Appeals Court Signals EPA Likely Violated Law in Biofuels Compliance Program

by Kelsey Tamborrino (Politico Pro) A spokesperson for EPA said it will review the decision. -- A federal appeals court Friday granted a request by two small refiners to halt their compliance obligations under the Renewable Fuel Standard — signaling EPA's decision to reject dozens of hardship exemption applications likely violated the law.

Refiners are legally required to blend certain volumes of renewable fuels into the nation's fuel supply, but small refiners could petition the agency for an exemption based on disproportionate economic hardship.

The Biden EPA last year finalized a decision to deny nearly 70 pending small refinery exemption petitions dating back to 2016, arguing those refineries do not face disproportionate economic hardship caused by compliance with their volume obligations.

"That retroactive application of EPA's 'new interpretation' — which quite possibly will read the exemption framework promulgated by Congress out of the statute entirely, such that no small refinery will ever qualify for one — is thus likely contrary to law," the 5th Circuit Court of Appeals wrote.

Details: The court on Friday granted the motions from two small refiners — San Antonio Refinery, or TSAR, and Calumet Shreveport Refining — that sought to stay their compliance obligations following EPA's move last year. The stay prevents the agency from applying its new standard to deny the refiners’ requested exemptions until the court can determine, on the merits, whether the new standard can legally be applied. READ MORE

Excerpt from Argus Media: The 5th Circuit, in its ruling, found that TSAR and Calumet were likely to prevail in their claim that EPA's new interpretation was an "unlawful retroactive application" of a new standard. EPA "changed its rules retroactively" without providing refiners fair notice of the change, the court wrote.

"Nothing here is to suggest that TSAR and Calumet are entitled to continuing hardship waivers," the court said. "But they are entitled to know the ground rules by which EPA will grant or deny their hardship petitions, in advance of making their application."

EPA had argued against a stay, which it said would artificially inflate the number of RINs used to comply with the RFS, undercutting the goals of the program and reducing demand for renewable fuel. EPA had argued the two refineries should not be rewarded for their non-compliance with the biofuel program.

But the 5th Circuit said it found the arguments by the two small refineries more persuasive. TSAR had said that without a stay of its compliance obligations under the RFS, it would be forced to file for bankruptcy within months. Calumet said it would be insolvent in a matter of weeks. READ MORE

Excerpt from Ethanol Producer Magazine: The San Antonio Refinery LLC (TSAR) and Calumet Shreveport Refining LLC are among the small refineries that have challenged the EPA’s 2021 decision to change its methodology for determining economic hardship. The change in methodology was prompted by the EPA’s review of the pending SRE petitions and supporting information; its legal, technical and policy analysis of the Clean Air Act provisions related to small refineries; and its application of the holding of the U.S. Court of Appeals for the Tenth Circuit in Renewable Fuels Association et al. v. EPA.

In challenging the EPA’s new SRE policy, TSAR and Calumet claim that the EPA’s new statutory interpretation violates the CCA; that the agency’s new interpretation of “disproportionate economic hardship” led to an unlawful retroactive application of a new standard; and that EPA’s denial of the hardship exemption petitions was arbitrary and capricious. “We are persuaded that TSAR and Calumet are likely to prevail on at least the second argument, so we focus our analysis there,” said the court in a Jan. 27 filing.

“That retroactive application of EPA’s ‘new interpretation’—which quite possibly will read the exemption framework promulgated by Congress out of the statute entirely, such that no small refinery will ever qualify for one—is thus likely contrary to law,” the court said in the filing. “It follows that TSAR and Calumet, at least as to their hardship petitions submitted for years prior to EPA’s late-2021 change of course, have demonstrated a likelihood of success on the merits.”

The court specifies that it is not suggesting that TSAR and Calumet are entitled to continuing hardship waivers. However, the court says “they are entitled to know ground rules by which EPA will grant or deny their hardship petitions, in advance of making their applications.” The EPA changed its SRE rules retroactively “and TSAR and Calumet have made a strong showing that they will succeed on the merits of their appeals as a result.” As a result, the court has stayed TSAR and Calumet’s RFS obligations until the court rules on the appeal.

Growth Energy has expressed disappointment in the court’s action. “We’re disappointed the court issued an order delaying compliance by two facilities, but we’re confident that the RFS will be fully enforced once the merits are considered,” said Emily Skor, CEO of Growth Energy. “The EPA’s position is backed by reams of real-world data and analysis by public- and private-sector experts. The supposed ‘cost’ to these refiners is an accounting fiction. Moreover, Congress never intended for these temporary exemptions to become a permanent handout. We agree with EPA’s view that it’s past time to end abuse of SREs, which destroy demand for low-carbon fuel and create needless uncertainty for all stakeholders, large and small.” READ MORE