Supreme Court rules in favor of refiners on exemptions from renewable fuel obligations

The US Supreme Court ruled 6-3 June 25 that small refiners can receive exemptions from renewable fuel obligations at any time that they are judged to be enduring disproportionate economic hardship.

The ruling was a big win for small oil refiners, especially at a time when their cost of purchasing credits to meet the Renewable Fuel Standard (RFS) are at an all-time high.

The attentions of refiners—and their legal opponents among renewable fuel makers—now shift to multiple questions of how the Environmental Protection Agency (EPA) will implement the decision in terms of exemptions.

Beyond that, EPA must decide on what annual volume obligations to impose on refiners for renewable fuels in 2021 and 2022.

Hoping for relief

The decision was welcomed in a statement issued by Chet Thompson, president of the American Fuel & Petrochemical Manufacturers (AFPM).

“Further delay from the administration in setting achievable annual volume standards, issuing small refinery waivers, and responding to numerous petitions for relief will make a bad situation even worse,” Thompson said.

Decisions by EPA on the RFS volume requirements for 2021 and 2022 could come as early as July, according to Derrick Morgan, AFPM’s senior vice-president of federal and regulatory affairs, speaking to reporters June 18.

AFPM at that time said new data indicated 2021 RFS compliance costs are likely to reach $24.6 billion and could reach $30 billion for the refining sector as a whole. That could add as much as 20 cents/gallon to wholesale fuel prices, according to the estimate.

In addition to the levels of 2021 and 2022 requirements, EPA has various options for easing the burden of the RFS program on refiners. It can grant the requested exemptions from small refiners. It also can act on pending waiver requests from seven governors, both Republican and Democratic. EPA has authority to grant general waivers of the obligations, in whole or in part, for states or regions or the country as a whole.

A matter of extension

The case before the Supreme Court was HollyFrontier Cheyenne Refining LLC v. Renewable Fuels Association. A decision in January 2020 by the US Circuit Court of Appeals for the Tenth Circuit vacated hardship exemptions that EPA had granted for three refineries—HollyFrontier Corp.’s refineries in Woods Cross, Utah, and Cheyenne, Wyo., and CVR Energy Inc.’s Wynnewood, Okla., refinery.

The RFS was created by the Energy Policy Act of 2005 and amended in 2007. Congress wrote that a small refinery can apply for an extension of the hardship exemption at any time.

A three-judge panel of the Tenth Circuit based its ruling on a dictionary definition of the word “extension.” It decided it preferred a definition that includes the idea of continuity, of something in existence that is being extended for an additional period of time. On that basis, the appellate court ruled that if a refiner did not get an exemption in one year, it could not get one in the next year, because an exemption that has lapsed is no longer available for extension.

The Supreme Court majority disagreed, noting that there are various definitions of “extension.”

The law allows refineries to seek exemptions at any time. That phrasing “does not connote a demand for some rigid continuity so much as the opposite—including the possibility that small refineries might apply for exemptions in different years in light of market fluctuations and changing hardship conditions, whether consecutively or otherwise,” wrote Justice Neil Gorsuch for the majority.

His opinion noted “the famously volatile nature of the fuel market” in reaching the conclusion that Congress wanted small refiners to have a safety valve for coping with that volatility.

In this case, the market is for renewable fuel credits in the form of renewable identification numbers (RINs) that most small refiners purchase because they lack the ability to buy or make ethanol themselves.