. Hence, the RFS program may face significant structural change under the new administration.

It is less likely (though possible) that the incoming administration will upset the final 2017 volumes as many companies will have planned around these increasing volumes.

Further, it is possible that Congress may take its own action to alter the program. Bills have been introduced, for example, to change the point of obligation or cap ethanol content at a level below 10 percent, and there are a number of strong congressional critics of the entire program.

While support for the program has not necessarily been a partisan issue — both Democratic and Republican legislators from farm states have strongly supported it — a new Congress, bolstered by a presidential critic, may take a serious shot at reforming or eliminating the RFS.

Therefore, it is unlikely the EPA will simply continue to follow its well-worn middle ground path when it proposes the 2018 volumes for these fuels in early 2017, and could very well choose a new road or have a new direction provided by Congress.

Firm Highlights

Insights

Energy Law: Month in Review - September 2026

Welcome to Dorsey’s Energy Law: Month in Review. We provide this update to our clients to identify significant developments in the previous month. Please reach out to any of the authors, listed above, to discuss these issues. Regulatory Developments Massachusetts Ratchets Up State and Local Regulation of AI Data Centers In early September, Governor Maura Healey of Massachusetts signed an executive order requiring that artificial intelligence data centers secure the approval of local communities as a precondition to proceeding with a given project. According to the terms of the order, data center developers will need to secure a “community benefits agreement” as a precondition to receiving permits from numerous state agencies, including the Department of Environmental Protection, the Energy Facilities Siting Board, and the Massachusetts Environmental Policy Act Office. Beyond requiring community benefits agreements, the order also mandates that developers mitigate utility costs to consumers, prohibits the use of nondisclosure agreements, and requires various state agencies to develop measures to limit data center impacts on the environment. North Carolina Regulators Decline Approval of Duke Energy Gas Turbine On September 18, 2026, North Carolina Utilities Commission (NCUC) denied Duke Energy’s application for a certificate of public convenience and necessity required to construct a gas-fueled combustion turbine at its Smith Energy Complex in North Carolina. The NCUC objected strongly to the $584 million price tag and noted that Duke appeared to be constructing the facility “based on anticipated data center customer additions.” The NCUC rejected that anticipated growth as “insufficiently reliable for the Commission to act at this point.” In rejecting Duke’s application, the NCUC also noted that Duke had signed the White House Ratepayer Protection Pledge, in which it represented that it would not shift data center costs to consumers. The NCUC observed that the record did not demonstrate how Duke “intends to adhere to its commitments under the Ratepayer Protection Pledge with regard to the Proposed Facility.” Notably, commission staff had actually supported the construction of the turbine, citing concerns about Duke’s reserve margins. The NCUC noted that it “understands the Public Staff’s expressed concerns,” but those concerns were outweighed by the NCUC’s reservations, including questions of demand. Department of Energy Approves Funds for Grid Improvement The U.S. Department of Energy (DOE) recently announced that it would fund 31 grid-improvement projects in 26 states. The funding initiative is part of the DOE’s “SPARK” initiative. The funding will include $1.9 billion in federal funding from DOE and $3.35 billion in recipient cost-sharing funding. The funds will go to projects designed to improve grid reliability and lower electricity costs. Recipients plan to reconductor over 1,500 miles of transmission lines and will deploy grid-enhancing technologies across approximately 21,000 miles. DOE stated that this initiative will make available over 23 additional gigawatts of electricity. Texas Moderates Rules Governing Data Center Interconnection The Texas Public Utility Commission adopted new regulations governing large-load interconnections. The rules impose a flat study fee of $100,000 for all proposed interconnections, which departs from the initial proposal to impose study fees using a tiered system based on project size. Additionally, the final rule eliminates the PUC’s previous proposal to impose a non-refundable interconnection fee of $50,000 per MW of contracted peak demand. The final rule also moderates the initially proposed regulations governing Electric Reliability Council of Texas (ERCOT) notifications for large-load customers’ non-utilized capacity. The proposed rules would have required notifying ERCOT within 30 days of missing a scheduled energization milestone by six months. The final rules, however, do not require informing ERCOT unless a scheduled energization milestone is missed by 24 months. FERC Denies TransAlta 202(c) Cost-Recovery Plan The Federal Energy Regulatory Commission (FERC) recently rejected TransAlta’s plan to recover $19.9 million in expenses stemming from a DOE order in which DOE prohibited TransAlta from retiring its coal-powered Centralia power plant. TransAlta had previously intended to retire the facility at the end of 2025. TransAlta’s cost recovery plan proposed spending an additional $23 million on repairs to continue operating the unit. FERC’s main objection had to do with geographic scope. TransAlta’s recovery plan called for recovering costs from California Independent System Operator (CAISO) and the Southwest Power Pool (SPP), but the DOE’s order requiring operation of the plant was designed to ensure reliability in the Northwest assessment area (Montana, Oregon, Washington, and parts of northern California and northern Idaho). Accordingly, FERC was unwilling to allow cost recovery from CAISO and SPP when the order that precipitated the additional costs only related to the Northwest assessment area. FERC informed TransAlta that it would only approve cost recovery from load-serving entities in the Northwest assessment area. FERC’s decision comes amid a rush of DOE emergency orders requiring the continued operation of coal-fired generating units. Litigation Appeals Court Upholds Washington Hydropower Plant With Caveats In a September 21, 2026, opinion, the Washington Court of Appeals largely upheld a Clean Water Act water quality certification by the Washington Department of Ecology for the Goldendale Energy Storage Project, a proposed pumped-water storage hydropower system adjacent to, but off-stream from, the Columbia River. A nonprofit (Columbia Riverkeeper) and the Confederated Tribes and Bands of the Yakama Nation appealed the certification, contending that it failed to impose necessary conditions and monitoring requirements to protect the water quality of the Columbia River. Most saliently, the plaintiffs argued that the project had the potential to leak 100 acre-feet of water per year into tributaries of the Columbia River. The Court of Appeals broadly rejected plaintiffs’ challenge to the state’s conclusion that “the project was designed not to leak.” That said, the Court of Appeals did reverse on one narrow issue. Specifically, the court determined that the state’s conclusion that “leakage from the project’s tunnels would be monitored and reported” was not supported by the evidence because the certification “does not explicitly require monitoring and reporting to determine whether there is any leakage.” Accordingly, the court remanded the matter to the state to impose monitoring and reporting requirements but otherwise affirmed the certification. Legislative Developments California Legislates Restrictions on Data Center Energy Use and Grid Costs On September 21, 2026, California Governor Gavin Newsom signed seven bills broadly regulating data centers in the state. SB 1168 directed the California Public Utilities Commission to assess the energy used by data centers. It also requires the PUC to pass costs of transmission and distribution upgrades and load increases on to data centers, rather than customers. SB 886 and SB 887 compel data centers to pay for infrastructure upgrade and generation costs, and wildfire mitigation costs, in addition to imposing environmental review. The statutes additionally increase local oversight of data centers. AB 1577 imposes a monthly reporting requirement that requires data centers to supply energy consumption and efficiency data to the California Energy Commission. AB 2383 contains incentives for data centers to use onsite clean energy generation. Finally, AB 2469 and AB 2619 require data center developments to assess water supply and develop a water scarcity plan. The statutes also mandate statewide water reporting as a precondition to obtaining and renewing business licenses.

Insights

EPA Limits Title V Re-Litigation of NSR Permits

Overview On September 25, 2026, the U.S. Environmental Protection Agency (“EPA”) published a final rule that significantly limits the ability of third parties to use the Clean Air Act (“CAA”) Title V permitting process to revisit New Source Review (“NSR”) permitting decisions years after those decisions were made. The rule establishes that NSR permitting determinations generally must be challenged during the original permitting proceeding, thereby providing regulated sources with greater permitting certainty and finality for major capital projects. Published in the Federal Register titled Clarifying the Scope of “Applicable Requirements” Under State Operating Permit Programs and the Federal Operating Permit Program (Docket ID No. EPA-HQ-OAR-2023-0401), the rule amends 40 C.F.R. Parts 70 and 71 to codify EPA’s interpretation regarding when requirements established under other CAA programs may be reviewed, modified, or implemented through the Title V operating permit program. The rule becomes effective 30 days after publication. The rule addresses two principal issues: (1) the relationship between NSR preconstruction permitting and Title V operating permits, and (2) the treatment of the General Duty Clause under CAA section 112(r)(1). Most significantly, the rule provides greater certainty for sources navigating the NSR permitting process. EPA’s amendments are intended to ensure that NSR permitting decisions made through an approved public process are generally not revisited later through Title V permit proceedings. The rule responds to a circuit split between the U.S. Courts of Appeals for the Fifth and Tenth Circuits. In Environmental Integrity Project v. EPA, 969 F.3d 529 (5th Cir. 2020), the Fifth Circuit upheld EPA’s interpretation, concluding that it was consistent with the text, structure, and purpose of Title V. In contrast, the Tenth Circuit reached the opposite conclusion in Sierra Club v. EPA, 964 F.3d 882 (10th Cir. 2020), finding that the then-existing regulatory definition of “applicable requirement” did not support EPA’s position. By amending the regulatory language on which the Tenth Circuit relied and codifying the interpretation approved by the Fifth Circuit, EPA has established a nationwide framework governing the interaction between NSR and Title V. NSR and Title V: EPA Establishes a Uniform Nationwide Framework At the core of the rule is EPA’s effort to define the respective roles of NSR and Title V. The rule codifies the approach EPA has applied since 2017: once a source obtains an NSR permit under an EPA-approved permitting program, and that permit was issued following public notice with an opportunity for comment and judicial review, the permit establishes the NSR-related “applicable requirements” of the State Implementation Plan (“SIP”) or Federal Implementation Plan (“FIP”) for Title V purposes. Under this framework, Title V is not a vehicle for re-examining underlying NSR permitting decisions. EPA does not intend to use the Title V process to revisit applicability determinations, emissions calculations, control technology determinations, permit conditions, or other issues resolved through the NSR permitting process. This principle applies regardless of the stage of the Title V proceeding; whether the NSR permit was issued pursuant to a SIP or FIP; the type of NSR issue involved; or whether the NSR permit is incorporated into Title V sequentially or concurrently. Limited Exceptions EPA recognizes several circumstances in which NSR issues may still be reviewed through the Title V program: No NSR permit was issued at all; The permit was issued without public notice and an opportunity for comment and judicial review; or The issue involves substantive overlap between Title V and NSR requirements, such as the adequacy of monitoring provisions. As a result, the rule does not insulate unpermitted projects or foreclose review of matters that independently arise under Title V. Key Regulatory Amendments The rule revises the definition of “applicable requirement” in 40 C.F.R. §§ 70.2 and 71.2. Paragraph (1): Where an NSR permit is issued with public notice and an opportunity for comment and judicial review, the permit establishes and defines the applicable SIP or FIP requirements for Title V purposes. Paragraph (2): All NSR permit terms, including terms contained in minor NSR permits, constitute applicable requirements that must be incorporated into Title V permits. Paragraph (4): CAA section 112(r)(1) (the General Duty Clause) is expressly excluded from the definition of “applicable requirement,” while section 112(r)(7) Risk Management Program requirements remain included. EPA also amended 40 C.F.R. §§ 70.8 and 70.12 to clarify that alleged defects in requirements established outside the Title V process generally do not provide a basis for EPA objection to a Title V permit or for a Title V citizen petition. General Duty Clause Exclusion The rule also codifies EPA’s longstanding position that the General Duty Clause in CAA section 112(r)(1) is not an “applicable requirement” for Title V purposes. EPA points to several considerations supporting that conclusion, including the distinction between the General Duty Clause and Title V permit terms, the provision’s origins in the Occupational Safety and Health Act’s general duty clause, and the different enforcement structures applicable to the General Duty Clause and Title V permit requirements. Importantly, excluding section 112(r)(1) from the definition of “applicable requirement” does not eliminate EPA’s authority to enforce the General Duty Clause independently of the Title V program. The final rule instead clarifies that the General Duty Clause need not—and should not—be incorporated into Title V permits as an applicable requirement. Practical Implications for Regulated Sources Greater Finality for NSR Permits  For projects requiring PSD, nonattainment NSR, or minor NSR permits, the permitting process becomes the primary forum for resolving disputes regarding applicability determinations, emissions calculations, control technology requirements, offsets, and permit conditions. Once an NSR permit is issued through a qualifying public process, regulated sources should face substantially reduced risk that those same issues will be challenged years later through Title V permit proceedings. Reduced Risk of Collateral Permit Challenges Stakeholders have sometimes sought to use Title V permit issuance, renewal, revision, or citizen-petition proceedings to challenge underlying NSR determinations. The final rule makes clear that Title V is not the appropriate vehicle for challenging whether an applicable requirement was correctly established in the first instance. This should reduce the risk of permit delays and uncertainty associated with collateral challenges to previously issued NSR permits. The rule does not, however, eliminate all Title V challenges relating to an NSR permit. Challenges concerning the Title V permit itself—including whether it appropriately incorporates applicable requirements or contains adequate compliance provisions—remain possible. Increased Importance of the Initial NSR Proceeding Because Title V generally will not provide a second opportunity to challenge the substantive validity of an NSR determination, the administrative record developed during the NSR process becomes increasingly important. Permit applicants should ensure that applicability analyses, emissions calculations, control technology evaluations, modeling demonstrations, and supporting technical documentation are thoroughly developed during the original permitting proceeding. For significant projects, applicants may therefore have an additional incentive to identify and resolve potential permitting issues before the NSR permit is issued rather than assuming that unresolved issues can be addressed during a subsequent Title V proceeding. Potential Incentive for Broader Public Participation EPA also notes that permitting authorities may choose to provide public notice and an opportunity for comment for a broader range of NSR permits because permits issued through a qualifying public process receive the benefit of the finality framework established by the rule. Some permitting authorities may conclude that greater public participation at the NSR stage is preferable to uncertainty during subsequent Title V proceedings. Conclusion The final rule is principally a permitting-certainty measure. For sources that obtain NSR permits through a public process, EPA has substantially limited the ability of third parties to revisit underlying NSR determinations through the Title V program. As a result, regulated entities should benefit from greater finality regarding key permitting decisions, reduced risk of collateral permit challenges, and increased certainty when planning and implementing capital projects.

Insights

SEC Proposes Expansion of Investment Adviser Performance-Based Compensation Rule

On September 30, 2026, the Securities and Exchange Commission (the “SEC”) proposed amendments to Rule 205-3 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which provides an exemption from the general prohibition under Section 205(a)(1) of the Advisers Act on registered investment advisers receiving performance-based compensation (the “Proposal”) so long as performance-based compensation is limited to “qualified clients”.1 Most notably for private fund sponsors, the Proposal would expand the definition of “qualified client” to include any investors that satisfy the “accredited investor” definition under Regulation D. The Proposal may also have implications for private fund managers that rely on exemptions from investment adviser registration under state law because certain state-level investment adviser registration exemptions incorporate or otherwise reference the federal qualified client definition. Expansion of the Qualified Client Definition Under the current Rule 205-3, an investor generally may qualify as a qualified client if, among other alternatives, the investor has at least $1.4 million under management with the adviser or has a net worth exceeding $2.7 million. These thresholds are higher than the financial thresholds applicable to many accredited investors under Regulation D. As a result, an investor may currently qualify as an accredited investor for purposes of investing in a private offering without qualifying as a qualified client for purposes of paying performance-based compensation. The Proposal would expand the qualified client definition to include any natural person or legal entity investor that satisfies the accredited investor definition under Regulation D. The Proposal would also remove the assets under management and net worth thresholds under the current Rule 205-3 qualified client test. For private funds relying on Section 3(c)(1) of the Investment Company Act of 1940, this change could reduce the need to apply a separate qualified client standard to investors that already qualify as accredited investors. Dorsey Observations and Next Steps If adopted as proposed, the expanded qualified client definition could be particularly significant for private fund managers. Most private fund offerings are already limited to accredited investors under Regulation D. However, the Proposal could expand the pool of prospective investors available to emerging private fund managers while reducing the regulatory burden associated with complying with Rule 205-3. The Proposal could also benefit advisers operating below the SEC registration threshold that rely on a state private fund adviser exemption. A number of states have adopted exemptions modeled on the North American Securities Administrators Association (“NASAA”) private fund adviser exemption, which may condition relief for advisers to certain funds relying on Section 3(c)(1) on each beneficial owner satisfying the federal qualified client definition. However, state requirements vary, and any effect of the Proposal would depend on the text of the applicable state exemption and how it incorporates Rule 205-3. Many emerging private fund managers may have a larger network of accredited investor relationships than qualified client relationships during the early stages of their investment advisory business. Currently, under Rule 205-3, private fund managers may receive performance-based compensation from investors who do not satisfy the qualified client definition if those investors were admitted to their private funds prior to registration with the SEC. Following registration with the SEC, however, managers may continue to permit investors that are not qualified clients to invest in future private funds but may not receive performance-based compensation from those investors with respect to such investments. In addition, because the net worth and assets under management thresholds for qualified client status are adjusted for inflation every five years, the pool of qualified client investors may diminish over time as previously eligible investors no longer satisfy the applicable thresholds. The Proposal could provide the dual benefit of greater flexibility for private fund managers to establish and maintain relationships with accredited investors as their businesses scale and they become registered with the SEC, and greater flexibility for certain accredited investors to participate in investment strategies that historically have been restricted to much larger institutional investors. Unless and until the Proposal is adopted, investment advisers should continue to comply with the existing qualified client requirements. If the Proposal is adopted, private fund sponsors should consider whether corresponding changes are appropriate for their subscription documents, investor questionnaires, and other offering materials. Advisers that are state-registered or rely on a state-level exemption should also consult the laws and regulations of each relevant jurisdiction before changing investor eligibility standards or performance-based compensation practices, because adoption of the federal amendments may not automatically modify state requirements. Comments on the Proposal will be due 60 days after publication in the Federal Register. 1 Investment Adviser Performance-Based Compensation Modernization, Investment Advisers Act Release No. IA-7022 (Sept. 30, 2026), available at https://www.sec.gov/rules-regulations/2026/09/s7-2026-28#33-11443proposed.

Insights

The Supreme Court Update - October 8, 2026

On September 29, 2026, the Supreme Court granted certiorari in one case: Department of Homeland Security v. D.V.D., No. 26-426: This case concerns the Trump Administration’s “third-country removal” procedures, where immigrants are deported to countries not listed in the removal orders. In granting certiorari, the Court granted the Government’s application to stay a lower court decision halting the practice, which will allow third-country removals to continue pending resolution of the case. The issues presented are: (1) Whether the district court had jurisdiction over respondents’ claims; (2) whether the district court had authority to enter class-wide declaratory relief and APA vacatur under 8 U.S.C. § 1252(f)(1); (3) whether the Government’s guidance on third-country removals is unlawful under 8 U.S.C. § 1231(b), the due process clause, or FARRA/CAT and its implementing regulations; and (4) such other questions that the Government determines are appropriate for the proper disposition of the case. On October 1, 2026, the Court granted certiorari in three additional cases: Rhoney v. Barbosa da Cunha, No. 26-104: Immigration officials detained Ricardo Aparecido Barbosa da Cunha—a Brazilian citizen who had lived in the United States for approximately twenty years after entering without inspection—and denied him a bond hearing under 8 U.S.C. § 1225(b)(2)(A). The Second Circuit held that his detention was instead governed by § 1226(a), which permits release on bond, because § 1225(b)(2)(A)’s mandatory-detention requirement applies only to noncitizens apprehended while entering the country or shortly thereafter. The question presented is: Whether 8 U.S.C. § 1225(b)(2)(A) mandates the detention pending removal proceedings of aliens who, like Barbosa da Cunha, are present in the United States without having been admitted. Missionaries of St. John the Baptist, Inc. v. Frederic, No. 25-113: A Catholic religious organization sought to build a shrine to the Virgin Mary on land the organization owned adjacent to its church in Park Hills, Kentucky. Local zoning restrictions prohibited the proposed construction. The question presented is: Whether a land-use regulation that prohibits a religious institution from building a religious structure on its own property constitutes a “substantial burden” on religious exercise under the Substantial Burden Provision of the Religious Land Use and Institutionalized Persons Act, 42 U.S.C. § 2000cc(a). Marschner v. Marschner, No. 25-1349: Under the Uniformed Services Former Spouses’ Protection Act (“USFSPA”), a veteran’s longevity-based retirement pay can be divided in a divorce, but retirement pay based on disability and retirement pay that was waived to receive disability pay are indivisible. The question presented is: Does the USFSPA require state courts to refuse enforcement of indemnification provisions in a divorce settlement agreement?