WASHINGTON (CN) — A D.C. Circuit panel on Wednesday vacated a swath of decisions by the government to deny requests from small fossil fuel refineries to be temporarily exempt from a federal renewable fuel program.
The program, known as the Renewable Fuel Standard program, was created in 2005 and expanded in 2007 under the Clean Air Act. It requires oil refineries to introduce renewable fuels such as ethanol into the nation’s energy supply.
Refineries can do so by blending renewables into fossil fuels sold at gas stations or purchasing certain credits that represent a gallon of renewable fuel. Small refineries concerned about a “disproportionate economic hardship” could petition the U.S. Environmental Protection Agency for an exemption.
In 2022, however, the EPA denied all pending exemption requests from small refineries, finding the only costs that could cause such economic hardship were those tied to compliance with the program, and those costs could be fully passed on to customers.
A three-judge panel, made up of U.S. Circuit judges Cornelia Pillard, Neomi Rao and Florence Pan — appointed by Barack Obama, Donald Trump and Joe Biden, respectively — wrote in a unanimous per curiam opinion that the EPA’s rationale was wrong.
“We conclude that EPA’s rationale for denying all pending exemption requests was contrary to law and arbitrary and capricious,” the court wrote. “We therefore vacate the denial actions.”
The panel’s decision comes in the wake of the Supreme Court decision overturning the long-standing Chevron deference, which required courts to defer to agencies’ interpretations of vague federal regulations.
While Chevron is only referred to in a footnote, the panel noted that it did not have to consider the EPA’s argument that its rationale was reasonable due to the high court’s decision.
The EPA’s reasoning marked a departure from its prior practice and the denials came years after the relevant compliance years had ended, so the agency sought to “ease the burden” by allowing certain small refineries to take an alternate method to meet their obligations. Specifically, the agency excused the refineries from buying and submitting compliance credits for certain years.
Petitioners Sinclair Wyoming Refining and Wynnewood Refining — the first a subsidiary of the larger HF Sinclair Corporation in Wyoming and the other a small refinery in Oklahoma — challenged the alternate method and argued it fell short of providing adequate relief.
Several unnamed small refineries challenged the EPA’s denials. The refineries had their names shielded by a 2023 protective order, and are only referred to in the opinion as “Company A,” for example.
Sinclair and Wynnewood were joined by Growth Energy, a trade association whose members are ethanol producers. Growth Energy argued the alternative method, also referred to as the Alternative Compliance Actions, were unauthorized by law.
The appellate court rejected the petitioners' challenges, finding that Growth Energy had failed to demonstrate it had standing to challenge the actions, Sinclair’s challenge failed on the merit and Wynnewood’s did not challenge a final agency action.
In an emailed statement, Growth Energy decried the panel’s decision and urged the EPA to meet its obligations under the program, referring to the required volume of renewable fuel blended into fossil or diesel fuel products.
“Regardless of the decision, however, EPA still must meet its obligation to ensure that the volumes it sets under the Renewable Fuels Standard are met,” a Growth Energy spokesperson said in a statement. “As such, not one gallon of biofuels blending should be lost because of this decision, and we will continue to press the agency to ensure that past and any future lost gallons are properly accounted for as the law requires.”
Sinclair did not respond to a request for comment.
In 2020, the EPA faced a similar challenge to its decisions to grant certain hardship exemptions for 2016 and 2017 at the 10th Circuit Court of Appeals, which concluded the EPA had erred. The court ruled in part that because the refineries had not received continuous exemptions since the beginning of the renewable fuel program, they were ineligible for an extension.
The Supreme Court partially reversed the 1oth Circuit’s decision, finding that a small refinery may receive and extension of an exemption even if it had not been continuously exempted.
Following the high court’s decision in HollyFrontier Cheyenne Refining LLC v. Renewable Fuels Association, the EPA decided it would deny all pending exemption petitions spanning from 2016 to 2021.
In April 2022, the EPA denied 36 petitions from 2018, which included 31 petitions it had initially granted. The agency then issued another decision in June 2022 denying all remaining petitions.
The panel wrote that the agency’s definition of “disproportionate economic hardship,” which it based its denial decisions on, was inconsistent with the Clean Air Act and exclusively focused on compliance costs rather than actual hardship.
“We previously affirmed EPA’s broad discretion to consider a range of factors when deciding hardship petitions,” the panel wrote. “But regulatory discretion and flexibility do not permit EPA to restrict the meaning of ‘economic hardship’ in a manner inconsistent with the Clean Air Act. It cannot reduce the broad statutory term ‘economic hardship’ to only one factor.”
The panel partially remanded the case to the EPA to reconsider the denial decisions.
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