The United States Court of Appeals for the Tenth Circuit vacated three small refinery exemptions to the nationwide renewable fuel standard (“RFS”) program that the court concluded had been improperly granted by the Environmental Protection Agency (“EPA”) in a recent opinion interpreting requirements for the small refinery exemption. The RFS program was first authorized by a series of amendments to the Clean Air Act (“CAA”) known as the Energy Policy Act of 2005. The program requires a certain volume of renewable fuel, typically in the form of biofuel, to either replace or reduce the amount of non-renewable petroleum-based fuel in use. Refiners or importers of gasoline or diesel fuel are required to participate in the RFS program’s biofuel mandate unless the refiner or importer falls into one of the program’s exemptions. In Renewable Fuels Ass’n v. U.S. Envtl. Prot. Agency, No. 18-9533, 2020 WL 401800 (10th Cir. Jan. 24, 2020), the court vacated exemptions granted by EPA to three small refineries. The exemptions, known as small refinery exemptions, were designed to temporarily excuse smaller refineries from comply with the RFS program if doing so would pose a disproportionate financial hardship for the refinery in question.

The case was before the Tenth Circuit Court of Appeals as a petition of review of a final EPA decision. Because the three small refinery exemptions were final decisions from a federal agency, the plaintiffs could directly petition an appellate court for review of the exemptions. The case was filed by a group of renewable fuels producers who could face economic hardship as a result of EPA unlawfully granting small refinery exemptions, reducing the overall demand for biofuel. Ultimately, the court vacated the grant of exemptions by EPA because the statute only authorized EPA to extend existing exemptions, and by the time the extensions at issue in this case were granted, all three refineries had let their exemptions lapse.

The RFS Program & Small Refinery Exemption

The RFS program was initially established through amendments to the CAA in 2005 known as the Energy Policy Act. The Act established a temporary exemption from the program until calendar year 2011 for small refineries. The statute also instructed EPA to grant an additional two-year extension to any small refinery that was identified in an upcoming by the Department of Energy (“DOE”) as suffering disproportionate economic impact if required to comply with the RFS program.

Congress further amended the CAA in 2007 with the Energy Independence and Security Act (“EISA”). The 2007 Act built upon the existing RFS program, but kept in place the small refinery exemption. Under the EISA, small refineries would continue to be automatically exempted from the RFS program until 2011 with a possibility of a two-year extension of that exemption for refineries identified in the DOE study. The EISA also continued to allow small refineries to petition EPA “at any time” for an extension of the exemption.

DOE issued its study in 2011, identifying 21 small refineries that would suffer a disproportionate economic hardship if they were obligated to comply with the RFS program that year. As a result, those refineries were automatically granted an additional two-year exemption from the program, while other small refineries had the option of applying for an extension of the exemption.

The Renewable Fuels Ass’n Case

The court’s opinion in Renewable Fuels Ass’n v. U.S. Envtl. Prot. Agency concerned extensions of exemptions granted to three refineries: HollyFrontier Cheyenne Refining, LLC (“Cheyenne”); HollyFrontier Woods Cross Refining, LLC (“Woods Cross”); and Wynnewood Refining Company, LLC (“Wynnewood”). Cheyenne and Woods Cross both submitted their petitions to EPA for extensions of their small refinery exemptions in 2017 while Wynnewood submitted its petition in 2018. EPA granted all three petitions. The plaintiffs in Renewable Fuels Ass’n v. U.S. Envtl. Prot. Agency, filed suit against EPA alleging that it had violated the text of the EISA by granting the petitions because by the time all three of the refineries had applied for extensions of their small refinery exemptions, each exemption had lapsed.

All three refineries were granted the original small refineries exemption under the 2005 Energy Policy Act. Cheyenne was identified as one of the small refineries in DOE’s 2011 study as qualifying for the additional two-year exemption and was exempted from the RFS program for 2011 and 2012, but did not apply to extend the exemption in any of the years after 2012 until it petitioned EPA in 2017. Wynnewood was also identified in DOE’s 2011 study as qualifying for an additional two-year exemption, but did not apply to extend the exemption after 2012 until it submitted its petition to EPA in 2018. Woods Cross was not identified as one of the refineries in DOE’s 2011 study and had not sought an extension of that exemption until it submitted its petition to EPA in 2017.

The plaintiffs argued that it was unlawful for EPA to grant the petitions of the three refineries to extend their exemptions, because each refinery’s exemption had expired by the time they petitioned EPA for an extension. In response, EPA argued that the text of the EISA allows small refineries to petition EPA for a small refinery exemption “at any time.” According to EPA, the “at any time” language meant that small refineries could apply for, and receive, a small refinery exemption even if the refinery had not been exempt from the RFS program for several years.

The court agreed with the plaintiffs, concluding that the language of the EISA permitted EPA to only grant extensions of currently existing small refinery exemptions. Once a small refinery’s exemption lapsed, the court determined that the EISA did not permit EPA to grant a new one. According to the court, although the text of the EISA permitted small refineries to apply for an extension of the exemption “at any time,” EPA was not required to grant every petition it received. Because the EISA specifically states that EPA can grant extensions of small refinery exemptions, the court concluded that once a refinery’s exemption had expired it was no longer eligible to have that exemption extended.

Impacts

Although the opinion in Renewable Fuels Ass’n v. U.S. Envtl. Prot. Agency only vacates EPA’s grant of hardship exemptions to the three refineries specifically mentioned in the case, small refinery exemptions that have been granted to other small refineries are likely at risk. Any small refinery who applied for an extension of a small refinery exemption after that exemption had already lapsed could have its petition vacated. Because the number of refineries applying for and receiving small refinery exemptions has grown in recent years, it is likely that some of these exemptions could be vacated which could lead to a greater demand for biofuels to help those refineries come into compliance with the RFS program.

 

To read the text of the Clean Air Act, click here.

To read the text of the Energy Policy Act of 2005, click here.

To read the text of the Energy Independence and Security Act of 2007, click here.

To read the opinion in Renewable Fuels Ass’n v. U.S. Envtl. Prot. Agency, click here.

For more National Agricultural Law Center resources on the Clean Air Act, click here.

For more National Agricultural Law Center resources on the RFS program, click here.