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Refineries take on EPA renewable fuels rule at DC Circuit

A collection of small refineries argue the EPA’s extension of deadlines to comply with renewable fuel standards is making compliance more costly for them.

WASHINGTON (CN) — Small refineries told a federal appeals court Thursday the Environmental Protection Agency hasn't given them clear guidance on how to comply with a Clean Air Act program that pushes oil companies to incorporate renewable fuels into transportation fuels.

Thirteen refineries, from Calumet Shreveport Refining in Delaware to Kern Oil & Refining Co. in California, brought the consolidated suit against the EPA in the D.C. Circuit over a rule created by the agency to extend the Renewable Fuel Standard program's regulatory compliance deadlines. 

"The extension rule makes things worse for the petitioners, not better," attorney Michael Robert Huston of Perkins Coie, representing the refineries, argued before a three-judge panel Thursday.

The RFS program began in 2005 and expanded in 2007, mandating that businesses that import or produce fuel for transportation blend renewable fuels into their products. Congress set numbers for how much of the fuel must be composed of renewables. The requirements increase each year.

The EPA tracks compliance with an annual report submitted by the refineries that details the number of renewable identification numbers, or RIN, purchased.

"To be very generous and euphemistic, EPA has had a difficult time with the deadlines Congress set to govern the RFS program," the refineries' brief to the D.C. Circuit states. "EPA has missed statutory deadline for setting the annual volumes many times, and small refineries in particular have received nothing close to the consistency and certainty the statute requires."

The refineries cite political changes and special interest groups' hostility towards small refineries as reasons for the EPA missing deadlines to set specific volume requirements. The agency itself chalks it up to a need for more resources. 

"Agency resources are limited," the EPA's brief states. "As a consequence of these resource constraints, along with intervening judicial decisions and other factors, agencies invariably miss some statutory deadlines." 

The missed deadlines meant that small refineries were unaware of how many RINs would be required for each year's compliance form. The EPA hoped to mitigate the harm by allowing the refineries to submit their compliance forms for 2019-2022 in 2023. 

Huston argued in court Thursday that requiring small refineries to purchase enough RINs to satisfy past years' compliance forms is an unfair financial burden. The extension rule requires the refineries to comply with four annual volume obligations in nine months.

"It's the price that is the problem," the attorney said. "It's the price that is really the thing that the EPA has made no serious attempt to address in the extension rule. The price is our biggest harm." 

Huston said the Clean Air Act requires the EPA to give 13 months of lead time between issuing a rule and requiring compliance.

Attorney Jeffrey Hughes, representing the EPA, argues the agency can implement new requirements at any time.

"The CAA does not set any date by which obligated parties must demonstrate compliance with a given year's standards," Hughes wrote in the EPA's brief. "Rather, it commits that task to the agency's discretion, and EPA sets that deadline by regulation."  

Chief U.S. Circuit Judge Sri Srinivasan, a Barack Obama appointee, asked the refineries' counsel if they would be worse off if they win the case and the extension rule is vacated, meaning they would have to comply with a deadline that has already passed. 

"What would be the upshot if, hypothetically, you were to prevail in your challenge?" Srinivasan said. "Are you worse off?" 

Huston said that should the rule be vacated, the EPA must establish a new deadline to address and minimize the harm small refineries face.  

"This is the fourth time that refineries have come to this court to talk about the EPA needing to get back on track," Huston said. "We are talking about an agency over several years that has been late over and over again." 

The main point stressed by Huston is that the backlog of compliance forms is the EPA's own doing and the refineries shouldn't have to pay to make up for the EPA's mistake. 

"The extension rule attempts to resolve the multi-year backlog of EPA's own creation by compressing the statutory timeline for compliance," the refineries' brief states. "EPA is so far behind and has so distorted the market for RINs with its delays and dysfunction that the only reasonable course left is some type of alternative compliance demonstration for compliance years that have already passed." 

To meet the tight compliance deadlines, refineries must purchase large amounts of RINs for previous years. Huston argued that the price for RINs has spiked, making it difficult for small refineries to comply. 

"It costs 10 times more today to buy RINs than the date that it would've if the EPA had been on time with the 2020 volumes," Huston said. "It costs more to demonstrate compliance with RFS than our petitioners spend on labor." 

Srinivasan was joined on the panel by U.S. Circuit Judges Cornelia T.L. Pillard, another Obama appointee, and A. Raymond Randolph, a George H.W. Bush appointee,

Neither attorney responded to requests for comment after the hearing.

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