Hardship Relief:  Tenth Circuit strikes down three small oil refinery waivers in win for renewable fuels

In Colorado, in an unanimous ruling, the Tenth Circuit of the US Court of Appeal has struck down three small refinery hardship waivers from compliance with the United States’ Renewable Fuel Standard.

The court ruling stems from a May 2018 challenge brought against EPA by the Renewable Fuels Association, the National Corn Growers Association, the American Coalition for Ethanol and National Farmers Union.

The ruling

Judge Mary Beck Briscoe issued the Circuit’s opinion and wrote:

“We vacate the EPA orders granting the exemption extension petitions of Cheyenne, Woods Cross, and Wynnewood. We remand these matters to the EPA for further proceedings consistent with this opinion.“

Among other findings, the Court held that EPA cannot “extend” exemptions to any small refineries whose earlier, temporary exemptions had lapsed. According to the Court opinion, “the statute limits exemptions to situations involving ‘extensions,’ with the goal of forcing the market to accept escalating amounts of renewable fuels over time. None of the three small refineries here consistently received an exemption in the years preceding its petition. The EPA exceeded its statutory authority in granting those petitions because there was nothing for the agency to ‘extend.’” EPA’s own data show that a maximum of only seven small refineries could have received continuous extensions of their previously existing exemptions. Yet, recently EPA has granted as many as 35 exemptions in a single year.

Briscoe also wrote:

On the merits, we agree in part with two of the Biofuels Coalition’s three statutory construction arguments. The amended Clean Air Act allows the EPA to grant an “extension” of the small refinery exemption – not a stand-alone “exemption” – in response to a convincing petition. The statute limits exemptions to situations involving “extensions,” with the goal of forcing the market to accept escalating amounts of renewable fuels over time. None of the three small refineries here consistently received an exemption in the years preceding its petition. The EPA exceeded its statutory authority in granting those petitions because there was nothing for the agency to “extend.” Further, one of the EPA’s reasons for granting the petitions was to address disproportionate economic hardship caused by something other than compliance with the renewable fuels mandate. That, too, was beyond the agency’s statutory authority. The Biofuels Coalition additionally claims that the EPA read the word “disproportionate” out of the statute, but we reject that argument. 

Once we move from the topic of statutory authority, we disagree with almost all of the Biofuels Coalition’s assertions that the EPA acted arbitrarily and capriciously in granting the extension petitions. We hold that the agency did abuse its discretion, however, by failing to address the extent to which the three refineries were able to recoup their compliance costs by charging higher prices for the fuels they sell. The EPA has studied and staked out a policy position on this issue. One of the refineries expressly raised the issue in its extension petition. It was not reasonable for the agency to ignore it.

The Court also found that EPA abused its discretion in failing to explain how the Agency could conclude that a small refinery might suffer a disproportionate economic hardship when the Agency has simultaneously consistently maintained that costs for RFS compliance credits, or RINs, are passed through and recovered by those same refineries.

Reaction from the stakeholders

“We are extremely pleased with the Tenth Circuit’s decision to vacate the waivers granted by EPA to three refineries owned by CVR Energy and HollyFrontier,” said RFA President and CEO Geoff Cooper. “The Court has affirmed our long-held position that EPA’s recent practices and policies regarding small refinery exemption extensions were completely unlawful. And while the decision addresses three specific exemptions, the statutory interpretation issues resolved by the court apply much more broadly.”

“The Court’s decision is welcome news for corn growers,” said National Corn Growers Association President Kevin Ross. “Ethanol is an incredibly important value-added market for corn farmers, and EPA’s waivers have reduced RFS volume requirements by more than 4 billion gallons over the past three years, impacting corn demand. We are optimistic this decision will finally put an end to the demand destruction caused by waivers and keep the RFS back on track.”

“ACE members are elated the Tenth Circuit court agreed with us that EPA overstepped its authority in granting three specific small refinery exemptions to CVR Refining and HollyFrontier,” said American Coalition for Ethanol President CEO Brian Jennings. “The court’s ruling highlights how EPA abused the SRE provision of the Renewable Fuel Standard in broader terms to unfairly enrich the oil industry which could have far-reaching implications on the legitimacy of other refinery waivers and limit how they can be used moving forward.”

“This ruling comes at a critical time for America’s farmers and the biofuels industry,” said National Farmers Union President Roger Johnson. “Due in large part to EPA’s rampant and ongoing abuse of the SRE program, 2019 was one of the most challenging years in history for the agriculture and biofuel sectors. We believe this ruling will help restore the ability of the RFS to drive demand and expand markets for renewable fuels, as Congress intended, providing a badly needed shot in the arm for rural America.”

According to the renewable fuels coalition, the Court’s decision sends a resoundingly positive signal to the marketplace at a time when it is desperately needed.

The Documents

The Biofuels Coalition original 55-page submission to the Court can be found here.

The Court’s 99-page ruling can be found here.

The Bottom Line

It’s three refineries, but expect that more action will flow from the 10th Circuit’s opinion, and also expect that the oil industry will appeal this ruling to the Supreme Court although a grant of certorari to the highest court could be considered unlikely given the lack of controversy between various Courts of Appeal on the issue at this point.