In a ruling announced June 25, the U.S. Supreme Court delivered an opinion in HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association, which overturned by a vote of 6 to 3 the 10th Circuit Court of Appeals’ decision that in order to qualify for a hardship exemption under the Renewable Fuel Standard, a small refinery must have received uninterrupted, continuous hardship exemptions for every year since 2011.

Although it does allow for refiners to apply to extend RFS exemptions that have lapsed, it does not change the 10th Circuit decision components of the 10th Circuit’s ruling that refiners must still prove economic harm directly related to compliance with the RFS and that EPA cannot use RIN costs as a cause of economic harm while simultaneously admitting RIN costs are recovered in the refiner’s crack spread.`

This case concerns three small refineries that initially received an exemption, saw it lapse for a period, and then petitioned for an exemption. The decision stems from a May 2018 challenge brought against EPA in the U.S. Court of Appeals for the 10th Circuit by the Renewable Fuels Association, the National Corn Growers Association, National Farmers Union, and the American Coalition for Ethanol, working together as the Biofuels Coalition. In January 2020, the 10th Circuit decided that EPA cannot “extend” exemptions to any small refineries whose earlier, temporary exemptions had lapsed.

The petitioners argued that the small refinery exemptions were granted in direct contradiction to the statutory text and purpose of the Renewable Fuel Standard.

HollyFrontier Woods Cross Refining LLC received only the blanket exemption through 2010. Wynnewood Refining Company received the blanket exemption and a 2-year extension through 2012. HollyFrontier Cheyenne Refining LLC received a hardship exemption in 2015.

The group of renewable fuel producers objected. They petitioned for review of EPA’s decisions in the 10th Circuit, arguing the agency acted “in excess of statutory jurisdiction, authority, or limitations” by granting the petitions. The court vacated EPA’s decisions. It concluded the refineries were ineligible for an “extension” of their exemptions because all three had allowed their exemptions to lapse at some point in the past.

“The 10th Circuit didn’t just hold that an extension means an increase in time—it imposed a continuity requirement. On that court’s view, a small refinery becomes permanently ineligible for a further extension of time once its exemption lapses,” the Supreme Court opinion explains.

The court opinion states,  “Like the 10th Circuit, they emphasize that, by the time the petitioners sought new exemptions in 2017 and 2018, small refineries already ‘had many years to ponder . . . whether it made sense to enter into or remain in the market.’”

But the court also recognized the other side. “On the petitioners’ account, the statute seeks to increase production of renewable fuel while also offering a ‘safety valve’ each year for small refineries that might otherwise face extinction. According to the small refineries, the respondents’ competing ‘funnel’ metaphor makes little sense because a small refinery’s compliance in one year is in no way dispositive of its ability to comply in a future year. Instead, compliance depends on numerous factors unique to each year and circumstances over which small refineries often have no control.”

The opinion explains, “We mention all this not because we pick sides. Neither the statute’s text, structure, nor history afford us sufficient guidance to be able to choose with confidence between the parties’ competing narratives and metaphors. We mention this only to observe that both sides can offer plausible accounts of legislative purpose and sound public policy—and that it would therefore be a mistake to rely on appeals to some abstract intuition that the number of small refineries receiving exemptions ‘should have tapered down’ over time.”

As such, the respondents have not shown that EPA’s approval of the extension request was in excess of EPA’s statutory authority, the judges explain.

Silver lining

While the Supreme Court failed to affirm the portion of the 10th Circuit decision regarding whether an extension is allowed if it temporarily lapsed, the Biofuels Coalition pointed out that the appellate court also ruled that EPA’s exemption decisions must reconcile the agency’s consistent findings that all refineries recover the costs of compliance with the RFS, and that EPA may only use hardship caused by the RFS to justify granting exemptions. Despite the Supreme Court decision, EPA must still resolve those other aspects of the 10th Circuit ruling, they explain.

“Nearly a year and a half ago, the 10th Circuit handed down a unanimous decision that was ultimately adopted by the very agency we took to court in the first place,” coalition members say. “While we are extremely disappointed in this unfortunate decision from the Supreme Court, we will not stop fighting for America’s farmers and renewable fuel producers. Further, we are optimistic that other elements of the 10th Circuit decision, which were not reviewed by the Supreme Court, will compel the Biden administration and EPA’s new leadership to take a far more judicious and responsible approach to the refinery exemption program than their predecessors did.”

Growth Energy CEO Emily Skor adds the decision does nothing to change the 10th Circuit’s ruling that exemptions cannot be granted when refiners cannot properly trace their hardship to compliance with the RFS.

Future EPA action

Biofuel groups are hopeful the new EPA leadership under the Biden administration will continue implementing the RFS closer to what they view as the intended Congressional intent. As of today, 70 small refinery exemption petitions remain pending with EPA, for the compliance years 2011-2020. 

“As the Biden EPA has pledged to follow the 10th Circuit Court ruling, today’s decision allows refiners to request an RFS exemption extension, but it does not make it easier for refiners to actually receive one,” says Iowa Renewable Fuels Association Executive Director Monte Shaw. “We fully expect the Biden EPA to keep their commitment to the RFS and to apply the 10th Circuit Court standards relating to economic harm, and as a result, to deny the vast majority of RFS exemption extension requests that are pending or that will be submitted in the future.”

After carefully reviewing the issue, new EPA leadership in February reversed the agency’s previous position and announced support for the 10th Circuit decision. In April, EPA decided to revoke three last-minute refinery exemptions granted the day before President Biden’s inauguration; and in May, EPA announced it would cooperate with a Government Accountability Office investigation into the past administration’s adjudication of small refinery exemptions.

“In the past, the biofuel industry has looked to the courts to halt abuse. Today, new leaders at the Environmental Protection Agency have shown a willingness to defend the RFS, most recently by reversing three improperly granted exemptions,” Skor says. “We look forward to working with the Biden administration to keep a lid on exemptions, further strengthen the RFS and fast-track our progress toward decarbonization. Engine smart and earth kind biofuels are vital to achieving the nation’s climate goals.” 

Rep. Dusty Johnson, R-S.D., says he was disappointed in the ruling, but also says it puts the focus back on Congress to offer a fix. In February, the Biofuels Caucus introduced the RFS Integrity Act to ensure transparency in the RFS small refinery waiver process, which Johnson says becomes more important with this ruling. The Democratic-sponsored energy bill is also included this act and shows the bipartisan support for increased transparency on waivers.