Court Stays RFS Compliance for Refiners

Fifth Circuit Says Small Refiners Likely to Succeed on SRE Legal Challenge

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The U.S. Court of Appeals for the Fifth Circuit sided with two refiners in a small-refinery exemption lawsuit. (Photo by Tim-Evanson; cc-by-sa-2.0)

LINCOLN, Neb. (DTN) -- Two small refineries will not be required to blend more ethanol to comply with their 2021 obligations in the Renewable Fuel Standard, after a federal appeals court issued a stay pending an appeal on EPA's retroactive rejection of small-refinery exemption requests for the companies.

On June 3, 2022, EPA denied 69 SRE petitions for compliance years 2016 to 2021, based on what the agency said was a revised approach to exemptions.

In its ruling, the U.S. Court of Appeals for the Fifth Circuit said San Antonio Refinery LLC and Calumet Shreveport Refining LLC were likely to succeed on at least one of their claims against EPA's change to the SRE program.

In 2021, EPA decided to change its interpretation of the Clean Air Act and stopped using a scoring matrix to determine economic hardship. EPA then denied 36 exemption petitions for the 2018 compliance year in April 2022, employing the new interpretation of the CAA, prior to the next phase of exemption denials in June.

The refiners put forth three arguments, including that the new interpretation violates the Clean Air Act, that EPA'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.

"Nothing here is to suggest that TSAR and Calumet are entitled to continuing hardship waivers," the court said in its ruling. "But they are entitled to know the ground rules by which EPA will grant or deny their hardship petitions, in advance of making their applications. Here, EPA changed the rules retroactively, and TSAR and Calumet have made a strong showing that they will succeed on the merits of their appeals as a result."

In a news statement on Monday, Growth Energy CEO Emily Skor said the EPA itself has concluded that small refiners -- those producing no more than 75,000 barrels per day -- pass along compliance costs to consumers at the pump.

"The EPA's position is backed by reams of real-world data and analysis by public- and private-sector experts," she said. "The supposed 'cost' to these refiners is an accounting fiction."

The two refiners in question historically have received exemptions from the RFS. The court said several of their petitions were denied by EPA in June 2022.

"While they certainly are not entitled to exemptions ad infinitum, TSAR and Calumet were entitled to have their pending petitions evaluated under consistent ground rules, i.e., in view of 'fair notice, reasonable reliance, and settled expectations,'" the court said.

"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."

In January 2020, the U.S. Court of Appeals for the 10th Circuit ruled in Renewable Fuels Association et al. v. EPA that the agency has no power to "extend" an exemption that had lapsed.

The Supreme Court on June 25, 2021, vacated the 10th Circuit ruling in HollyFrontier v. Renewable Fuels Association that EPA may only extend continuously pre-existing exemptions but the other two holdings from the 10th Circuit decision remained intact.

The Trump administration granted 88 small-refinery exemptions from 2016 to 2020.

Read more on DTN:

"Ethanol, Ag Intervene in RFS Lawsuit,"…

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Todd Neeley

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