Supreme Court Gives Small Refiners a Win in Renewable Fuels Ruling

Researched by Industrial Info Resources (Sugar Land, Texas)--Small refiners got a break last week when the U.S. Supreme Court ruled in their favor on exemptions to renewable fuel blending requirements. The case pitted the Petroleum Refining Industry against biofuel producers.

The court ruled 6-3 that the ability of the Environmental Protection Agency (EPA) to extend the exemptions was not limited to just those refineries that have continuously received the annual Renewable Fuel Standard (RFS) waivers without disruptions.

The Supreme Court reversed a decision by the 10th U.S. Circuit Court of Appeals, which held that the EPA was in the wrong when it waived renewable fuel blending requirements for three small refineries. Refining units of HollyFrontier Corporation (NYSE:HFC) (Dallas, Texas) and CVR Energy Incorporated (NYSE:CVI) (Sugar Land, Texas) appealed the lower court's decision.

Aspects of the RFS biofuel blending requirements have long put the petroleum refining and biofuels industries at loggerheads. Created in 2005, the RFS program requires a certain volume of renewable fuel, such as biodiesel and corn ethanol, to replace or reduce the quantity of petroleum-based transportation fuel, heating oil or jet fuel. Refineries can meet annual biofuel quotas by either blending biofuel into their products or buying Renewable Identification Number (RIN) compliance credits from other companies.

The EPA is allowed to grant waivers exempting some small refineries (those with refining capacity of less than 75,000 barrels per day) from the RFS requirements if they show the mandates have caused them economic hardship.

The 10th U.S. Circuit Court of Appeals ruled in 2020 that only refiners who have continuously received yearly extensions without lapsing could be eligible for the waivers. Any lapse would eliminate the ability of the EPA to grant further extensions, the court said. In the case of three refineries, their exemptions had expired by 2013 at the latest, according to a coalition of biofuels groups that supported the lower court ruling. For more information, see January 13, 2021, article - Dispute over Refinery Biofuel Blending Exemptions Lands in Supreme Court.

For the Supreme Court, the issue boiled down to the word "extension."

In the court's majority opinion, Justice Neil Gorsuch wrote: "It is entirely natural--and consistent with ordinary usage--to seek an 'extension' of time even after some lapse. Think of the forgetful student who asks for an 'extension' for a term paper after the deadline has passed, the tenant who does the same after overstaying his lease, or parties who negotiate an 'extension' of a contract after its expiration."

Chet Thompson, chief executive officer of the American Fuel & Petrochemical Manufacturers (AFPM) trade group, lauded the ruling, saying the AFPM "hopes that EPA now moves expeditiously to provide critical relief to those small refineries that have demonstrated disproportionate economic harm resulting from the RFS. RFS compliance costs hit all-time highs this month, nearing 25 cents per gallon. The program is hurting consumers and jeopardizing the viability of refineries across the country, as well as the jobs and communities they support."

The cost of RFS compliance could reach $30.5 billion for 2021, the highest in the program's 15-year history, according to the AFPM. "Further delay from the (Biden 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.

Biofuel producers had complained that under the Trump administration, biofuel waivers to refiners surged. Seventy small refinery exemption petitions remain pending with the EPA for the compliance years 2011-2020, according to the Biofuels Coalition, which consists of renewable fuel and farmers groups.

The Biofuels Coalition said its members "are optimistic that other elements of the 10th Circuit decision, which were not reviewed by the Supreme Court, will compel the Biden administration and EPA's new leadership to take a far more judicious and responsible approach to the refinery exemption program than their predecessors did."

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