The Tenth Circuit has held that the U.S. Environmental Protection Agency (EPA) impermissibly exceeded its statutory authority in approving extensions to the small refinery exemptions from the federal Clean Air Act renewable fuel standards based on disproportionate economic hardship caused by structural, macroeconomic conditions, rather than compliance with the standards themselves. [Renewable Fuels Association v. U.S. Environmental Protection Agency, ___F.3d___, Case No. 18-9533 (10h Cir. Jan. 24, 2020).]
Background
The Renewable Fuel Program, adopted by Congress in 2005, amended the Clean Air Act to require transportation fuel sold in the United States to meet “annual benchmarks” for the incorporation of renewable fuel (Energy Policy Act of 2005, Pub. L. No. 109-58, § 1501; 42 U.S.C. § 7545(o)(2)(A)(1)), with the goal of “reduc[ing] the nation’s dependence on fossil fuels.” Nonetheless, “small refineries,” defined as those “for which the average aggregate daily crude throughput for a calendar year. . .does not exceed 75,000 barrels” (42 U.S.C. § 7545(o)(1)(K)), benefited from a “Temporary Exemption” until calendar year 2011.
The statute instructed the EPA to extend this exemption for at least two years for any small refinery identified in an upcoming study by the Department of Energy (DOE) as suffering ‘disproportionate economic impact if required to comply[.]’ Id. §§ 1501(o)(9)(A)(ii)(I)–(II). The Energy Independence and Security Act of 2007 (Energy Independence and Security Act, Pub. L. No. 110-140, 121 Stat. 1492) also amended the Clean Air Act also imposes renewable fuel standards, and also incorporates a small refinery exemption, which applies:
“. . .to small refineries until 2011, with a minimum extension of the exemption of two years for any such refinery determined to be subject to a disproportionate economic hardship by a DOE study to be conducted no later than 2008. Id. §§ 7505(o)(9)(A)(i)–(ii).”
EPA’s small refinery program regulations “recognized an exemption in 2010 for each entity that met ‘the definition of small refinery’ for ‘calendar year 2006.’” 42 C.F.R. § 80.1441(a)(1). The regulations stated that this exemption “shall be extended” for at least two years if a Department of Energy study determined compliance would impose disproportionate economic hardship. Id. § 80.1441(e)(1). A small refinery may petition for “an extension” of the exemption “at any time”; the petition must “specify the factors that demonstrate a disproportionate economic hardship;” include a detailed discussion regarding “the hardship the refinery would face in producing” compliant transportation fuel; and identify “the date the refiner anticipates that compliance with the requirements can reasonably be achieved[.]” 42 C.F.R. § 80.1441(e)(2)(i).
This case concerns three petitions for exemption extensions, submitted by HollyFrontier Cheyenne Refining LLC (Cheyenne). HollyFrontier Woods Cross Refining LLC (Woods Cross), and Wynnewood Refining Company, LLC (Wynnewood, collectively: Refineries.) Cheyenne’s 2016 application for an extension of its small refinery exemption, for example, was recommended for denial by DOE, which concluded that Cheyenne’s compliance with the standards “would not appear, based on the data we analyzed, to threaten the refinery’s economic viability.” EPA nonetheless approved the extension, on the basis that “disproportionate economic hardship may be the result of other economic factors, including a difficult year for the industry as a whole.” In the administrative proceedings concerning Cheyenne’s extension petition
EPA acknowledged it was generally altering its methodology. The agency stated:
“. . .[i]n prior decisions, EPA considered that a small refinery could not show disproportionate economic hardship without showing an effect on ‘viability,’ but we are changing our approach.”
The agency explained that:
“. . .[w]hile a showing of a significant impairment of refinery operations may help establish disproportionate economic hardship, compliance with [renewable fuel standard, ‘RFS’] obligations may impose a disproportionate economic hardship when it is disproportionately difficult for a refinery to comply with its RFS obligations—even if the refinery’s operations are not significantly impaired.”
Petitioner Biofuels Association challenged the exemption-extensions, arguing “EPA neglected to require that any disproportionate economic hardship was caused by compliance with RFS obligations.”
The Tenth Circuit’s Decision
DOE is required by Part A of the Energy Policy Act to “investigate ‘whether compliance with the requirements’ of the RFS program ‘would impose a disproportionate economic hardship on small refineries.’” Id. § 7545(o)(9)(A)(ii)(I). The Tenth Circuit noted that Part (A) further directs DOE to study whether a small refinery “would be subject to a disproportionate economic hardship if required to comply” with RFS obligations, and if yes, EPA is “obligated to extend the blanket exemption for another two years.” Id. § 7545(o)(9)(A)(ii)(II). The Court of Appeals therefore concluded that “[t]he plain language of these provisions indicates that renewable fuels compliance must be the cause of any disproportionate hardship.”
The court rejected EPA’s and the refineries’ argument that the case-by-case analysis mandated by Part B of the Act controls, so that extension petitions may be granted “‘for the reason of’ (and thus caused by) disproportionate economic hardship,” while Part B “does not attempt to describe what must induce the hardship.” The court explained Part A specifies in general “what must induce the hardship,” i.e., “compliance with the requirements of the RFS program,” while Part B allows adjudication of individual extension applications is based on “the findings of the” Part A study “and other economic factors.” Thus, “[f]ar from “being diluted by Part (B), the hardship-caused-by-compliance requirement in Part (A) works together with it.”
The Extension Petitions
Turning to the extension petitions, the court held that EPA exceeded its statutory authority in approving extensions “on the basis of ‘disproportionate economic impact’ stemming from ‘adverse structural conditions alone.’” The record evidence relied on by EPA indicated, e.g.,
“‘[a] difficult year for the refining industry as a whole’ and an ‘industry-wide downward trend’ of lower net refining margins.” This court found that this is impermissible under the statutory scheme, as while:
“. . .[m]acroeconomic conditions surely provide important context for assessing individual small refinery extension petitions. But hardships caused by overall economic conditions are different from hardships caused by compliance with statutory renewable fuel obligations.”
Conclusion and Implications
Pitting agricultural interests supplying the renewable fuel market against petrochemical refineries, the renewable fuel standards have proven a reliable, sustainable source of litigation—here, that litigation illuminates an outer limit of executive agency interpretative latitude. Where Congress has clearly spoken, the shifting winds of executive discretion may well be stymied. The Tenth Circuit’s opinion is available online at: https://www.ca10.uscourts.gov/opinions/18/18-9533.pdf
(Deborah Quick)
