The US Supreme Court sifted through the arguments Apr. 27 on how to determine congressional intent of hardship exemptions for small oil refiners dealing with the costs of the renewable fuel standard (RFS).
The justices seemed most skeptical of the position of the government and ethanol advocates, whose arguments—accepted in 2020 by the US Court of Appeals for the Tenth Circuit—would block access to exemptions for most small refiners.
In the view of the government, the Renewable Fuels Association, and the farm lobby, the RFS program was set up by statutory language allowing the Environmental Protection Agency (EPA) to grant extensions of exemptions to small refiners only in a continuous series, every year, with no break.
That interpretation assumed the word “extension” in common usage implies continuity, a prolonging or lengthening without break, and Congress intended that common usage in the law. Only one justice, Elena Kagan, sounded willing to accept that argument.
Looking for congressional intent
Several justices did not find the use of “extension” to be “plain or unambiguous,” as Chief Justice John Roberts phrased it. The justices asked the attorneys for both sides to provide indicators, drawn from the statutory language, that could guide them in interpreting congressional intent.
Attorney Peter Keisler of law firm Sidley Austin LLP, arguing for refiners, brought the justices back repeatedly to what he considered the clearest indicator of congressional intent, the law’s provision that refiners can apply for exemptions “at any time.”
He also emphasized that the law ratchets up the RFS obligations year by year to 2022, which meant a small refiner might cope with the obligations one year but struggle to afford the costs in a subsequent year involving greater requirements. It was easy for Congress to see that a refiner might not need an exemption one year but might need it in a later year, he argued.
Attorney Christopher Michel, assistant to the US solicitor general, admitted the term “extension” is not unambiguous, and said, “We’re relying more on dictionary definitions plus common sense.”
Justice Stephen Breyer did not see common sense in the government’s interpretation, however. He noted that small refiners generally must cover their renewable fuel obligations by purchasing credits called renewable identification numbers (RINs).
“You don’t know what the price of the RIN will be,” Breyer said. “Sometimes it’s up, sometimes it’s down.”
Markets change over time, and a rational system cannot presume that markets will be continuous, Breyer said. As markets rise and fall, exemptions may be needed or not needed in any given year, an unpredictable situation that is not addressed by an insistence of continuous exemptions or no exemptions, he suggested.
Government changed sides
The case is HollyFrontier Cheyenne Refining LLC v. Renewable Fuels Association. It derives from the RFS program set up by the Energy Policy Act of 2005 and expanded by the Energy Independence and Security Act of 2007. The program included a blanket exemption through 2011, after which EPA could grant individual exemptions a year at a time.
Until 2020, EPA had assumed exemptions could be granted in any year—at any time—if merited. Only in 2020 did the Trump EPA stop defending its past position, which could have alienated voters in corn-growing and ethanol-producing states.
Similarly, the Biden administration has sided with the Renewable Fuels Association rather than with the interpretation accepted by the Obama EPA.
The Tenth Circuit decision in January 2020 vacated hardship exemptions granted for three refineries—HollyFrontier Corp.’s refineries in Woods Cross, Utah, and Cheyenne, Wyo., and CVR Energy Inc.’s Wynnewood, Okla., refinery.
Seventeen refiners tried to get around the problem by requesting retroactive exemptions from EPA, but the agency denied the requests (OGJ Online, Sept. 15, 2020).
Questions about impact
Michel said the government doubts many small refiners will be forced out of business if the Supreme Court upholds the Tenth Circuit.
“There’s very little risk of going out of business,” he said. And if some small refiners were forced to close, he said, “I think that Congress would have accepted that.”
HollyFrontier already has demonstrated a partial impact. The company ended oil refining at its Cheyenne refinery in August and is switching the facility to biodiesel production. It cited the Tenth Circuit court decision as one of its several reasons for the change.
Matthew Morrison, a Pillsbury Winthrop Shaw Pittman attorney arguing on behalf of the Renewable Fuels Association, told the court that exemptions granted to refiners have hit his industry hard.
“It’s had a devastating effect on the renewable fuels sector,” he said.
Federal statistics do not show devastation. They show a growing ethanol sector. The Energy Information Administration says the US produced almost 13 billion gal of ethanol in 2012, then raised its output year by year to reach 16 billion gal in 2018, after which it slipped only a little, to 15.8 billion gal, in 2019.