A federal appeals court on Friday handed the ethanol industry a major victory, ruling that the Environmental Protection Agency under the Obama administration fundamentally misinterpreted its authority under the national renewable fuel mandate by reducing the amount of ethanol allowed to be blended in the nation's fuel supply and must correct the action.

The D.C. Circuit Court of Appeal's decision is a major victory for the ethanol and alternative fuel industry, which argued that the Obama EPA erred in its interpretation of its authority to waive biofuel requirements and that the EPA's misuse of the authority played into arguments touted by the oil industry and refiners.

The court's decision on the EPA's use of its waiver authority was the only argument that it ruled on, dismissing the other arguments from both biofuel and refiners.

"We reject all of those challenges, except for one: We agree with Americans for Clean Energy and its aligned petitioners ... that EPA erred in how it interpreted the 'inadequate domestic supply' waiver provision," the court decision read.

"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," the decision read. That means that the EPA can't waive the renewable fuel requirements because there are not enough biofuel refueling stations or pumps at gasoline stations, for example. It can waive the annual blending requirements for ethanol and other biofuels only because of lack of supply.

"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," the court said.

The Trump EPA now will have to redo the 2016 annual Renewable Fuel Standard requirements that were already implemented. It is not clear what that exactly will mean for the biofuel and oil industry.

The ethanol industry's lead trade group, the Renewable Fuels Association, said it was pleased that the court affirmed its position on EPA's waiver authority, calling it a victory.

"We are still reviewing the decision, but the fact the court has affirmed our position that EPA abused its general waiver authority by including factors such as demand and infrastructure in a waiver intended to be based solely on available supply is a great victory for consumers and the RFS program," said Bob Dinneen, the group's president and CEO.