US Court Rejects EPA Denials of 2022 Small Refinery Biofuel Waivers

July 29, 2024

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by Richard Valdmanis (Reuters) A federal appeals court said on Friday it rejected the Environmental Protection Agency’s decision in 2022 to deny small oil refineries temporary waivers from the nation’s biofuels blending program, and sent the matter back to the agency for review.

The decision by the U.S. Court of Appeals for the District of Columbia is a win for the refining industry, which has long opposed federal requirements under the Renewable Fuel Standard that they add biofuels such as corn-based ethanol into the nation’s fuel.

The court’s opinion, and details of the decision, were sealed.

The RFS was designed to help farmers and to reduce U.S. petroleum imports, but oil refiners – particularly smaller independent ones – say the program imposes costs that put their businesses at risk. The EPA can award exemptions to small refiners if they prove the obligations cause them undue harm.

In 2022, the agency rejected a slew of such requests, triggering the legal battle that was spearheaded by refiner Sinclair Wyoming Refining Company and joined by others.

The biofuel industry, including producers of corn-based ethanol, have long fought the small refinery waiver program, arguing that it has been overused in a way that helps the oil industry but hurts American farmers.

Sinclair did not immediately respond to a request for comment.

Biofuels groups said they were "extremely disappointed."

"We will evaluate our next steps, which may include seeking further review of today’s decision. Our coalition remains resolute and committed to protecting and defending the proper implementation of the RFS," the Renewable Fuels Association, Growth Energy and the American Coalition for Ethanol said in a statement on Friday.

The EPA said it was reviewing the decision.

In a separate but related case last year, a U.S. appeals court struck down the EPA’s 2023 blanket denials of small refinery exemptions. READ MORE

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Excerpt from Renewable Fuels Association, Growth Energy, American Coalition for Ethanol: The U.S. Court of Appeals for the D.C. Circuit today issued an order vacating most of the U.S. Environmental Protection Agency’s 2022 denials of petitions for small refinery exemptions from Renewable Fuel Standard obligations, and remanding those petitions to EPA for further proceedings. The court’s opinion remains under seal and is unavailable for public review.

The following is a joint statement from the Renewable Fuels Association, Growth Energy and the American Coalition for Ethanol, all of whom intervened on EPA’s behalf in the litigation:

“We are extremely disappointed in today’s decision to vacate and remand EPA’s denial of dozens of small refinery exemption petitions. EPA’s decision in 2022 to deny the petitions was well-reasoned, based on sound economic analysis, and consistent with both the Clean Air Act and the objectives of the Renewable Fuel Standard. We will evaluate our next steps, which may include seeking further review of today’s decision. Our coalition remains resolute and committed to protecting and defending the proper implementation of the RFS.” READ MORE

Excerpt from DTN Progressive Farmer: n April 2022, the EPA revoked 36 SREs granted by the Trump administration for the 2018 compliance year. In June 2022, the EPA announced the denial of 69 exemption requests.

In April 2022, however, EPA offered most refineries an alternative way to comply with the RFS that wouldn't require the companies to make up for the 1.4 billion gallons of biofuels or compliance credits originally exempted.

There were 32 cases filed against EPA on the Biden administration's decision and consolidated by the court in one group, while six other cases were consolidated in a second group.

"Ordered and adjudged that, in accordance with the opinion of the court filed herein this date, the petitions of company A and company B be denied, but otherwise the petitions for review in (the first group) be granted," the court said in the judgment.

Those cases were remanded back to EPA for "further proceedings," according to the judgment.

...

In the second group of cases, the court said in its judgment it dismissed petitions filed by Growth Energy and Wynnewood Refining Company and denied a petition filed by Sinclair Wyoming Refining Company LLC.

The second group of lawsuits challenged the EPA's alternative compliance option given to the small refiners.

The appeals court's action is the latest in a long drama that has played out across multiple administrations.

In December 2021, the Biden EPA released a proposal to reject all pending exemption requests. The Trump administration approved more than 80 small-refinery exemption requests.

Court's ruling

Since last year, the EPA has relied on an updated interpretation of its Clean Air Act authority pertaining to SREs premised on refiners needing to demonstrate that RFS compliance was the cause of their hardship to qualify for an exemption.

"Retroactive application of EPA's new adjudicative methodology harshly penalizes petitioners for their good-faith and justified reliance on the agency's prior approach," the court said, noting that the December 2021 notice in the Federal Register of planned changes to SRE reviews was published after refineries submitted their SREs.

It also said that the EPA's interpretation that RFS compliance costs must be a refinery's sole cause of disproportionate economic hardship to be granted a waiver was "unreasonable," as it foreclosed on factors such as local economic conditions and refinery-specific circumstances.

The court also found fault with the EPA's RIN-passthrough economic theory that holds that the cost of compliance has been equalized among all market participants and that refineries can offset 100% of their RIN costs by raising the price of their fuel products.

The 5th Circuit found this theory to be "contrary to the evidence," adding that the idea that all refineries can completely pass on their RIN costs "is so implausible as applied to petitioners that it cannot be ascribed to a difference in view or agency expertise."

The 5th Circuit's ruling could spell trouble for how the EPA evaluates SREs, particularly from refineries in the court's district of Louisiana, Mississippi and Texas. But near-identical cases are pending before the DC Circuit and 11th Circuit, raising the potential for a circuit split and possible escalation to the Supreme Court.

Ramifications unclear

"It may take some time for the EPA and the courts to figure out the ramifications of this decision," Joe Kakesh, general counsel for the biofuel group Growth Energy said Nov. 27. "There are multiple litigation matters that are intertwined on these issues at different courts that are still in process. So it's an open question in light of that what EPA will do in response to the 5th Circuit opinion."

The agency has yet to hint at whether it will appeal the Nov. 22 ruling or its next move with regards to its more stringent stance on SREs.

"EPA is reviewing the decision," agency spokesperson Shayla Powell said in an email Nov. 27.

Of note, the EPA had already established an alternative compliance approach for the 31 small refineries whose previously granted SREs were reversed in April 2022, citing "virtually insurmountable obstacles" and "extenuating circumstances" warranting compliance flexibility.

The agency provided the affected refiners with the ability to meet their new 2018 compliance obligations without purchasing or redeeming additional RINs, although that approach is currently being challenged in court by Growth Energy.

And at least some of the petitioners were granted a stay of enforcement of their SREs as early as January of this year, pending the litigation.

As such, the impact to the existing RFS compliance scheme and RIN market from the court's action remains unclear. READ MORE

Excerpt from Inside EPA: Small refiners are urging the Supreme Court to reject EPA’s bid for review of broad Clean Air Act venue questions in litigation over agency disapprovals of renewable fuel standard (RFS) compliance waivers, saying that following a lower court’s ruling against EPA on the disapprovals, the case is not a “suitable vehicle” for the justices’ consideration. And in their Aug. 27 response brief , the refiners also push back on EPA efforts to have the court address the venue question in ... READ MORE

Excerpt from Inside EPA: The U.S. Court of Appeals for the District of Columbia Circuit has denied biofuel producers’ bid for panel rehearing of its pivotal July ruling that scrapped EPA’s denial of dozens of small refinery waivers from the Renewable Fuel Standard (RFS), a decision that upended EPA’s policy that has seen the agency deny all recent waiver requests. In a Sept. 12 order , the panel of Judges Nina Pillard, Neomi Rao and Florence Pan without elaboration denies Growth Energy’s petition for... READ MORE