US Supreme Court reverses Tenth Circuit ruling on small refinery exemptions to RFS

In a 6-3 ruling, the U.S. Supreme Court decision has reversed the January 2020 ruling by the U.S. Court of Appeals for the Tenth Circuit that struck down three small refinery exemptions (SREs) granted by former President Donald Trump’s EPA. When granted, SREs may temporarily alleviate oil refiners from their obligations under the Renewable Fuel Standard to blend certain volumes of biofuels or purchase renewable identification number (RIN) credits.

The June 25 decision was the result of arguments heard April 27 regarding a May 2018 challenge brought against EPA in the Tenth 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. The petitioners argued that the SREs were granted in direct contradiction to the statutory text and purpose of the Renewable Fuel Standard.

In January 2020, the Tenth Circuit decided that EPA cannot “extend” exemptions to any small refineries whose earlier, temporary exemptions had lapsed. According to that ruling, “the statute limits exemptions to situations involving ‘extensions,’ with the goal of forcing the market to accept escalating amounts of renewable fuels over time.”

Justice Gorsuch delivered the opinion of the Court joined by Justices Thomas, Breyer, Alito and Kavanaugh, along with Chief Justice Roberts.

“The key term here—‘extension’—is not defined in the statute,” Gorsuch writes. “[The] temporal use of ‘extension,’ however, does not require unbroken continuity. The Tenth Circuit erred by imposing such a requirement here and concluding that a small refinery is permanently ineligible for an extension once an exemption lapses.”

Justice Barrett filed the dissenting opinion joined by Justices Sotomayor and Kagan. “The question in this case is straightforward: Does this provision limit EPA to prolonging exemptions currently in place, or does it enable EPA to provide exemptions to refineries that lack them?” Barrett writes. “The statute’s text and structure direct a clear answer: EPA cannot ‘extend’ an exemption that a refinery no longer has. Because the Court’s contrary conclusion caters to an outlier meaning of ‘extend’ and clashes with statutory structure, I respectfully dissent.”

Certain aspects of the Tenth Circuit’s ruling were left unchallenged and were not reviewed by the Supreme Court.

The Biofuels Coalition noted that, while the Supreme Court failed to affirm this portion of the Tenth Circuit decision, 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 today’s Supreme Court decision, EPA must still resolve those other aspects of the Tenth Circuit ruling,” the coalition wrote.

“Nearly a year and a half ago, the Tenth Circuit handed down a unanimous decision that was ultimately adopted by the very agency we took to court in the first place,” coalition members said. “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 Tenth 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.”

Under new leadership of EPA Administrator Michael Regan, the agency reversed its previous position in February and announced support for the Tenth Circuit decision.

The National Biodiesel Board expressed dismay at the June 25 opinion from the highest court in the land. “The Supreme Court decision is dismaying because it leaves uncertainty about when EPA may offer exemptions to small refineries,” said Kurt Kovarik, NBB’s vice president for federal affairs. “These exemptions harm biodiesel and renewable diesel producers when they reduce demand for advanced biofuels. EPA has provided multiple ways for refiners to meet the Clean Air Act’s RFS requirements, including an outsized bank of reserve RIN credits. The agency must issue the 2021 RFS rules as soon as possible and ensure that RFS volumes it sets are met, with full accounting for any small refinery exemptions in plans to grant.”

The American Soybean Association is also frustrated with the ruling. “This just means that the Biden administration needs to administer the RFS in a stable and predictable manner that achieves the biofuel-blending, greenhouse gas-reducing benefits that Congress intended when it passed the RFS,” said Kevin Scott, ASA president. “SREs should be issued to small refiners only when the economic viability of a refiner is threatened solely because of the RFS, and any gallons exempted can be spread out among others to ensure that biofuel blending targets truly are met.”

Monte Shaw, executive director of the Iowa Renewable Fuels Association, said, “We are extremely disappointed the Supreme Court didn’t uphold the Tenth Circuit Court ruling on eligibility to request RFS refinery exemption extensions. I am not a lawyer, but it sure seems like the Tenth Circuit Court got it right when they determined that a refinery can’t extend something it no longer has. However, it is important to remember this case only applied to one of the three major findings from the Tenth Circuit Court. Today’s decision allows refiners to apply to extend RFS exemptions that have lapsed. But this case did not impact the Tenth Circuit’s ruling that refiners must still prove economic harm directly related to compliance with the RFS. Just as importantly, the Tenth Circuit also found 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. As the Biden EPA has pledged to follow the Tenth 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. We fully expect the Biden EPA to keep their commitment to the RFS and to apply the Tenth 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.”

As of today, 70 small refinery exemption petitions remain pending with EPA for compliance years 2011-’20.