EPA changes position, supports Tenth Circuit Court’s SRE ruling

The U.S. EPA on Feb. 22 announced it now supports the Tenth Circuit Court of Appeal’s January 2020 ruling on small refinery exemptions (SREs). Representatives of the U.S. biofuels industry are applauding the agency’s new position.

The Tenth Circuit Court of Appeals on Jan. 24, 2020, issued a ruling that struck down three SREs that the court said were improperly issued by the EPA and held that the agency cannot “extend” exemptions to any small refineries whose earlier, temporary exemptions had lapsed. The court also held that any alleged hardship justifying an SRE must be caused by Renewable Fuel Standard compliance and that the EPA had acted arbitrarily and capriciously by deviating without acknowledgement or stated reason from its prior position that refineries generally do not incur disproportionate economic hardship from purchasing renewable identification numbers (RINs) on the open market because the refineries “pass through most or all of their RIN purchase costs” to their customers.

The ruling stemmed from a May 2018 challenge brought against the EPA by Renewable Fuels Association, the National Corn Growers Association, the American Coalition for Ethanol and the National Farmers Union.

The court’s decision was challenged by affiliates of Wynnewood Refining and HollyFrontier. The refiners in March 2020 requested a rehearing en banc of the Jan. 24 ruling. Those petitions were rejected by the court in April 2020.

The two refining companies escalated their challenge over the court ruling in September 2020 when they filed a petition for a writ of certiorari with the Supreme Court. The U.S. Department of Justice filed documents with the court in December recommending against Supreme Court review of the Tenth Circuit Court’s ruling. Despite that recommendation, however, the Supreme Court on Jan. 8 granted the petition for review filed by Wynnewood and HollyFrontier. That case is still pending.

In its Feb. 22 announcement, the EPA said its decision to support the Tenth Circuit Court’s ruling was prompted by a detailed review following the Supreme Court’s announcement that it would review the case and represents a change from the agency’s position before the Tenth Circuit. “The change reflects the agency’s considered assessment that the Tenth Circuit’s reasoning better reflects the statutory text and structure, as well as Congress’s intent in establishing the RFS program,” the agency said in its announcement.

The EPA’s statement also discusses the spike in SRE approvals that began in 2017. “By 2018, the number of SREs issued for the 2017 compliance year was more than quadruple the number issued for the 2015 compliance year,” the agency said. “For example, for the 2015 compliance year, only 290 million renewable identification numbers (RINs) were not retired due to SRE petitions granted, yet for the 2017 compliance year, that number grew to 1.82 billion non-retired RINs. The large increase in SRE petitions granted and associated unretired RINs represents a significant decline in the required use of renewable fuel volumes, which in turn decreased the incentives for the production and use of renewable fuels.”

Regarding its position regarding the pending Supreme Court review of the Tenth Circuit Court’s case, the EPA said that the agency “agrees with the court that the exemption was intended to operate as a temporary measure and, consistent with that Congressional purpose, the plain meaning of the word ‘extension’ refers to continuing the status of an exemption that is already in existence.”

The four original petitioners of the Tenth Circuit Court case are embracing EPA’s new position on the court’s SRE decision. “Our nation’s biofuel producers and farmers appreciate EPA’s careful review of the Tenth Circuit Court’s decision, and we are pleased the agency’s new leadership is reversing the previous administration’s flawed position on small refinery exemptions,” said the RFA, NCGA, ACE and NFU in a joint statement. “This announcement marks a major step forward by the Biden administration to restore the integrity of the Renewable Fuel Standard and honor the intent of Congress. We wholeheartedly agree with EPA’s conclusion that the small refinery exemption was intended to be a temporary measure and we are pleased to see the agency confirming that only previously existing exemptions may be extended.”

Growth Energy has also applauded the EPA’s decision to stand with the Tenth Circuit Court ruling. “We are pleased to see the Biden EPA signal support for the Tenth Circuit’s ruling and repudiate the prior administration EPA’s misguided attempt to distort the plain language of the RFS to serve oil industry interests at the expense of America’s biofuel producers and farmers,” said Emily Skor, CEO of Growth Energy.

The Iowa Renewable Fuels Association is praising the EPA’s announcement. “We are excited and pleased to hear EPA finally embrace the common-sense Tenth Circuit Court decision on RFS exemptions,” said Monte Shaw, executive director of the IRFA. “The RFS exemption program was always intended to be a tool to provide temporary relief to truly small refineries and it has been abused for far too long. Hopefully this signals an end to the dark days of undermining the RFS through illegal exemptions and waivers, and we can look forward to the law being applied in a way that actually grows demand for ethanol and biodiesel blends as was always intended.”