Petition for Writ of Certiorari — Environmental Protection Agency, Petitioner v. Calumet Shreveport Refining, L.L.C., et al.
Supreme Court briefMay 20, 2024
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No. XX-XX
In the Supreme Court of the United States
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,
PETITIONER
v.
CALUMET SHREVEPORT REFINING, LLC, ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
APPENDIX TO THE PETITION
FOR A WRIT OF CERTIORARI
ELIZABETH B. PRELOGAR
Solicitor General
Counsel of Record
TODD KIM
Assistant Attorney General
MALCOLM L. STEWART
Deputy Solicitor General
AUSTIN L. RAYNOR
Assistant to the Solicitor
General
BRYAN J. HARRISON
JEFFREY HUGHES
Attorneys
Department of Justice
Washington, D.C. 20530-0001
SupremeCtBriefs@usdoj.gov
(202) 514-2217
APPENDIX
TABLE OF CONTENTS
Page
Appendix A
—
Appendix B
—
Appendix C —
Appendix D —
Appendix E —
Court of appeals opinion
(Nov. 22, 2023) ......................................... 1a
EPA June 2022 Denial of Petitions for
RFS Small Refinery Exemptions........ 44a
EPA April 2022 Denial of Petitions for
RFS Small Refinery Exemptions...... 189a
Court of appeals opinion denying
rehearing (Jan. 22, 2024) .................... 331a
Statutory provisions:
42 U.S.C. 7545(o) ................................ 334a
42 U.S.C. 7607(b) ................................. 363a
(I)
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 22-60266
CALUMET SHREVEPORT REFINING, L.L.C.;
PLACID REFINING COMPANY, L.L.C.;
ERGON REFINING INCORPORATED;
WYNNEWOOD REFINING COMPANY, L.L.C.,
PETITIONERS
v.
UNITED STATES ENVIRONMENTAL PROTECTION
AGENCY, RESPONDENT
CONSOLIDATED WITH
No. 22-60425
WYNNEWOOD REFINING COMPANY, L.L.C.;
CALUMET SHREVEPORT REFINING, L.L.C.;
SAN ANTONIO REFINERY, L.L.C.; PETITIONERS
v.
UNITED STATES ENVIRONMENTAL PROTECTION
AGENCY, RESPONDENT
CONSOLIDATED WITH
No. 22-60433
ERGON REFINING INCORPORATED;
ERGON-WEST VIRGINIA, INCORPORATED, PETITIONERS
v.
UNITED STATES ENVIRONMENTAL PROTECTION
AGENCY, RESPONDENT
(1a)
2a
CONSOLIDATED WITH
No. 22-60434
PLACID REFINING COMPANY, L.L.C., PETITIONER
v.
UNITED STATES ENVIRONMENTAL PROTECTION
AGENCY, RESPONDENT
Filed:
Nov. 22, 2023
Petitions for Review of Actions of the
Environmental Protection Agency
Agency Nos. 87 Fed. Reg. 24300,
87 Fed. Reg. 34873,
EPA-420-R-22-011,
87 Fed. Reg. 34873,
87 Fed. Reg. 34873
Before HIGGINBOTHAM, SMITH, and ELROD, Circuit
Judges.
JERRY E. SMITH, Circuit Judge:
Six small refineries 1 (“petitioners”) challenge the
EPA’s decision to deny their requested exemptions from
their obligations under the Renewable Fuel Standard
(1) Calumet Shreveport Refining, L.L.C. (“Calumet”); (2)
Placid Refining Company, L.L.C. (“Placid”); (3) Ergon Refining,
Incorporated (“Ergon”); (4) Wynnewood Refining Company,
L.L.C. (“Wynnewood”); (5) The San Antonio Refinery, L.L.C.
(“TSAR”); and (6) Ergon-West Virginia, Incorporated (“ErgonWV”).
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(“RFS”) program of the Clean Air Act (“CAA”). The
EPA denied petitioners’ years-old petitions using a
novel CAA interpretation and economic theory that the
agency published in December 2021. We conclude that
the denial was (1) impermissibly retroactive; (2) contrary to law; and (3) counter to the record evidence.
We grant the petitions for review, vacate the challenged
adjudications, deny a change of venue, and remand.
I.
A. Statutory and Regulatory Background
In 2005 and 2007, Congress amended the CAA, 42
U.S.C. § 7401 et seq., to establish the RFS. 2 That program mandates annual increases in “applicable volumes” of four categories 3 of renewable fuel for the transportation sector. Id. § 7545(o)(2)(B)(i)(I)-(IV).
To implement the RFS, Congress delegated to EPA
the authority to (1) set annual renewable fuel percentage standards and (2) establish an RFS compliance program. See id. § 7545(o)(3), (7). EPA sets the annual
percentage standards based on the amount of renewable
fuel needed to meet the statutorily stipulated volume
requirements in § 7545(o)(2).
Obligated parties—
refiners, blenders, and importers of transportation
fuel—use that annual-percentage standard to determine
their volume obligations for the four categories of renewable fuel. See 40 C.F.R. § 80.1406. Obligated parties must satisfy their individual volume obligations by
See Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat.
594; Energy Independence and Security Act of 2007, Pub. L. No.
110-140, 121 Stat. 1492.
3
(1) renewable fuel; (2) advanced biofuel; (3) cellulosic biofuel;
and (4) biomass-based diesel. 42 U.S.C. § 7545(o)(2)(B)(i)(I)-(IV).
2
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the RFS annual compliance date set by EPA.
§ 80.1451(f )(1)(i)(A).
Id.
EPA tracks obligated parties’ RFS compliance with
a credit-trading program. Credits are called Renewable Identification Numbers (“RINs”). There are two
ways blenders may acquire RINs: First, they can generate RINs by blending renewable fuel into conventional fuel. See id. § 80.1429(b). That’s because RINs
are “attached” to the renewable fuel the obligated party
buys for its blending operation. Once blending has occurred, the RIN “separates” and exists independently of
any batch of fuel. See id. §§ 80.1425-29. Second, obligated parties can meet their annual volume obligations
by purchasing RINs from other obligated parties. See
generally id. §§ 80.1425-29; 42 U.S.C. § 7545(o)(5)(B).
RINs are generally fungible—with one catch. A
RIN may be used for compliance only during the calendar year in which it was generated or the calendar year
following. 40 C.F.R. § 80.1427(a)(6)(i); see also id.
§§ 80.1428(c), 80.1431(a)(iii). For example, a RIN that
was created in 2018 can be used only to meet an obligated party’s 2018 or 2019 RFS volume obligations.
See id. § 80.1427(a)(6).4 Obligated parties demonstrate
they have met their volume obligations—thereby complying with RFS—by “retiring” their RINs at their annual compliance demonstration. Id. § 80.1427(a)(1).
That is not to say that a RIN generated in 2018 becomes valueless in 2020—RINs do not turn into pumpkins after their expiration
date. An unretired 2018 RIN remains transactable in 2023 to the
extent other obligated parties create demand for RINs that can be
used to meet 2018 or 2019 compliance year requirements. See id.
§§ 80.1427(a)(6), 80.1428(c), 80.1431(a).
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Congress, recognizing that RFS might impose disproportionate economic hardship on “small refineries” 5
from RFS, created three exemptions from the compliance regime:
•
First is the blanket exemption, which automatically
exempted all small refineries from RFS until 2011.
42 U.S.C. § 7545(o)(9)(A)(i).
•
Second is the refinery-specific exemption initiated
by the Secretary of Energy. If, after conducting
the statutorily mandated Department of Energy
study, the Secretary determined that a small refinery was subject to a disproportionate economic
hardship, “the Administrator shall extend the exemption under clause (i) for the small refinery for a
period of not less than 2 additional years.” Id.
§ 7545(o)(9)(A)(ii).
•
Third, the subparagraph (B) exemption allows
small refineries to “petition the Administrator for
an extension under subparagraph (A) for the reason
of disproportionate economic hardship.”
Id.
§ 7545(o)(9)(B)(i). “In evaluating a petition . . .
the Administrator, in consultation with the Secretary of Energy, shall consider the findings of the
study under subparagraph (A)(ii) and other economic factors.” Id. § 7545(o)(9)(B)(ii). Further,
“[t]he Administrator shall act on any petition . . .
The CAA defines small refineries as those “for which the average aggregate daily crude oil throughput for a calendar year (as
determined by dividing the aggregate throughput for the calendar
year by the number of days in the calendar year) does not exceed
75,000 barrels.” 42 U.S.C. § 7545(o)(1)(K).
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not later than 90 days after the date of receipt.”
Id. § 7545(o)(9)(B)(iii).
B. Procedural History
This matter involves the last of the three small refinery exceptions enumerated in the CAA. Petitioners
challenge two EPA actions—each of which adjudicated
and denied multiple exemption petitions (“Denial Actions”): The first is EPA’s April 7, 2022, action “denying 36 petitions from 36 small refineries seeking exemption from their [RFS] obligations for the 2018 compliance year” (“April Denial”). 6 The second is EPA’s
June 8, 2022, action denying “denying 69 petitions from
33 small refinery petitioners seeking exemption from
their [RFS] obligations for the 2016-2021 compliance
years” (“June Denial”). 7
1.
The April Denial
On April 7, 2022, EPA published the April Denial—
that is, the agency’s final adjudications rejecting a total
of thirty-six small refinery exemption petitions for the
2018 compliance year. Among those were petitions
submitted by Calumet, TSAR, Ergon, Placid, and
6
EPA, EPA-420-R-22-005, April 2022 Denial of Petitions for
RFS Small Refinery Exemptions, at 1 (2022); see also April 2022
Denial of Petitions for Small Refinery Exemptions Under the Renewable Fuel Standard Program, 87 Fed. Reg. 24,300 (April 25,
2022).
7
EPA, EPA-420-R-22-011, June 2022 Denial of Petitions for
RFS Small Refinery Exemptions, at 1 (2022); see also Notice of
June 2022 Denial of Petitions for Small Refinery Exemptions Under the Renewable Fuel Standard Program, 87 Fed. Reg. 34,873
(June 8, 2022).
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Wynnewood. 8 EPA denied those petitions using its revised interpretation of the subparagraph (B) exemption
provision and RIN-passthrough economic theory.
Notably, the April Denial was not the first time EPA
had evaluated these thirty-six petitions.
Indeed,
thirty-one of them had been granted by EPA in 2019. 9
These August 2019 grants were subsequently ensnared
in proceedings litigated in the D.C. Circuit unrelated to
the dispute at hand. What is relevant, however, is that
EPA moved for voluntary remand without vacatur to
consider those petitions with regard to the Tenth Circuit’s “alternate holdings” in Renewable Fuels Ass’n v.
EPA (“RFA”). 10 The D.C. Circuit granted EPA’s motion on December 8, 2021. 11 Shortly thereafter, EPA
provided notice of its intent to include those previously
decided petitions in the April Denial action. 12
2.
The June Denial
EPA once again applied its new interpretation and
approach in June 2022 when it denied sixty-nine exempErgon-WV’s 2018 exemption petition was not adjudicated in the
April Denial.
9
Memorandum Decision on 2018 Small Refinery Exemption Petitions from Anne Idsal, Acting Asst. Admin’r, Off. of Air and Rad.
to Sarah Dunham, Dir., Off. of Transp. and Air Qual. (Aug. 9, 2019),
at 2.
10
948 F.3d 1206 (10th Cir. 2020), rev’d on other grounds sub nom.
HollyFrontier Cheyenne Ref., LLC v. RFA, 141 S. Ct. 2172 (2021)
(“HollyFrontier”) and vacated, No. 18-9533, 2021 WL 8269239
(10th Cir. July 27, 2021).
11
RFA v. EPA, No. 19-1220, Doc. 1925942, at 3 (D.C. Cir. Dec.
12, 2021).
12
EPA, EPA-HQ-OAR-2021-0566, SCOPE OF ACTION AND NOTIFICATIONS (2022).
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tion petitions for the 2016 through 2021 RFS compliance
years. Among those were petitions from (1) Calumet
for 2019 and 2020; (2) TSAR for 2019, 2020, and 2021; (3)
Ergon for 2019 and 2020; (4) Ergon-WV for 2019 and
2020; (5) Placid for 2019 and 2020; and (6) Wynnewood
for 2017, 2019, 2020, and 2021.
EPA’s new interpretation and approach—which it
applied in the Denial Actions—displaced the adjudicative methodology the agency had relied on for over a
decade. In that prior approach, EPA granted and denied petitions based on DOE’s findings through its application of the DOE scoring matrix. That scoring
matrix—developed as part of the statutorily-mandated
2011 DOE study—“was designed to evaluate the full impact of disproportionate economic hardship on small refiners and used to assess the individual degree of potential impairment.” 13 But, starting with the April Denial,
EPA has now completely abandoned the scoring matrix.
Instead, EPA now adjudicates petitions using an approach it announced in a December 2021 publication. 14
That approach rests on two components.
First is a revised interpretation of the statutory term
“disproportionate economic hardship” as used in 42
U.S.C. § 7545(o)(9)(A)-(B). Under the agency’s new interpretation, a small refinery’s disproportionate eco-
Off. of Pol’y & Int’l Affs., U.S. Dep’t of Energy, Small Refinery
Exemption Study: An Investigation into Disproportionate Economic Hardship (2011), at 32 (“2011 DOE Study”).
14
See Notice of Opportunity to Comment on Proposed Denial of
Petitions for Small Refinery Exemptions, 86 Fed. Reg. 70,999 (Dec.
14, 2021).
13
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nomic hardship must be caused solely by RFS compliance costs.15
Second is a new economic theory. Called “RIN
passthrough,” EPA now theorizes that (A) the “cost of
RINs is the same for all obligated parties, whether the
RINs are acquired by blending renewable fuel or by
buying them on the market” and (B) the “costs of RFS
compliance (i.e., RINs) are passed through in the prices
of refined products.” 16
Before us now are petitions for review of EPA’s Denial Actions. Petitioners contend the Denial Actions
are impermissibly retroactive, contrary to law, and arbitrary and capricious. For the reasons that follow, we
agree. Accordingly, we vacate and remand petitioners’
exemption petitions adjudicated in the Denial Actions.
II.
Before we proceed to the merits of petitioners’ contentions, we must address EPA’s motion to transfer
venue to the D.C. Circuit under 42 U.S.C. § 7607(b)(1). 17
The CAA includes a statutory channeling provision
delineating the appropriate venue in which a petitioner
may seek judicial review of agency action:
A petition for review of . . . any . . . nationally applicable regulations promulgated, or final
action taken, by the Administrator under this chapSee EPA, EPA-420-D-21-001, Proposed RFS Small Refinery
Exemption Decision, at 23-26 (Dec. 2021) (“Proposed Denial”).
16
Id. at 62.
17
See Order, No. 22-60266 (5th Cir. Oct. 21, 2022) (motions panel
ordering the threshold issue of venue to carry with the merits).
15
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ter may be filed only in the United States Court of
Appeals for the District of Columbia. A petition for
review of the Administrator’s action . . . under
this chapter . . . which is locally or regionally applicable may be filed only in the United States Court
of Appeals for the appropriate circuit. Notwithstanding the preceding sentence a petition for review
of any action referred to in such sentence may be
filed only in the United States Court of Appeals for
the District of Columbia if such action is based on a
determination of nationwide scope or effect and if in
taking such action the Administrator finds and publishes that such action is based on such a determination.
42 U.S.C. § 7607(b)(1).
Determining where proper venue lies under
§ 7607(b)(1) requires us to conduct a two-step analysis:
At the first step, we determine whether the challenged
agency action is “nationally applicable” as distinguished
from “locally or regionally applicable.” Id. If nationally applicable, our inquiry ends because proper venue
exists only in the D.C. Circuit. But if the challenged
action is “locally or regionally applicable,” we proceed to
step two.
That second step begins with the default presumption that venue is proper in this circuit. See Texas v.
EPA, 829 F.3d 405, 419 (5th Cir. 2016) (“Texas 2016”).
To overcome that default presumption, a challenged action must satisfy two necessary and independent subconditions. Namely, we must determine that (a) the
challenged action “is based on a determination of nationwide scope or effect” and (b) the Administrator, in taking that challenged action, “finds and publishes that
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such action is based on such a determination.” Only if
both sub-conditions are satisfied is venue proper solely
in the D.C. Circuit.
A. Step One
EPA first avers the Denial Actions are “nationally
applicable” agency actions because they “apply a consistent statutory interpretation and economic analysis
to small refineries nationwide.” The agency analogizes
the Denial Actions to the SIP Calls in Texas v. EPA,
where this court reasoned that the agency’s disapproval
of and call to correct thirteen states’ plans regarding air
quality standards was a “nationally applicable regulation.” No. 10-60961, 2011 WL 710598, at *3 (5th Cir.
Feb. 24, 2011) (“Texas 2011”). The agency contends
the Denial Actions, like the SIP Calls, rest on “a revised
interpretation of the relevant CAA provisions and the
RIN discount and RIN cost passthrough principles that
are applicable to all small refineries no matter the location or market in which they operate.”
We disagree with EPA’s position. In-circuit precedent counsels that it is the legal effect—and not the
practical effect—of an agency action that determines
whether that action is “nationally applicable.” See
Texas 2016, 829 F.3d at 419. That is the key distinction
between the SIP Call in Texas 2011 and the Denial
Actions in this case. The SIP Call in Texas 2011 was
sufficient—by itself—to change regulated entities’ legal
obligations.
It required all states to apply their
“prevention-of-significant-deterioration” programs to
“greenhouse-gas-emitting sources.” 2011 WL 710598,
at *1-2. States whose plans already met that requirement were just as bound as states with violative plans.
See id. at *4-5.
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Not so with the “new approach” EPA used in the Denial Actions. EPA may swear that the new approach
will apply in all future exemption petitions. But it cannot be said that EPA’s promise to apply its “new
approach”—as described in the Denial Actions—affects
the legal rights, duties, or obligations of any small refinery whose exemption petitions were not the subject of
the April Denial or June Denial. The agency’s promise
is naked—neither the new interpretation nor the RIN
pass through theory binds EPA in any future adjudication.18
The Denial Actions are not “nationally applicable.”
They are, instead, “locally or regionally applicable.”
We must therefore proceed to the second step.
B. Step Two
We begin step two with the presumption that venue
is proper in this circuit. That’s because we have already determined, at step one, that the agency action is
“locally or regionally applicable.” See Texas 2016, 829
F.3d at 419. A challenged action overcomes that presumption if (1) it is based on a determination of nationwide scope or effect, and (2) the Administrator, in taking
such action, “finds and publishes that such action is based
on such a determination.” 42 U.S.C. § 7607(b)(1). EPA
claims the Denial Actions meet both sub-conditions.
We begin with the second sub-condition—whether
the Administrator found and published that such an action was based on a determination of nationwide scope
or effect. That is easily met, as no party contests that
EPA unsuccessfully asserts that its new interpretation and
theory are imbued with the force of law and therefore binding on
the agency. See infra part V.
18
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the Administrator so found and published in each of the
Denial Actions.19
What the parties dispute is the accuracy of the Administrator’s finding. And that is addressed in the first
sub-condition.
The parties initially skirmish on the applicable standard of review for the first sub-condition. EPA asserts
that we review its determination under a deferential
standard, but petitioners contend that we owe no deference at all. Petitioners are correct. As explained in
Texas 2016, we “independent[ly] assess[]” whether the
action is based on a determination of nationwide scope
or effect. 829 F.3d at 420 (citation omitted).
The agency’s assertion to the contrary finds little
support: All EPA cites to buttress its position is a
nineteen-year-old, non-precedential decision in which
the D.C. Circuit rejected a motion to transfer after it
noted that “the Administrator has unambiguously determined that the final action . . . has nationwide
scope and effect.” Alcoa, Inc. v. EPA, No. 04-1189,
2004 WL 2713116, at *1 (D.C. Cir. Nov. 24, 2004). That
is not enough, especially given that that same assertion
was subsequently dismissed in Dalton Trucking, Inc. v.
EPA, 808 F.3d 875 (D.C. Cir. 2015). There, the D.C.
Circuit characterized EPA’s assertion “that venue in
this circuit is ‘compelled by [its] published determination that an action would have a nationwide scope or efSee 87 Fed. Reg. at 24,301 (“the Administrator is exercising the
complete discretion afforded to him by the CAA and hereby finds
that this final action is based on a determination of nationwide
scope or effect for purposes of CAA section 307(b)(1) and is hereby
publishing that finding in the Federal Register.”); id. at 34,874
(same).
19
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fect’ ” as nothing more than a “transparent sleight of
hand that does not persuade.” Id. at 881 (citation omitted). Consequently, we do not accord deference to
EPA’s determination.
EPA contends, in its motions-stage briefing, that the
Denial Actions were based on a determination of nationwide scope or applicability” because it made “no unique
or individualized findings as to the ability of any of the
thirty-six petitioning refineries to recover the costs of
RFS compliance” and “did not adjust its statutory interpretation and economic theory to the particulars of any
specific small refinery, or the region in which a refinery
operates.” We disagree. EPA’s motions-stage characterization of the Denial Actions is flatly contradicted
by the agency’s position on the merits and the explanations it provided in the Denial Actions:
First, when asked to defend the Denial Actions on the
merits, EPA contends that it “considered each petition
on the merits . . . and individual refinery information.” That mirrors the Denial Actions that state
that EPA
completed a thorough evaluation of the data and information provided in the SRE petitions, supplemental submissions, and comments to determine if
any of the petitioners have demonstrated that the
cost of compliance with the RFS is the cause of their
alleged DEH and that such costs are not passed
through by that small refinery to the wholesale purchasers under the RIN cost passthrough principle. 20
EPA, EPA-420-R-22-005, April 2022 Denial of Petitions for
RFS Small Refinery Exemptions (2022), at 23; EPA, EPA-420-R20
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Second, EPA admits that, even under its new approach, there is still a non-zero chance it will grant small
refinery petitions. According to the agency’s briefing,
EPA will grant exemption petitions to small refineries
that provide data and evidence demonstrating that they
faced disproportionate economic hardship contrary to
the facts regarding other small refineries.
EPA’s representations in the Denial Actions and its
position on the merits show that its new interpretation
and RIN passthrough theory—without more—fail to
provide the agency with a sufficient basis to adjudicate
exemption petitions. When EPA says it denied petitions “based on factors and facts common to each petition,” it also implicitly concedes that there were no
refinery-specific facts that would justify the issuance of
an exemption. The agency thus had to verify that each
of the petitions implicated in the Denial Actions did not
(1) present facts contrary to those of other nonexempt
small refineries and (2) demonstrate disproportionate
economic hardship consistent with the statutory criteria.21
Consequently, the Denial Actions rely on refineryspecific determinations and are not based on a determination of nationwide scope or effect.
Because the Denial Actions are neither nationally applicable nor based on a determination of nationwide
scope or effect, venue is proper in the Fifth Circuit.
EPA’s motion to transfer venue to the D.C. Circuit is
denied. We turn to the merits.
22-011, June 2022 Denial of Petitions for RFS Small Refinery Exemptions (2022), at 24.
21
See id.
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III.
The Administrative Procedure Act (“APA”) requires
us to “set aside” agency actions found to be “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). Arbitraryand-capricious review requires this court to scrutinize
the record to determine whether the agency has “examine[d] the relevant data and articulate[d] a satisfactory
explanation for its action including a rational connection
between the facts found and the choice made.” Motor
Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut.
Auto Ins. Co., 463 U.S. 29, 43 (1983) (cleaned up). We
“may not supply a reasoned basis for the agency’s decision that the agency itself has not given.” Id. (quoting
SEC v. Chenery Corp. (Chenery II), 332 U.S. 194, 196
(1947)). Instead, “we must set aside” agency action
that is “premised on reasoning that that fails to account
for relevant factors or evinces a clear error of judgment”
as arbitrary and capricious. Univ. of Tex. M.D. Anderson Cancer Ctr. v. U.S. Dep’t of Health & Hum. Servs.,
985 F.3d 472, 475 (5th Cir. 2021) (cleaned up).
Petitioners contend the Denial Actions are defective
in three ways: First, they are impermissibly retroactive.
Second, EPA’s interpretation of the CAA is
contrary to law. And third, the agency acted arbitrarily and capriciously by failing to engage in reasoned
decision-making.
A.
Retroactivity
The 2011 DOE Study and the scoring matrix are the
two factors EPA relied on for over a decade when deciding whether to grant subparagraph (B) exemption petitions. But starting with the April Denial, EPA threw
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those factors away: Now, the 2011 DOE Study and the
scoring matrix have no bearing on the agency’s decisionmaking process.
Petitioners cry foul—explaining that they had relied
on those two factors when they submitted the exemption
petitions implicated in the Denial Actions. EPA says
petitioners have nothing to complain about. According
to the agency, petitioners (1) have no protectable property right in subparagraph (B) exemptions and (2)
should not have relied on the approach used in the
agency’s prior adjudications. We disagree with EPA
on both points.
Petitioners have a protectable property interest because the small-refinery exemption is “an entitlement
expressly created by statute,” McDonald v. Watt, 653
F.2d 1035, 1045-46 (5th Cir. Unit A Aug. 1981), which
EPA “shall” grant for any small refinery that shows
“disproportionate economic hardship,” 42 U.S.C.
§ 7545(o)(9)(B)(ii). The CAA defines the factors EPA
must consider in deciding whether to grant or deny an
exemption, and, once those factors have been satisfied,
the agency is legally obligated to grant such a petition.
See id.
Because petitioners possess a protectable property
interest, we must determine whether the regulation is
impermissibly retroactive. There is no blanket prohibition against retroactive application of regulation
through adjudication. 22 But that power—to regulate
See Chenery II, 332 U.S. at 203-04; Macy’s, Inc. v. NLRB, 824
F.3d 557, 566-67 (5th Cir. 2016); Handley v. Chapman, 587 F.3d
273, 283 (5th Cir. 2009) (Regulation is retroactive where its application “would impair rights a party possessed when he acted, in22
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retroactively—is limited to circumstances in which retroactive application would not result in “injury or prejudice.” Handley, 587 F.3d at 283 (quoting Pac. Molasses Co. v. FTC, 356 F.2d 386, 390 n.10 (5th Cir. 1966)).
Thus, we must “balance the ills of retroactivity
against the disadvantages of prospectivity.” Microcomputer Tech. Inst. v. Riley, 139 F.3d 1044, 1050 (5th
Cir. 1998).23 And in conducting such balancing, we accord no deference to the agency’s determination that its
approach should be applied retroactively, for that determination does not involve policy considerations delegated to the agency or require any agency expertise.
Id. at 1050-51. “If that mischief [of prospectivity] is
greater than the ill effect of the retroactive application
of a new standard, it is not the type of retroactivity
which is condemned by law.” Monteon-Camargo v.
Barr, 918 F.3d 423, 430 (5th Cir. 2019), as revised (Apr.
26, 2019) (quoting Chenery II, 332 U.S. at 203). Typically, “the ill effect of retroactivity is the frustration of
the expectations of those who have justifiably relied on
a prior rule; the ill effect of prospectivity is the partial
frustration of the statutory purpose which the agency
has perceived to be advanced by the new rule.”
McDonald, 653 F.2d at 1044.
We start the balancing analysis with the ills of retroactivity. Petitioners justifiably relied on EPA’s past
agency practice when applying for the exemptions at iscrease a party’s liability for past conduct, or impose new duties
with respect to transactions already completed.”
(quoting
Fernandez-Vargas v. Gonzales, 548 U.S. 30, 37 (2006))).
23
Balancing occurs “case-by-case,” and this court has previously
rejected the multi-factor balancing tests adopted by other circuits,
see id. (rejecting D.C. Circuit’s five-factor test).
19a
sue.
EPA—for over a decade—consistently used
the 2011 DOE Study and scoring matrix to adjudicate
small-refinery exemption petitions. That is exactly the
kind of “well established” agency practice that forms the
basis for justifiable reliance. Id. at 1045 (citation omitted). 24 EPA “cannot ‘surprise’ [petitioners] by penalizing [them] for ‘good-faith reliance’ on the agency’s prior
positions.” R.J. Reynolds Vapor Co. v. FDA, 65 F.4th
182, 189 (5th Cir. 2023) (quoting Christopher v.
SmithKline Beecham Corp., 567 U.S. 142, 156-57
(2012)).
EPA nonetheless maintains that petitioners’ reliance
was unjustifiable because they were—or should have
been—aware of impending changes to agency policy.
The EPA first points to its publication requesting comment on its proposed interpretation and theory. But
that request for comment was not published in the Federal Register until December 2021. 25 The April Denial
adjudicated exemption petitions submitted in 2018. 26
And all of petitioners’ exemption petitions that were adjudicated in the June Denial had been submitted before
December 2021. 27 Thus, all petitioners’ exemptions
EPA insists petitioners couldn’t have justifiably relied on its
prior approach because it wasn’t “announced in an interpretive
rule” or “subjected
. . .
to notice and comment.”
The
agency’s position is cute but wrong. Longstanding and wellestablished agency practice need not be officially adopted to form
the basis for reasonable reliance. See id.
25
See 86 Fed. Reg. at 70,999-71,000.
26
The April Denial included 2018 compliance-year petitions from
Calumet, TSAR, Ergon, Placid, and Wynnewood.
27
The June Denial included Calumet, TSAR, Ergon, Ergon-WV,
and Placid’s 2019 and 2020 petitions; TSAR’s 2019, 2020, and 2021
petitions; and Wynnewood’s 2017, 2019, 2020, and 2021 petitions.
24
20a
were submitted before EPA provided notice in the Federal Register that it intended to change its adjudicative
methodology. 28 EPA’s December 2021 notice and comment publication does not render petitioners’ reliance
unjustifiable.
Next, EPA asserts that petitioners’ reliance was unjustifiable by June 2021—the month litigation ended in
RFA. 29 We disagree with EPA’s assertion that RFA
provided petitioners with notice by June 2021. 30
For one, EPA’s expressly states its policy is only to
“provide for exceptions to the general policy” in response to “decisions of the federal courts that arise from
challenges to ‘locally or regionally applicable’ actions.
. . . ” 40 C.F.R. § 56.3(d). A Tenth Circuit decision
—no matter its holding—had no effect on petitioners’
operating outside that circuit’s boundaries.
Moreover, the initial Tenth Circuit panel opinion—
which held that EPA’s prior approach of finding disproportionate economic hardship allowed the agency to act
“outside the scope of [its] statutory authority” when
“[g]ranting extensions of exemptions based in part on
hardships not caused by RFS compliance” 31 —was vaTSAR’s 2021 petition was submitted on November 23, 2021, and
Wynnewood’s 2021 petition was submitted on September 23, 2021.
28
Petitioners, unlike Ant-Man and the Wasp, cannot time travel.
See also Rick and Morty: The Vat of Acid Episode (Comedy Central May 17, 2020).
29
See supra note 10 and accompanying text.
30
Even if we assume arguendo that petitioners had notice by
June 2021, that would affect only TSAR’s and Wynnewood’s 2021
petitions; the other seventeen petitions in this case were filed before June 2021.
31
RFA, 948 F.3d at 1254.
21a
cated by a subsequent Tenth Circuit panel. 32 That, in
turn, “remove[s] both the res judicata and the stare decisis effect” from the initial RFA panel opinion. City
Ctr. W., LP v. Am. Mod. Home Ins. Co., 749 F.3d 912,
913-14 (10th Cir. 2014).
Thus, it is EPA that is being unreasonable when it
blames petitioners for disregarding a vacated holding
that—per EPA’s own regulations—never had any effect
outside the Tenth Circuit. Consequently, petitioners’
continued reliance on EPA’s longstanding and wellestablished practice of adjudicating exemption petitions
based on the 2011 DOE study and scoring matrix was
justifiable till the agency first published notice of its intent to change its adjudicative methodology in December 2021. 33
Renewable Fuels Ass’n v. EPA, 854 F. App’x 983, 984 (10th Cir.
2021) (per curiam) (“RFA II”) (“In light of the United States Supreme Court’s decision in HollyFrontier . . . we previously recalled our mandate and vacated our judgment in this case.”).
33
In its brief, EPA asserts it “indicat[ed] that it would follow” the
RFA holding on the agency’s approach of finding disproportionate
economic hardship “on remand if the Tenth Circuit denied the motion or did not clarify otherwise.” See EPA’s Motion for Clarification of the Court’s July 29, 2021 Mandate, RFA II, No. 18-9533, Doc.
010110564301, at 6-7 (Aug. 19, 2021) (“RFA II Motion”).
For three reasons, that does not change our analysis: First,
EPA’s intent, as stated in its RFA II motion, was limited to the three
exemption petitions in RFA. The only petition in this case that
overlaps with RFA is Wynnewood’s 2017 exemption petition. Second, EPA stated in its Tenth Circuit motion that it had not decided
“what, if any, impact . . . the unaffected holdings . . . may
have on EPA’s implementation of the RFS program.” Id. at 6; cf.
FTC v. Standard Oil Co., 449 U.S. 232, 240 (1980) (agency’s “threshold determination that further inquiry is warranted . . . is not
‘definitive’ ” agency action). Third, it is hardly reasonable to ask
32
22a
We now turn to the other side of the balancing equation and analyze the disadvantages of prospectivity.
See Microcomputer Tech. Inst., 139 F.3d at 1050. In
other words, we must determine what benefits are lost
if EPA’s new interpretation and RIN passthrough theory are applied only to newly submitted exemption petitions.
EPA fails to identify a single benefit of retroactive
application. Intervenors assert retroactive application
is necessary because “withholding the Denials’ effect
would harm the producers of renewable fuel” and “depress the demand for renewable fuel.” That is absurd.
The exemption petitions in this case concern compliance
years 2017 to 2021. By the time EPA published the Denial Actions, no producer could have produced RINs applicable to these petitions, see 40 C.F.R. §§ 80.1427(a)(6),
80.1428(c), 80.1431(a), so the Denial Actions could not
have affected the amount of renewable fuel blended in
those past years.
The result of the balancing test could not be more obvious: There is no legitimate benefit EPA can gain
from retroactive application. On the other hand, retroactive application of EPA’s new adjudicative methodology harshly penalizes petitioners for their good-faith
and justified reliance on the agency’s prior approach. 34
regulated entities to rely on EPA’s statements of future intent made
in the course of litigation. Cf. BNSF Ry. Co. v. Fed. R.R. Admin.,
62 F.4th 905, 911 & n.4 (5th Cir. 2023) (discounting post-hoc agency
rationalizations).
34
See R.J. Reynolds, 65 F.4th at 189 (“Dealing with administrative agencies is all too often a complicated and expensive game, and
players . . . ‘are entitled to know the rules.’ ” (citation omitted)).
23a
EPA impermissibly applied its new CAA interpretation
and RIN passthrough theory to petitioners’ years-old
exemption petitions.
B. Contrary to Law
Petitioners contend the Denial Actions are contrary
to law for four reasons.
1.
Disproportionate Economic Hardship
Under EPA’s new interpretation, RFS compliance
costs must be the sole cause of a small refinery’s disproportionate economic hardship. In other words, a small
refinery will receive an exemption only if it can show
that it has incurred disproportionate RFS compliance
costs. Petitioners insist that that is an unreasonable
construction of the statute. We agree.
The CAA provides small refineries with the ability to
submit a petition requesting an exemption from RFS
“for the reason of disproportionate economic hardship.”
42 U.S.C. § 7545(o)(9)(B)(i). An exemption petition,
once submitted, is evaluated by the Administrator
“in consultation with the Secretary of Energy.”
§ 7545(o)(9)(B)(ii). In that evaluation, “the Administrator . . . shall consider the findings of the study
under subparagraph (A)(ii)”—that is, the 2011 DOE
Study—“and other economic factors.” Id.
At dispute is what qualifies as “disproportionate economic hardship” for a subparagraph (B) exemption.
See id. at § 7545(o)(9)(B)(i). Subparagraph (A) uses
24a
that same phrase twice. 35
defines it.
But neither subparagraph
EPA theorizes that disproportionate economic hardship can only mean RFS compliance costs. It bases
that conclusion on its observation that the phrase, as
used in subparagraph (A), does not identify any cause of
disproportionate economic hardship other than RFS
compliance costs. 36 It thus posits that the statute
should be read to say that RFS compliance costs are the
sole cause of disproportionate economic hardship. 37
First, in subparagraph (o)(9)(A)(ii)(I), the Secretary of Energy
is instructed to “determine whether compliance with [RFS] would
impose a disproportionate economic harm on small refineries,” the
product of which is the 2011 DOE Study. Second, in subparagraph (II), which directs the Administrator to extend the initial
subparagraph (A)(i) exemption—the blanket exemption for all
small refineries “until calendar year 2011”—for any small refinery
that “would be subject to a disproportionate economic hardship if
required to comply with [RFS]. . . . ”
36
The reasoning employed here is suspect as well. EPA interprets two phrases in subparagraph (A)—namely, “would impose”
and “subject to . . . if required to comply”—as creating an exclusive causal relationship between RFS compliance costs and disproportionate economic hardship. See § 7545(o)(9)(A)(ii). That
is error because neither provision purports to rule out other causes
of disproportionate economic harm.
37
EPA asks us to defer to its interpretation under Chevron
U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S.
837 (1984). EPA claims Chevron applies because it “undertook
notice and comment before taking the Denial Actions.”
Not so fast. While the agency did subject its interpretation to
notice-and-comment proceedings, it applied that interpretation in
informal adjudication, not notice-and-comment rulemaking or formal adjudication. See United States v. Mead Corp., 533 U.S. 218,
230 (2001). True, EPA’s decision to engage in informal adjudica35
25a
Petitioners disagree: They instead contend that
“disproportionate economic hardship” should be interpreted more broadly. In their view, a small refinery
can experience disproportionate economic hardship for
myriad causes; it qualifies for the exemption if RFS
compliance cost is one such cause.
We agree with petitioners. EPA’s interpretation is
foreclosed by the statute’s text in two ways:
First, to interpret “disproportionate economic hardship” as synonymous with “RFS compliance cost” would
render part of subparagraph (B)(ii) a nullity. That provision stipulates that the Administrator, in evaluating
subparagraph (B) exemption petitions, shall consider (1)
the 2011 DOE study and (2) “other economic factors.”
§ 7545(o)(9)(B)(ii). EPA’s interpretation of “disproportionate economic hardship” leaves no room for
“other economic factors”—it makes the first factor
outcome-determinative for every exemption petition.
But those words “cannot be meaningless, else they
tion “does not automatically deprive that interpretation of the judicial deference otherwise its due.” Texas v. United States, 809
F.3d 134, 178 n.160 (5th Cir. 2015) (quoting Barnhart v. Walton,
535 U.S. 212, 221 (2002)), aff ’d by an equally divided court, 579
U.S. 547 (2016). But to qualify for Chevron deference, EPA’s interpretation must satisfy the Barnhart test, which asks us to consider factors such as “the interstitial nature of the legal question,
the related expertise of the Agency, the importance of the question
to administration of the statute, the complexity of that
administration, and the careful consideration the Agency has given
the question over a long period of time. . . . ” 535 U.S. at 222.
We need not decide whether the Barnhart test is satisfied because
EPA’s interpretation fails even under Chevron. See infra note 43.
26a
would not have been used.” 38 Thus, subparagraph
(B)(ii) contemplates granting exemptions to small refineries that experience disproportionate economic hardship attributable to a combination of (1) RFS compliance
costs and (2) economic factors other than RFS compliance costs.
Second, EPA’s approach to defining “disproportionate economic hardship” is misguided. The agency relies heavily on subparagraph (A) to define the phrase.
It justifies its approach on the absence of a definition in
subparagraph (B). EPA’s justification is incorrect.
Though it is true that we presume—absent persuasive
countervailing evidence—that identical words and
phrases “bear the same meaning throughout a text,” 39
subparagraph (A) does not define “disproportionate economic hardship” either. And “[w]here Congress does
not furnish a definition of its own, we generally seek to
afford a statutory term ‘its ordinary or natural meaning.’ ” HollyFrontier, 141 S. Ct. at 2176 (quoting FDIC
v. Meyer, 510 U.S. 471, 476 (1994)).
“Disproportionate economic hardship,” as ordinarily
understood, includes much more than just RFS compliance cost.
“Disproportionate” modifies “economic
hardship.” For economic harm to be disproportionate,
it must be “inadequately or excessively proportioned.” 40
The relevant comparator—that to which the harm is
“proportioned”—could be the amount other small refinANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE
INTERPRETATION OF LEGAL TEXTS 174 (2012) (quoting United
States v. Butler, 297 U.S. 1, 65 (1936)).
39
Id. at 170.
40
Disproportionate, Oxford English Dictionary, tinyurl.com/
32spx2ve.
38
27a
eries pay to comply with RFS. But it could also be factors unrelated to RFS, such as local economic conditions
or refinery-specific circumstances.
For example,
“small refineries might apply for exemptions . . . in
light of market fluctuations and changing hardship conditions.” Holly-Frontier, 141 S. Ct. at 2178. Congress could have—but did not—enumerate the particular ways in which economic harm might be “disproportionate.” 41 We therefore accord the phrase disproportionate economic harm its “full and fair scope,” for “the
presumed point of using general words is to produce
general coverage.” 42
EPA’s interpretation 42 U.S.C. § 7545(o)(9)(B) is unreasonable. 43 The statute’s text cannot plausibly be
read to say that RFS compliance costs must be the sole
cause of disproportionate economic hardship.
See, e.g., 26 U.S.C. § 302(b)(2)(C) (delineating in detail when a
“distribution is substantially disproportionate”).
42
SCALIA & GARNER, supra note 38, at 101.
43
Chevron deference applies “only if ‘the agency’s [interpretation] is based on a permissible construction of the statute.’ ” Huntington Ingalls, Inc. v. Dir., Off. Of Workers’ Comp. Programs,
U.S. Dep’t of Lab., 70 F.4th 245, 252 (5th Cir. 2023) (quoting Mexican Gulf Fishing Co. v. U.S. Dep’t of Commerce, 60 F.4th 956, 963
(5th Cir. 2023)). EPA’s interpretation falls outside “the range of
meanings that could be plausibly attributed to the relevant statutory language.” Sw. Elec. Power Co. v. EPA, 920 F.3d 999, 1024
(5th Cir. 2019) (citation omitted). Consequently, EPA’s interpretation is not entitled to Chevron deference.
Furthermore, EPA is not entitled to deference under Skidmore
v. Swift & Co., 323 U.S. 134 (1994), because an unreasonable interpretation of a statute’s text cannot be persuasive. See Texas, 809
F.3d at 178 n.160 (citing Gonzales v. Oregon, 546 U.S. 243, 256
(2006)).
41
28a
2. Petitioners’ other reasons that the Denial Actions are contrary to law.
Petitioners urge that the Denial Actions are contrary
to law for three other reasons. On those claims, we
agree with EPA.
First, petitioners assert the EPA’s interpretation is
unlawful because it was adopted on the agency’s mistaken belief that it was bound by the alternate holdings
in RFA—a now-vacated Tenth Circuit case interpreting
the relevant statutory provisions. See RFA II, 854
F. App’x at 984. But the agency record shows that the
EPA adopted RFA’s reasoning because it “determined
that the RFA decision provides the best reading of the
statutory provisions of CAA section 211(o)(9).” That is
an independent basis for EPA’s interpretation, i.e., the
agency did not base its interpretation on the idea it was
bound by RFA’s alternate holdings. Thus, EPA’s interpretation did not violate the Chenery mistake-of-law
doctrine. Cf. Teva Pharm. U.S.A. Inc. v. FDA, 441
F.3d 1, 5 (D.C. Cir. 2006).
Second, petitioners allege EPA impermissibly construed the statute’s requirement that it consult with
DOE in deciding an exemption petition. In their view,
EPA’s consultation with DOE had to be “meaningful,”
which requires EPA and DOE to—at a minimum—
consult on “whether EPA’s new RIN pass-through theory was actually correct and applicable to each small refinery.” Petitioners claim EPA fell short of that standard with the Denial Actions because EPA merely asked
DOE to “assume the RIN pass-through theory was correct and an appropriate basis for denying the hardship
petitions.” EPA counters by claiming that it, along
29a
with DOE, has “discretion to determine the shape of the
procedural consultation requirement.”
We agree with EPA. Congress did not define the
term “consultation” as used in the relevant statutory
provision. See 42 U.S.C. § 7545(o)(9)(B)(ii). It only
stipulates the subjects the agencies must cover. We
decline to graft extra-textual procedural requirements
onto that consultation requirement. See Vt. Yankee
Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 435
U.S. 519, 525 (1978).
Third, petitioners attest the Denial Actions are contrary to law because EPA evaluated multiple petitions
simultaneously. Pointing to § 7545(o)(9)(B)’s use of the
terms “a small refinery” and “a petition,” petitioners
claim that the petitions must be examined one at a time.
True, using “a”—an indefinite article immediately followed with a singular noun—can refer to “one” of something. But it can also indicate “that there may be two
or more substantial parts.” Comm’r v. Kelley, 293 F.2d
904, 912 (5th Cir. 1961). Without more, petitioners fail
to show that the relevant statutory provisions require
EPA to consider exemption petitions individually. We
are textualists, not literalists.
We conclude the Denial Actions are contrary to law
only because EPA’s interpretation of the CAA subparagraph (B) exemption provision is unreasonable. Petitioners’ other claims fail.
C. Arbitrary and Capricious
Petitioners contend the Denial Actions are arbitrary
and capricious because they rely on the RIN-passthrough
theory, which ran counter to the evidence before the
EPA.
30a
The APA requires us to “set aside agency action if
the agency . . . ‘offered an explanation for its decision that runs counter to the evidence before the agency
or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.’ ”
Sw. Elec. Power Co., 920 F.3d at 1013 (quoting State
Farm, 463 U.S. at 43) (cleaned up). That includes
agency action that is “premised on reasoning that fails
to account for relevant factors or evinces a clear error of
judgment.” Univ. of Tex. M.D. Anderson Cancer Ctr.,
985 F.3d at 475 (internal quotation marks and citation
omitted).
Petitioners take issue with EPA’s RIN-passthrough
economic theory—that is, the agency’s conclusion that
the “market-based design of the RFS program and the
RIN-based compliance system have equalized the cost
of compliance among all market participants.” EPA
made two findings to support its RIN-passthrough theory: The first is that the price per RIN at any given
point in time is identical for all refineries nationwide.
The second is that market prices for fuel and RIN costs
correspond, which means all refineries could offset 100%
of their RIN costs by raising the price of their fuel products, thereby passing RIN costs along to their customers. Petitioners claim those two findings are contrary
to the evidence before EPA.
We agree that EPA’s RIN-passthrough theory is
contrary to the evidence. EPA’s second finding—that
all refineries can completely pass on their RIN costs—
is so implausible as applied to petitioners that it cannot
be ascribed to a difference in view or agency expertise.
See Sw. Elec. Power Co., 920 F.3d at 1013 (quoting State
Farm, 463 U.S. at 43).
31a
Petitioners have demonstrated that the local markets
in which they operate are inefficient. Calumet’s exemption petition, for example, included market price
data from the local “micro-market” it operated in as
compared to Pasadena, Texas. Pasadena is an example
of an economically efficient market—that is, a market in
which EPA’s general conclusion about RIN passthrough
holds true—so the price premium for fuel there matches
the market price of RINs. Not so with Calumet’s
micro-market: Prices there are lower than in Pasadena, which means that fuel is discounted by more than
the corresponding RIN market price.
EPA does not seriously engage with petitioners’
refinery-specific market data. The agency’s two responses are insufficient:
First, EPA’s conclusions about fuel market efficiency
in general do not disprove petitioners’ local market data.
The agency arrived at that conclusion by “examin[ing]
available market data, as well as studies by outside parties and numerous public comments.” 44 That allowed
EPA, EPA-420-R-22-011, June 2022 Denial of Petitions for
RFS Small Refinery Exemptions (2022), at 32. Petitioners’ attempts
to challenge EPA’s conclusions about these studies are not meritorious. EPA concluded that these studies “on balance . . . provide more evidence in support of the conclusion that RIN costs are
passed through than evidence to suggest they do not.” Petitioners interpret those studies differently from how EPA does. But
that’s not enough for us to conclude that EPA’s conclusion is counter to the evidence. EPA provided a reasonable explanation as to
why it questioned the studies petitioners identified when the agency pointed to potential methodological infirmities in each. Petitioners’ reply briefing does not explain why EPA’s critiques are
irrelevant or incorrect. It cannot be said that petitioners’ studies
44
32a
the agency to conclude that “the RIN costs and RIN discount were fully passed through to wholesale purchasers and reflected in the market prices of petroleum fuel
and blended fuel. . . . ” 45 But EPA’s macro-level
analysis about fuel markets only supports a conclusion
that passthrough can occur in fuel markets generally—
it does not rule out the existence of inefficient fuel markets. And those are the markets in which petitioners
operate.
Second, EPA glosses over petitioners’ refineryspecific data proving they operate in inefficient local
markets that do not allow for RIN cost passthrough.
In response to Calumet’s data, for example, all EPA said
was that the Pasadena market demonstrated “the RIN
price is fully passed through.” That’s not responsive—
both petitioners and EPA agree Pasadena is efficient.
The problem is that Calumet does not operate in Pasadena. EPA leaves unrebutted petitioners’ actual contention—that lower sale prices in the micro-market relative to the efficient Pasadena market prove that Calumade it unreasonable for EPA to reach a conclusion opposite to
that held by petitioners.
Additionally, petitioners cite a GAO report that is not in the administrative record, U.S. Gov’t Accountability Off., GAO-23-104273,
Renewable Fuel Standard: Actions Needed to Improve DecisionMaking in the Small Refinery Exemption Program (2022). Generally, we do not review information that was outside the record
when the agency made its decision. See Luminant Generation Co.
v. EPA, 675 F.3d 917, 925 (5th Cir. 2012). Even though the GAO
report is based on evidence available at the time the agency made
its decision, petitioners cannot—and do not—contend that its conclusions and findings are based solely on data in the record. We
therefore exclude the GAO report from our analysis.
45
EPA, EPA-420-R-22-011, June 2022 Denial of Petitions for
RFS Small Refinery Exemptions (2022), at 32.
33a
met, like other petitioners, cannot pass through the
costs of the RINs it purchases.
EPA’s second finding is also contrary to the evidence
because petitioners are unable to purchase RINs ratably. Ratable purchasing is an underlying premise of
EPA’s second finding—a refinery must be able to purchase RINs at the same time they sell fuel in order for
the market price to correspond with the price of RINs.
That’s not an option available to petitioners. Take
TSAR for example: Given the amount of fuel it produces, it would need to buy 75,000 RINs per day. But
a trade size of 75,000 RINs is “essentially unheard of ”
in the RIN market—most RINs are sold in “a clip of ‘1
million’ at a time.” Indeed, as TSAR explained to the
EPA, it can’t even find a RIN broker willing to transact
at such low RIN quantities.
EPA brushes that evidence aside. In response to
TSAR, the agency merely restates its prior assertion
that “small refineries can enter into contracts with various RIN brokers to purchase RINs on a ratable basis.”
The agency supports its assertion by dreaming up a hypothetical contract—filled with unsubstantiated speculation about terms such RIN clip sale prices and broker
service fees—that TSAR might be able to negotiate.
But EPA never explains why it believes small refineries
can get contract terms like those. Unsubstantiated
agency speculation does not overcome petitioners’
proven inability to purchase market-rate RINs ratably.
IV.
Petitioners complain that EPA acted arbitrarily and
capriciously by failing to provide sufficient guidance as
to the information small refineries should submit as part
34a
of their exemption petitions under the agency’s new interpretation and RIN passthrough theory.
We disagree with petitioners. As a general matter,
courts cannot compel agencies to act. 46 Petitioners do
not allege that the CAA expressly requires EPA to issue
such guidance. An agency’s control over its timetables
is entitled to considerable deference. 47 That EPA has
yet to make good on its promise to provide further guidance does not render the agency’s current (lack of ) guidance arbitrary and capricious.
*
*
*
*
*
In summary: The challenged Denial Actions are locally or regionally applicable. EPA’s motion to transfer venue to the District of Columbia Circuit is DENIED.
The EPA’s denials of petitioners’ small refinery exemption petitions are impermissibly retroactive. Furthermore, the agency’s interpretation of the small refinery exemption petition provisions of the CAA is contrary
to law and arbitrary and capricious as applied to petitioners’ exemptions.
The petitions for review are
GRANTED. The challenged adjudications are VACATED and REMANDED for further consideration.
See Norton v. S. Utah Wilderness All., 542 U.S. 55, 64 (2004)
(“[A] claim under § 706(1) can proceed only where a plaintiff asserts that an agency failed to take a discrete agency action that it
is required to take.” (emphases omitted)).
47
See CHARLES H. KOCH, JR. & RICHARD MURPHY, 4 ADMIN. L. &
PRAC. § 11:50 (Westlaw).
46
35a
PATRICK E. HIGGINBOTHAM, Circuit Judge, dissenting:
Congress carefully crafted the Renewable Fuel
Standard (“RFS”) program of the Clean Air Act to
nudge the nation toward clean renewable fuel sources 1
and Congress, in light of “the advantages of expeditious
and authoritative review of all national standards in the
D.C. Circuit,” also implemented a judicial review venue
provision that “priorities efficiency” in the form of 42
U.S.C. § 7607(b)(1). 2 Today we impermissibly interfere with these Congressional mandates by finding that
venue is proper in this Circuit, contrary to the text,
structure, and purpose of § 7607(b)(1). I would find
that venue is only proper in the D.C. Circuit, consistent
with the actions of the four other circuit courts that have
addressed this very case, and dissent.
I.
The majority correctly describes the overall mechanics of the CAA’s venue provision. 3 At step one, we determine whether a final agency action is “nationally applicable,” as distinguished from a “locally or regionally
applicable” action. If “nationally applicable,” venue is
only proper in the D.C. Circuit. 4 If we find that the
challenged action is “locally or regionally” applicable,
we proceed to step two. At this second step, a “locally
Pub. L. No. 110-140, 121 Stat. 1492.
41 Fed. Reg. 56767 (Dec. 30, 1976) (Comments of G. William
Frick).
3
See generally 42 U.S.C. § 7607(b)(1). “Had Congress wanted
to prioritize efficiency, it could have authorized direct circuit-court
review of all nationally applicable regulations, as it did under the
Clean Air Act.” Nat’l Ass’n of Mfrs. v. Dep’t of Def., 583 U.S. 109,
130 (2018).
4
42 U.S.C. § 7607(b)(1).
1
2
36a
or regionally applicable” action must be reviewed in the
D.C. Circuit if (1) it is “based on a determination of nationwide scope or effect” and (2) the Administrator
“finds and publishes that such action is based on such a
determination” 5 The majority opinion errs at both steps
of the venue analysis, inappropriately finding that venue
is proper in this Circuit.
A.
According to the majority, “[i]n-circuit precedent”
controls the outcome of the venue analysis at step one.
As we are supposedly obliged to look to the “legal effect
—and not the practical effect—of an agency action” to
determine whether the action is “nationally applicable,”
the Denial Actions must be “locally or regionally applicable” because they do not “change regulated entities’
legal obligations” for “all states.” With due respect,
this “legal effect” rule runs counter to the text, structure, and purpose of the CAA’s venue provision.
As a starting matter, the majority’s description of the
“legal effect” rule as in-circuit precedent relies on Texas
2016 to support its assertion. In Texas 2016, both “parties agree[d] that the [agency action] under review [was]
a locally or regionally applicable action.” 6 Whether the
“legal” or “practical” effect of an agency action determines its scope was not before the Court. 7 As a result,
the panel’s statement in Texas 2016 that “[t]he question
of applicability turns on the legal impact as a whole” is
dicta.
Id.
Texas v. EPA, 829 F.3d 405, 419 (5th Cir. 2016) (“Texas 2016”).
7
Id.
5
6
37a
Issues with “precedent” aside, this quest reads words
into the statute that are not there. Section 7607(b)(1)
refers only to agency actions that are “nationally applicable.” Nowhere does the text of the statute reference
or suggest that Congress intended to distinguish between “legal” and “practical” effects. Indeed, this part
of the statute does not refer to “effects” at all. The
question is one of “national applicability.”
Not only does the majority read new words into the
statute, but in fashioning its new “legal effect” theory,
they elide Texas 2016’s reference to the plain meaning
of the term “nationwide” and ignore Texas 2011, which
also defines the key terms of the statute by reference to
the words’ plain meaning. 8 Instead, we should look to
the plain meaning of “nationally” to understand what
Congress set out to achieve with § 7607(b)(1). “Nationally” generally means “throughout the whole nation.” 9
As commonly understood, a reasonable person would
measure “nationally applicable” by looking to “the location of the persons or enterprises that the action regulates.” 10 Applying this definition, the Denial Actions
See Texas v. EPA., No. 10-60961, 2011 WL 710598, at *4 n.4 (5th
Cir. Feb. 24, 2011) (“Texas 2011”).
9
See Texas 2016, 829 F.3d at 420 n.22, defining “nationwide” as
“throughout the whole nation.” “National” means “of or relating
to a nation.” Nation, Merriam Webster Dictionary, https://www.
merriam-webster.com/dictionary/national (last visited Nov. 19,
2023); “Nationally” means “in a national manner; as a nation; with
regard to the nation as a whole.” Nationally, Oxford English Dictionary, https://www.oed.com/dictionary/nationally_adv?tab=meaning
_and_use#35387357 (last visited Nov. 19, 2023).
10
Texas 2011, 2011 WL 710598, at *3 (citing New York v. EPA,
133 F.3d 987, 990 (7th Cir. 1998)). See also JOHN F. MANNING,
8
38a
are here inescapably nationally applicable: they apply
one consistent statutory interpretation and economic
analysis to thirty-six small refineries, located in eighteen different states, in the geographical boundaries of
eight different circuit courts. Without the siren song
of the war against the administrative state, they are, for
all intents and purposes, “applicable” across the “nation.”
By applying the plain meaning of “nationally” along
with this Court’s precedents, venue is proper only in the
D.C. Circuit. In Texas 2011, we found an agency action
to be nationally applicable when it applied to only thirteen states and seven different circuit courts. 11 Here,
we have eighteen states within eight different circuits,
all facing the same new statutory interpretation and economic analysis. In Texas 2020, this Court found that
the agency action in question was “locally or regionally”
applicable because it only applied to four counties within
the State of Texas, 12 and to Sierra Club v. EPA, in
which we similarly found that the agency action was not
“nationally applicable” because it dealt exclusively with
a State Implementation Plan (“SIP”) for the State of
Louisiana.13 Even American Road & Transportation
Builders Association v. EPA, which Texas 2016 cites favorably to fashion its “legal effects” pronouncement,
dealt with the denial of a SIP exclusively applicable to
WHAT DIVIDES TEXTUALISTS FROM PURPOSIVISTS?, 106 COLUM. L.
REV. 70, 76 (2006).
11
Texas 2011, 2011 WL 710598, at *3.
12
Texas v. EPA, 983 F.3d 826, 833 (5th Cir. 2020) (“Texas 2020”).
13
Sierra Club v. EPA, 939 F.3d 649 (5th Cir. 2019).
39a
the State of California. 14 Texas 2020, Sierra Club, and
American Road, when compared to the facts of this case
and when the term “nationally applicable” is given its
common sense reading, require transfer of this case to
its proper venue in the D.C. Circuit.
By the majority’s reading of § 7607(b)(1), if the EPA
denied the petitions of small refineries located in every
single U.S. state and territory in one single agency action, this denial action would still not be “nationally applicable” because it does not have any binding “legal effect” on future hardship petitions. That result simply
defies common sense.
The proffered new rule also “does violence . . . to
the structure and language of the statute.” 15 Section
7607(b)(1) refers to “final agency action,” and the Administrative Procedure Act defines “agency action” to
include both rulemakings and adjudications. 16 Section
7607(b)(1) then contemplates scenarios, such as this one,
in which an agency may proceed through an “action,”
such as an adjudication, that is of “national applicability.” But as adjudications lack “legal effect” beyond
the parties involved, they could never be “nationally applicable” as defined by the majority. Thus, the majority’s “legal effects” reading of the statute effectively removes all “adjudications” from the ambit of § 7607(b)(1),
contrary to the plain text of the statute.
Additionally, this “legal effects” rule offers no meaningful guidance to litigants, particularly problematic
Am. Road & Transp. Builders Ass’n v. EPA, 705 F.3d 453, 45556 (D.C. Cir. 2013).
15
Smith v. United States, 508 U.S. 223, 240 (1993).
16
See 5 U.S.C. 551(13).
14
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when considering that venue provisions should “draw
bright lines to minimize waste and expense of litigation
over whether a case has been brought in the right
court.” 17 Its new rule begs the question: even if we
were to require “legal effects,” why do those effects have
to be “future” legal effects? And why are “present” legal effects, which in this case, are felt over a large swath
of the country, insufficient? The majority’s now rewritten § 7607(b)(1) then reads:
[a] petition for review of . . . any . . . nationally applicable regulations [with future legal effects]
promulgated, or final action taken [minus adjudications], by the Administrator under this chapter may
be filed only in the United States Court of Appeals
for the District of Columbia.
Contrary to the majority’s re-working of the statute,
I would simply conduct the venue analysis by applying
the plain meaning of § 7607(b)(1). The EPA’s Denial
Actions, affecting eighteen states within the geographical boundaries of eight different circuit courts, are nationally applicable, as they apply one consistent statutory interpretation and economic analysis to small refineries nationwide. This should have been the end of the
Court’s venue analysis, and venue is only proper in the
D.C. Circuit.
B.
Alternatively, I would find that the Denial Actions
should be transferred to the D.C. Circuit at step two of
the venue analysis. They were “based on a determination of nationwide scope or effect” and the Administra41 Fed. Reg. 56767 (Dec. 30, 1976) (Comments of G. William
Frick).
17
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tor made and published the required determination.
The plain meaning of the statute’s key terms and this
Circuit’s precedents command this result.
“Determinations” are “the justifications the agency
gives for the action and they can be found in the agency’s
explanation of its action. They are the reason the
agency takes the action that it does.” 18 “[T]he agency
should identify the core determinations in the action.” 19
Here, “[b]ecause the statute speaks of the determinations the action ‘is based on,’ the relevant determinations are those that lie at the core of the agency action.” 20
Section 7607(b)(1), moreover, requires this Court look to
the “scope” or “effect” of the relevant determination and
determine whether it was “nationwide.” In this context, “[s]cope” means “[t]he area covered by a given activity or subject,” and “effect” means “[s]omething
brought about by a cause or agent; result.” 21 Altogether, this Court must then look to the core determinations that the EPA has identified as the justifications for
the Denial Actions, and it must independently determine if they have nationwide scope or effect.
The EPA identified the two determinations at the
core of the Denial Actions: (1) its new interpretation of
the CAA’s disproportionate hardship provision; and (2)
its economic analysis of the nationwide market for
RINs. The scope and effect of these core determinations are nationwide, as they are applicable to all small
See Texas 2016, 829 F.3d at 419.
Id.
20
Id.
21
Id. at 421 n.20 & 21.
18
19
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refineries no matter the location or market in which they
operate.
The majority, however, takes issue with the EPA’s
identification of its core determinations. In their view,
the EPA’s core determinations for the Denial Actions
are “flatly contradicted” by the agency’s position on the
merits. The majority faults the EPA for “consider[ing]
each petition on the merits . . . and individual refinery information.” But there is no contradiction in the
EPA ensuring that its core determinations hold up when
presented with potentially differing data in the individual petitions. While of course the agency considered
and responded to the small refineries’ comments (else,
the action would have surely been arbitrary and capricious), there can be multiple determinations that influence an agency’s actions. What the majority ignores is
that for venue purposes, what matters are the EPA’s
core determinations. In the case of the Denial Actions,
these determinations were of nationwide scope and effect. And because the Administrator made and published the required determination, venue is only proper
in the D.C. Circuit.
II.
There remains the matter of what our sister circuits
have already done with this exact same case. The
Third, Seventh, and Tenth Circuits transferred the relevant petitions to the D.C. Circuit, and the Ninth Circuit
dismissed the petitions. No Circuit has kept the case
for itself—until today.
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Congress designed § 7607(b)(1) to “prioritize efficiency,” 22 and with the majority’s decision today, this
Court has impermissibly interfered with Congress’s
stated preference for “centralized review of national issues” over “piecemeal review . . . in the regional
circuits.” 23 To these eyes, its decision looks away from
“general congressional direction in an attempt to do justice,” an unfortunate overreach this day by my colleagues. 24 I must respectfully dissent.
Nat’l Ass’n of Mfrs., 583 U.S. at 130.
Texas 2011, 2011 WL 710598, at *4.
24
41 Fed. Reg. 56767 (Dec. 30, 1976) (Comments of G. William
Frick).
22
23
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APPENDIX B
June 2022 Denial of Petitions
for RFS Small Refinery Exemptions
45a
June 2022 Denial of Petitions
for RFS Small Refinery Exemptions
United States Environmental Protection Agency
46a
Table of Contents
EXECUTIVE SUMMARY ......................................... [1]
I.
Final Adjudication Summary and Process......... [5]
II.
Background ......................................................... [8]
A. RFS Program .................................................. [8]
B. Renewable Identification Numbers
(RINs) .............................................................. [9]
C. RFS Compliance and RIN Market
Dynamics ....................................................... [10]
D. History of SREs ............................................ [12]
III. EPA’s Approach to Determining DEH
When Evaluating SRE Petitions ...................... [17]
IV. EPA Evaluation................................................. [20]
A. Eligibility to Petition for Extension of a
Small Refinery Exemption ........................... [20]
1.
Definition of Small Refinery .................... [20]
2.
Requirement to Have Received Initial
Blanket Statutory Exemption .................. [21]
3.
Changed Approach to Eligibility ............. [21]
4.
Alternative Eligibility Determinations
for Two Refineries .................................... [23]
B. Compliance with SRE Petition
Requirements ................................................ [24]
C. DOE Consultation and EPA
Consideration of the DOE Study ................. [24]
D. Hardship Must Be Caused by RFS
Compliance .................................................... [27]
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1.
The CAA Requires That DEH Must Be
Caused by RFS Compliance ......................... [27]
a.
b.
2.
3.
V.
The Text of the Statute Provides That
DEH Must Be Caused by Compliance
with the RFS Program ............................. [27]
The Purpose of the RFS Program
Supports a Requirement That DEH
Must Be Caused by Compliance with
the RFS Program ..................................... [28]
DEH and RIN Cost Passthrough ................ [30]
a.
Assessments of RIN Market Dynamics .. [32]
b.
Economic Principles of RIN Cost
Passthrough .............................................. [33]
c.
Impacts on Different Market
Participants ............................................... [41]
d.
EPA Evaluation of Available Market
Data ........................................................... [49]
EPA Responses to Small Refinery
Arguments for Exemption ............................ [59]
Alternative Compliance Demonstration
Approach and Proposed Alternative RIN
Retirement Schedule......................................... [71]
VI. Denial of Petitions and Judicial Review ........... [72]
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EXECUTIVE SUMMARY
Small Refinery Exemption (SRE) Denial and Related
Compliance Actions
In this action, the Environmental Protection Agency
(EPA or “the Agency”) is denying 69 petitions from 33
small refinery petitioners seeking exemption from their
Renewable Fuel Standard (RFS) obligations for the
2016-2021 compliance years. This final action (hereinafter the “SRE Denial”) is a single action, but it is comprised of the adjudications of 69 SRE petitions.
On December 7, 2021, EPA proposed to deny 65
pending SRE petitions (the “Proposed Denial”) based
on a proposed revision of EPA’s interpretation of Clean
Air Act (“CAA” or “the Act”) SRE provisions. On April
7, 2022, EPA acted on 36 SRE petitions that were remanded to the Agency by the U.S. Court of Appeals for
the D.C. Circuit on December 8, 2021. 1
In this action, EPA is acting on 69 SRE petitions that
remain pending after the April 2022 SRE Denial. EPA
has received and considered all the comments received
on the Proposed Denial and addresses those comments
in this action.
In separate actions, EPA is providing: (1) A supplement to the alternative compliance demonstration is-
“April 2022 Denial of Petitions for RFS Small Refinery Exemptions,” EPA-420-R-22-006, April 2022 (hereinafter the “April 2022
SRE Denial”). On January 3, 2022, EPA provided notice that the
36 remanded 2018 SRE petitions were again before the Agency,
and that EPA was expanding the Proposed Denial to include them
and requesting comment on that approach. Memorandum: Scope
of Action and Notification,” EPA-HQ-OAR-2021-0566-0027.
1
49a
sued on April 7, 2022, 2 for 31 small refineries whose
SRE petitions EPA initially granted for the 2016-2018
compliance years, but now, on remand, were denied in
this action or the April 2022 SRE Denial; and (2) A notice of proposed rulemaking for an alternative RIN retirement schedule for all small refineries for their renewable volume obligations (RVOs or “RFS obligations”) for the 2020 compliance year. 3 Under the June
2022 Compliance Action, EPA has determined that, if it
were to require these 31 small refineries to comply with
their newly created 2016-2018 RFS obligations 4 under
the existing compliance scheme, the impact on the RFS
program as a whole, in addition to the impacts on the
individual small refineries, would be unacceptable due
to the unavailability of sufficient RINs to satisfy these
new obligations. Thus, that concurrent action provides
an alternate compliance approach by which these small
refineries can demonstrate compliance with their 20162018 RFS obligations that they otherwise would not be
able to meet.
“June 2022 Alternative RFS Compliance Demonstration Approach for Certain Small Refineries,” EPA-420-R-22-012, June
2022 (hereinafter the “June 2022 Compliance Action”).
3
“Renewable Fuel Standard (RFS) Program: Alternative RIN
Retirement Schedule for Small Refineries Notice of Proposed
Rulemaking” (hereinafter the “Alternative RIN Retirement Schedule
NPRM”). A pre-publication version of this proposed rule is available at https://www.epa.gov/renewable-fuel-standard-program/
proposed-alternative-rinretirement-schedule-small-refineries. A
small refinery’s 2020 RVOs would also include any RIN deficit carried forward from the 2019 compliance year.
4
The 2018 RFS obligations were newly created by the April 2022
SRE Denial. The 2016 and 2017 RFS obligations are newly created by this action.
2
50a
The Alternative RIN Retirement Schedule NPRM
would provide small refineries with more time to comply
with their 2020 RFS obligations by creating quarterly
RIN retirement deadlines by which a small refinery
must comply with certain percentages of its 2020 RFS
obligations; it would also expand the range of RIN vintages that a small refinery could use to demonstrate
compliance with its 2020 obligations. EPA is proposing
this action because small refineries need more flexibility
to comply with their RFS obligations given EPA’s reasonable delay in deciding SRE petitions and setting the
associated RFS compliance deadlines. This proposed
action initiates a rulemaking that is separate from
EPA’s June 2022 SRE Denial and for which EPA is establishing a public comment period.
Grounds for the SRE Denial
The Proposed Denial
EPA issued the Proposed Denial in response to the
conclusion of litigation that addressed historical inconsistencies in EPA’s treatment of SREs since 2011.
First, in Renewable Fuels Association v. EPA, the U.S.
Court of Appeals for the Tenth Circuit Court found that
EPA had exceeded its statutory authority by granting
extensions of the SREs held by certain small refineries
and remanded those decisions to the Agency for reconsideration. The court held that: (1) In granting exemptions based on economic factors unrelated to compliance with the RFS program, EPA had exceeded its
statutory authority to exempt small refineries from
their RFS obligations “for the reason of disproportionate economic hardship [DEH]” because the statute authorizes EPA to extend exemptions only where RFS compliance costs are the cause of the small refinery’s hard-
51a
ship; (2) EPA had acted arbitrarily and capriciously in
granting exemptions without explaining whether and
how the subject SRE grants were consistent with EPA’s
firmly established position that all parties subject to
RFS obligations recover their compliance costs through
a feature of the market EPA identified as “RIN cost
passthrough;” and (3) In order to be eligible to petition
for extension of an SRE, a small refinery needed a continuous, uninterrupted exemption history beginning
with the CAA section 211(o)(9) blanket statutory exemption period for small refineries.
Following the Tenth Circuit’s RFA opinion, the small
refinery intervenors in that case appealed only the holding that, to be eligible for exemption, a small refinery
needed a continuous, uninterrupted exemption history.
In HollyFrontier Cheyenne Refining, LLC, et al. v. Renewable Fuels Association, et al., the Supreme Court
held that the term “extension” as used in CAA section
211(o)(9)(B) does not include a continuity requirement
and reversed the Tenth Circuit opinion on that issue.
After evaluating this jurisprudence, refinery-specific
materials submitted by many small refineries to support
of their SRE petitions in the wake of the Supreme
Court’s ruling, years of experience and data collected by
implementing the RFS program and SRE provisions,
and our exhaustive analysis of how the RFS credit market functions, EPA determined that the Tenth Circuit
provided the best reading of the SRE statutory provisions and issued the Proposed Denial, based on EPA’s
conclusion that small refineries cannot demonstrate
they suffer DEH caused by the cost of compliance with
the RFS program. EPA proposed the following findings: (1) Regardless of the mechanism by which any
52a
obligated party—including small refineries—comply
with their RFS obligations, RFS compliance costs are
the same for all obligated parties and thus no party
bears RFS compliance costs that are disproportionate
relative to others’ costs; (2) Any obligated party—
including small refineries—recovers their compliance
costs through the market price they receive when they
sell their fuel products and thus do not bear a hardship
created by compliance with the RFS program; and (3)
With no disproportionality and no economic hardship,
there can be no DEH pursuant to the statute. EPA
therefore proposed to revise its CAA statutory interpretation to extend SREs only to small refineries whose
claimed DEH is caused by the cost of complying with the
RFS program and not by other factors and to deny 65
pending SRE petitions on this basis. Further, EPA
proposed to deny SRE petitions submitted by any small
refinery that had not received the initial blanket statutory exemption under CAA section 211(o)(9).
The Notice-and-Comment Process
Recognizing the complexity of the Agency’s past implementation of the SRE provisions, recent litigation,
and the significance and potential ramifications of the
proposed changes in SRE interpretations to refineries
and the entire RFS program, EPA requested comment
on the Proposed Denial to ensure that RFS stakeholders
and the public had an opportunity to provide input on
the proposed shift in interpretation of the SRE statutory provisions, as well as to submit refinery-specific information related to the proposed SRE petition denials.
EPA chose to undertake a notice-and-comment process
to provide maximum transparency, as we proposed to
address past inconsistencies in SRE implementation
53a
and new case law providing a better read of the SRE
statutory provisions.
As set forth herein, EPA received numerous individual comments from various RFS stakeholders, most of
which are available in the public docket for this action;
however, some of the comments from petitioning small
refineries provided unique, refinery-specific information
submitted under claims of confidentiality that are, therefore, being addressed in appendices that will be provided only to the individual commenters. EPA has
carefully considered all comments received and provides
responses to those comments in Appendix B and in confidential, refinery-specific appendices to this action.
While this final action adjudicates 69 SRE petitions for
the 2016-2021 compliance years, many small refineries’
comments raised arguments and provided data applicable to more than one of their pending SRE petitions.
EPA considered and responded to all information relevant to the remanded 2018 SRE petitions in the April
2022 SRE Denial. In this action, EPA considers and
responds to comments relating to 69 SRE petitions for
the 2016-2021 compliance years.
First, EPA received similar comments from most
small refineries and their trade associations challenging
the validity of the Proposed Denial’s approach to DEH.
Many submitted refinery-specific information about
their operations, finances, and the fuels markets in which
they participate to support their arguments that they
should receive SREs. Because the same arguments
were repeated by most, if not all, SRE petitioners, EPA
presents and responds to them as a group in Section
IV.D.3. These comments articulate the following general themes:
54a
(a) Small refineries face unique challenges that prevent them from achieving RIN cost passthrough
and EPA must consider their specific circumstances;
(b) EPA’s Point of Obligation denial is not relevant
to SRE policy because it did not address their
situations and does not apply to them;
(c) The Point of Obligation denial is out of date and
inapplicable;
(d) Revenue from RIN sales allows large retailers
to undercut small refineries;
(e) Large integrated refiners set prices in fuels
markets, undercutting small refineries on price
because of their market position and because
large integrated refiners have lower or no RIN
costs;
(f ) EPA is incorrect about there being parity between the cost of obtaining a RIN through
blending and the cost of buying a RIN on the
market;
(g) Single-site refineries are disadvantaged relative
to large integrated refiners because they only
have access to a limited market; and
(h) Small refineries that produce primarily diesel
fuel are at a disadvantage because they cannot
blend as much renewable fuel into their product
as can refineries that produce gasoline.
After addressing the universal comments described
above, EPA presents and responds to unique comments
received from a range of RFS stakeholders—including
refineries and their trade organizations, biofuel produc-
55a
ers and their trade organizations, and a number of local,
state, and federal officials—in Appendix B and, where
applicable, in confidential, refinery-specific appendices
to this action. The comments addressed in Appendix B
focus on EPA’s notice-and-comment process for proposing and finalizing the SRE Denial, EPA’s legal authority
to take this final action, and how the SRE Denial may
affect the RFS program as a whole. The comments addressed in the refinery-specific appendices focus on information submitted by many refineries under claims of
confidentiality regarding their specific operations and
finances, and studies commissioned based on such confidential information to evaluate the RFS economic findings described in the Proposed Denial.
After careful consideration of all the comments received as well as all other available information regarding the RFS program, the operation of the RIN market,
and the validity of our DEH analysis, EPA is here adopting and applying its proposed SRE statutory interpretations and denying 69 pending SRE petitions.
I.
Final Adjudication Summary and Process
This section summarizes EPA’s final action and the
public process the Agency has followed to reach its decision. EPA has determined that any small refinery
seeking an exemption from its RFS obligations must:
(1) Demonstrate that any DEH it claims to experience
is caused by compliance with the RFS program; and (2)
Reconcile any such showing with RIN cost passthrough. 5 EPA has also changed its criteria for assessing a refinery’s eligibility to receive an exemption
This approach is described in more detail in Section III. The
RIN cost passthrough phenomenon is explained in Section IV.D.2.
5
56a
from its RFS obligations; we now require a small refinery to have received the original statutory exemption
under CAA section 211(o)(9)(A)(i) in order to be eligible
to petition for an extension of that exemption, though,
consistent with the Supreme Court’s holding in
HollyFrontier, 6 a small refinery need not have received
continuous exemptions since the original statutory exemption. 7
On December 7, 2021, EPA issued the Proposed Denial. On December 8, 2021, the D.C. Circuit remanded
36 2018 SRE petitions. 8 On January 3, 2022, EPA provided notice that it was considering deciding the 36 SRE
petitions under the Proposed Denial and requested comment on that approach. On April 7, 2022, EPA denied
the 36 2018 SRE petitions consistent with the Proposed
Denial. After analyzing the petitions, applying the new
approach to DEH, and for the reasons described in this
document, EPA is denying 69 pending SRE petitions for
the 2016-2021 compliance years. EPA received numerous comments on the process utilized in reaching this final action, and we have responded to those comments in
Appendix B.
In addition to denying 69 pending SRE petitions on
DEH grounds, EPA is also finding that there are alternative grounds to deny four pending SRE petitions from
two refineries, each for the 2019 and 2020 compliance
years, because they did not receive the original statutory
See HollyFrontier Cheyenne Refining, LLC, et al. v. Renewable Fuels Ass’n, et al., 114 S. Ct. 2172, 2181 (2021) (HollyFrontier).
7
Refinery eligibility is explained in Section IV.A.
8
See, e.g., Order, Doc. No. 1925942, Dec. 8, 2021, Sinclair Wyo.
Refining Co. v. EPA, No. 19-1196 (consol. with 19-1197) (D.C. Cir.).
6
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blanket exemption under CAA section 211(o)(9)(A)(i). 9
Additionally, EPA is finding that one of the two refineries is ineligible to petition for an exemption for the 2019
and 2020 compliance years because it exceeded the
crude oil throughput limit of 75,000 barrels per day in
2019, thereby making the refinery ineligible for an exemption in those two years pursuant to applicable EPA
regulations. 10 EPA received comments from these refineries under claims of confidentiality and has responded to those comments in confidential, refineryspecific appendices. EPA has also responded to generalized comments on eligibility to petition for an SRE in
Appendix B.
This final agency action therefore adjudicates 69
pending SRE petitions by: (1) Clearly articulating
EPA’s current interpretation of its statutory authority
to grant SREs; (2) Presenting our analysis of all available data on RFS costs and market dynamics, including
our response to comments received on the Proposed Denial; and (3) Denying 69 pending SRE petitions based on
the current statutory interpretation and analysis described herein in a single action. EPA’s final action on
the pending SRE petitions is based on the legal and factual analysis presented herein, after consulting with the
Department of Energy (DOE), and considering the 2011
DOE small refinery study, “other economic factors,”
While we determine in this action that these two refineries are
ineligible to petition for SREs, this determination is made in the
alternative, because EPA has denied these four petitions as part of
the 69 pending SRE petitions denied by this action on DEH grounds
for the reasons described herein. Therefore, even if the refineries
are later deemed eligible to petition for exemptions, their four SRE
petitions pending before EPA are denied for substantive reasons.
10
40 CFR 80.1401 and 80.1441(e)(2)(iii).
9
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and public comments submitted in response to our request for comment on the Proposed Denial. 11
While this single final action adjudicates 69 SRE petitions, we intend for this adjudication to be severable in
these articulated ways. First, we intend for the two
distinct statutory interpretations we adopt in this action
to be severable. If a reviewing court invalidates our interpretation that DEH must be caused by compliance
with the RFS program, our interpretation on eligibility
to petition for and receive an exemption would still
stand. Second, it is our intent that the separate action
we are taking to provide an alternative compliance demonstration be severable from the decision to deny the SRE
petitions. While the need for the alternative compliance demonstration flows from this adjudication, each
action is separate and independent from the other.
This adjudication, consistent with the statute and applicable case law, denies 69 SRE petitions. The separate
June 2022 Compliance Action providing compliance flexibility determines how the identified 31 small refineries
will demonstrate compliance with their newly created
2016-2018 obligations. As these actions utilize differing
authorities and operate independently, we intend for
them to be severable.
This document provides a sequential explanation of
EPA’s current approach to SRE petition evaluation and
the data we analyzed to support this approach. It begins, in Section II, by providing background on the RFS
program, compliance with the RFS program, and the
EPA has established a docket for this action under Docket ID
No. EPA-HQ-OAR-2021-0566. Supporting materials for this action and comments received on the Proposed Denial can be found
there.
11
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SRE provisions of that program. Section II also provides a brief history of EPA’s approach to evaluating
SRE petitions and judicial review of EPA’s past SRE
decisions. Section III presents the statutory requirements for EPA’s evaluation of SRE petitions and EPA’s
new approach to SRE evaluation. Section IV provides
EPA’s analysis of the SRE eligibility and petition requirements and statutory construction of the CAA’s
SRE provisions. It also presents a detailed explanation
of RFS market economics including the costs of RFS
compliance on obligated parties, and the implications of
those costs on DEH. Section IV also includes a description of how EPA satisfied the statutory requirements for this action, 12 then summarizes and responds
to the arguments advanced by the petitioning small refineries, and others that commented on the Proposed
Denial, as to how and why RFS compliance could cause
DEH. 13 Section V describes the separate, concurrent
actions EPA is taking to provide certain small refineries
with an alternative compliance demonstration for their
2016-2018 RFS obligations and all small refineries with
an alternative RIN retirement schedule for their 2020
RFS obligations. Lastly, Section VI provides EPA’s
12
In evaluating SRE petitions, CAA section 211(o)(9)(B)(ii) requires the Administrator, in consultation with the Secretary of Energy, to consider the findings of the DOE study performed under
CAA section 211(o)(9)(A)(ii)(I) and other economic factors. A
memorandum summarizing the consultation between EPA and
DOE can be found in the docket for this action.
13
A summary of the substantive comments EPA received that
were not submitted under claims of confidentiality, and EPA’s responses to those comments, can be found in Appendix B. EPA has
responded to confidential information submitted by the petitioning
small refineries in their comments through confidential, refineryspecific appendices to this action.
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conclusion to deny 69 SRE petitions based on all the information presented herein and information regarding
judicial review of this final action.
II. Background
This section describes the RFS program in general,
including the SRE provisions of the program, as well as
how EPA has implemented the SRE provisions in the
past.
A.
RFS Program
In 2005 and 2007, Congress amended the CAA to establish the RFS program. 14 Congress enacted this program to “move the United States toward greater energy
independence and security” and to “increase the production of clean renewable fuels,” among other purposes. 15
The statute specifies increasing annual “applicable volumes” for four categories of renewable fuel for the
transportation sector: total renewable fuel, advanced
biofuel, cellulosic biofuel, and biomass-based diesel
(BBD). 16 The specified applicable volumes for renewable fuel, advanced biofuel, and cellulosic biofuel are prescribed for each year through 2022, and for BBD
through 2012; EPA must determine the applicable volumes for subsequent years. 17
Congress directed EPA to establish a compliance program and annual percentage standards to ensure that
See Energy Policy Act of 2005 (EPAct), Pub. L. No. 109-58, 119
Stat. 594; Energy Independence and Security Act of 2007 (EISA),
Pub. L. No. 110-140, 121 Stat. 1492
15
121 Stat. 1492.
16
CAA section 211(o)(2)(B)(i)(I)-(IV).
17
Id.
14
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the applicable volumes are used each year. 18 To calculate these percentage standards, EPA divides the applicable volume for each type of renewable fuel established
in the CAA or determined by EPA 19 by the Energy Information Administration’s estimate of the national volume of transportation fuel that will be introduced into
commerce in that year. 20 For example, if EPA set the
percentage standard for total renewable fuel at 10%, an
obligated party that produced 1,000,000 gallons of gasoline one year would need to ensure that 100,000 gallons
of renewable fuel was introduced into the market that
year.
Congress authorized EPA to place the obligation to
satisfy the applicable percentage standards on “refineries, blenders, and importers, as appropriate.” 21 By regulation, EPA determined that refineries and importers
of gasoline and diesel fuel must fulfill the requirements
of the RFS program. 22 These “obligated parties” apply
the percentage standards to their own annual production (or importation) of gasoline and diesel fuel to calculate their individual renewable volume obligation (RVO
or “RFS obligation”) for each category of renewable
fuel. Thus, the RFS standards place the same obligation on all producers and importers of gasoline and die-
Id.; CAA section 211(o)(2)(A)(i), (iii), and (3)(B)(i).
CAA section 211(o)(2)(B), (7)(A), and (7)(D)-(F).
20
CAA section 211(o)(3)(A).
21
CAA section 211(o)(3)(B)(ii)(I).
22
40 CFR 80.1406. For simplicity this document focuses on refiners; however, the same concepts of RIN costs, RIN cost passthrough, and RIN discount for blended fuel also apply to importers.
18
19
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sel fuel in proportion to their production (or importation) volume.
B.
Renewable Identification Numbers (RINs)
The CAA requires EPA to establish a credit trading
program allowing obligated parties that acquire excess
credits in one year to apply credits toward compliance
in a subsequent year or to sell the credits to another obligated party for use in its own compliance. 23 In conjunction with EPA’s authority under CAA section
211(o)(2)(B) to put in place implementing regulations for
the RFS program, and in compliance with CAA section
211(o)(5), EPA designed a flexible and comprehensive
system of tradable credits (Renewable Identification
Numbers or RINs). Section 211(o)(5) required only
that EPA allow for the generation and trading of credits
for obligated parties that refine, blend, or import excess
renewable fuel. The RIN system fulfills that statutory
provision, and also creates a fungible system of credit
trading by not just obligated parties but also renewable
fuel producers and others, creating an open, liquid market for RINs to allow obligated parties to comply with
their RFS obligations.
Under the RIN system, producers and importers of
renewable fuel generate RINs for each gallon of renewable fuel they import or produce for use in the United
States. 24 RINs are “assigned” to batches of renewable
fuel by the producers and importers of renewable fuel. 25
RINs may be “separated” from those batches by a party
that blends the renewable fuel into gasoline or fossilCAA section 211(o)(5)(A)-(C).
40 CFR 80.1426(a).
25
40 CFR 80.1426(e).
23
24
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based diesel fuel to produce a transportation fuel, heating oil, or jet fuel. 26 Once separated, RINs may be kept
for compliance or sold. 27 Obligated parties may use a
RIN to demonstrate compliance for the compliance year
in which the RIN is generated, or for the following compliance year (for up to 20% of an obligated party’s obligations). 28 An obligated party may not use a RIN for
any subsequent compliance years because the RIN has
expired, is now invalid, and therefore not useable for
compliance purposes. 29 Obligated parties meet their
RFS obligations by accumulating RINs and “retiring”
them in an annual compliance demonstration. 30 The
statute and RFS regulations also provide that, in lieu of
retiring the requisite number of RINs to show compliance for a particular compliance year, an obligated party
may choose to carry forward a RIN deficit into the following compliance year under certain conditions. 31 An
obligated party may carry forward a RIN deficit equal
to its full or partial RFS obligations in a given compliance year, but must satisfy the deficit in full the subsequent compliance year, along with the obligations for
that subsequent year in full (i.e., the obligated party
cannot carry forward the subsequent compliance year’s
obligations as a deficit).
The price of the RIN is expected to reflect the marginal difference between the supply price for the renewable fuel and the demand price for the renewable fuel,
40 CFR 80.1429(b).
40 CFR 80.1425-29.
28
40 CFR 80.1427(a)(6), 80.1428(c), and 80.1431(a).
29
40 CFR 80.1427(a)(6), 80.1428(c), and 80.1431(a).
30
40 CFR 80.1427(a).
31
CAA section 211(o)(5)(D), 40 CFR 80.1427(b).
26
27
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which is the price the market is willing to pay for the
renewable fuel as a transportation fuel. 32 In other
words, if it costs more to produce the renewable fuel
than consumers are willing to pay for it, the RIN price
would be expected to match that cost difference so that,
in the end, the fuel price for consumers is the same. 33
The price of the RIN, therefore, provides the “discount”
on the renewable fuel necessary for the market to consume the renewable fuel. This dynamic functions to incentivize blending and use of the renewable fuel up to
the mandated volume even if the market demand price
for the renewable fuel would not cover the cost of its
production. In this way, the RIN price facilitates
greater use of renewable fuel as the RFS program was
designed to do. Throughout this document we refer to
the cost difference described here as the “RIN discount.”
The design of the RIN trading system enabled parties that were already producing and blending renewable fuel to continue to do so. They could then sell excess RINs to obligated parties that lacked blending capability. This open trading market for RINs provides
three main benefits. First, it allows all obligated parties, regardless of size or situation, equal ability to comply with their RFS obligations immediately without hav32
See “A Preliminary Assessment of RIN Market Dynamics,
RIN Prices, and Their Effect,” Dallas Burkholder, Office of Transportation and Air Quality, US EPA, May 14, 2015, pg. 7 (hereinafter the “Burkholder memo”).
33
Throughout this document we use the term “consumer” to refer to wholesale and retail consumers alike as RIN prices pass
through both levels of the market. Where we are specifically describing the sale from terminals or refinery racks we refer to the
purchaser of the fuel at wholesale as the “wholesale purchaser.”
65a
ing to invest capital or resources. They can contract
with others already providing the services and/or go into
the open market to acquire RINs. Second, this system
averts the need for each individual obligated party to
purchase and blend renewable fuel into its own gasoline
and diesel fuel. 34 Thus, the program was designed to
“preserve[] existing business practices for the production, distribution, and use of both [petroleum] and renewable fuel.” 35 Third, it levels the playing field for the
cost of compliance, with all obligated parties having access to the RINs needed for compliance at the same cost,
regardless of whether they acquire the needed RINs by
purchasing them on the open market or by blending renewable fuel themselves. The RFS program, through
the RIN system, was designed to avoid creating DEH
based on whether compliance is achieved through blending of renewable fuel or through purchasing RINs.
C.
RFS Compliance and RIN Market Dynamics
Congress structured the RFS program to impose
proportional requirements on all obligated parties, including small refineries. The RFS obligations are established as a percentage of an obligated party’s production (or importation) of gasoline and diesel fuel; 36 therefore, by definition, the obligation is proportional to the
quantity of gasoline and diesel fuel that a party produces
Complying with such a requirement would have been difficult,
if not impractical for obligated parties, as different renewable fuels
are blended into gasoline and diesel fuel and pipeline operators
normally do not allow gasoline or diesel fuel containing renewable
fuel to be transported through their pipelines.
35
“RFS1 Summary and Analysis of Comments,” EPA-420-R-07006 at 1-6, April 2007.
36
See supra, Sections II.A and B.
34
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(or imports) each year. 37 Obligated parties must acquire
RINs to meet their RFS obligations, 38 either through
their own blending of renewable fuel or through the purchase of RINs from other parties that produce or blend
renewable fuel. Obligated parties must demonstrate
compliance annually by retiring RINs requisite with
their RFS obligations.
The cost of acquiring RINs is the same for all parties
regardless of whether the RINs needed to comply are
acquired by blending renewable fuel or by procuring
RINs from others. 39 This occurs through the phenomena of RIN discount and RIN cost passthrough, introduced in the Executive Summary and explained in detail
throughout this document. Parties that blend more renewable fuel than they need to satisfy their RFS obligations may show an apparent revenue source from the
See CAA section 211(o)(3)(B); 40 CFR 80.1407.
For purposes of the RFS program, transportation fuel is defined as “fuel for use in motor vehicles, motor vehicle engines, nonroad vehicles, or nonroad engines (except fuel for use in oceangoing vessels).” 40 CFR 80.1401. The regulations at 40 CFR 80.1406
establish that “[a]n obligated party is any refiner that produces
gasoline or diesel fuel within the 48 contiguous states or Hawaii, or
any importer that imports gasoline or diesel fuel into the 48 contiguous states or Hawaii during a compliance period.” The regulations at 40 CFR 80.1407 establish that, in practice, an RFS obligation is imposed only on gasoline and ultra-low-sulfur diesel (ULSD)
used in motor vehicles, nonroad engines, locomotives, and marine
engines (historically called MVNRLM diesel fuel). Such gasoline
and diesel fuel only incur an obligation if used in the RFS “covered
location” as defined in 40 CFR 80.1401. Throughout this document we refer to fuel that incurs an RFS obligation (i.e., gasoline
and diesel fuel) as “obligated fuel” and fuel that does not incur an
RFS obligation (e.g., heating oil, jet fuel) as “non-obligated fuel.”
39
See infra, Section IV.D.2.
37
38
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sale of those RINs. However, in the competitive fuels
market, parties that sell RINs acquired through blending renewale fuels must discount the price of their
blended fuel by the value of the RINs associated with
the renewable fuel in the fuel blend. 40 If parties that
blend renewable fuel into transportation fuel do not discount the price of their blended fuel by the market price
of the RIN, then their blended fuel would be priced
higher than the same fuel where the producer has discounted the fuel by the price of the RIN, and the nondiscounted fuel would never sell. Therefore, in order to
price their products competitively in the fuels market,
parties that blend renewable fuel into transportation
fuel must reduce the price of their blended fuel by the
price of the RIN (RIN discount). Thus, the revenue
from the RIN sale is used to offset the discounted sales
price of the blended fuel and is passed through to consumers through reduced market prices for the blended
fuels. Moreover, the RFS program imposes the same
cost on all parties that produce (or import) gasoline or
diesel fuel nationwide 41 because the market price for all
gasoline and diesel fuel increases to reflect this RIN
price (RIN cost passthrough), much as it would increase
in response to a new tax. This relationship between
RIN prices and the market prices for blended fuels was
first analyzed by EPA in 2015. 42
Burkholder Memo, pg. 24.
In this document, the term “nationwide” refers to the RFS
“covered location,” which the RFS regulations define as “the contiguous 48 states of the United States, Hawaii, and any state or
territory that has received an approval from the Administrator to
opt-in to the RFS program under §80.1443.” 40 CFR 80.1401.
42
Burkholder Memo, pg. 22.
40
41
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In this document we refer to an obligated party’s
ability to recover the cost of the RINs it acquires for
compliance as “RIN cost passthrough,” since obligated
parties are passing these costs through to wholesale
purchasers. We refer to the lower prices received for
blended fuel (i.e., gasoline and diesel fuel blended with
renewable fuel) enabled by the sale of RINs as “RIN
discount,” since the sale of the RIN allows blenders to
discount the price of the blended fuel. We find that all
types of obligated parties have the same cost to acquire
RINs, and that all types of obligated parties recover
these costs when they sell the gasoline and diesel fuel
they produce (or import) at the market price (RIN cost
passthrough). Further, we find that blenders use revenue from RIN sales to discount the price of blended
fuel (RIN discount). We therefore conclude that compliance with the RFS program cannot cause DEH for
small refineries. 43
D.
History of SREs
A small refinery is defined by the CAA as “a refinery
for which the average aggregate daily crude oil throughput for a calendar year . . . does not exceed 75,000
barrels.” 44 Both the original RFS statutory provisions
43
The economic theory supporting EPA’s findings on RIN cost
passthrough and the RIN discount, the market data we have evaluated in reaching these findings, and more detailed explanations
on how various parties in the fuels market are affected by the RFS
program are discussed in Section IV.D.2.
44
CAA section 211(o)(1)(K). Thus, a “small refinery” is determined based on the annual volume of crude oil processed at the
refinery, not on the size of the company that owns the refinery.
Indeed, many “small refineries” are owned by large multi-national
companies.
69a
enacted pursuant to the Energy Policy Act (EPAct) and
the current text of the statute as amended by the Energy Independence and Security Act (EISA) provided
all small refineries an initial blanket exemption from
their obligations under the RFS program until calendar
year 2011. 45 Under EPA’s regulations, small refineries
that were producing either “gasoline” under RFS1 46 or
“transportation fuel” under RFS2 47 were required to
notify EPA that they qualified for the temporary exemption by submitting verification letters stating their
average crude oil throughput rate during the applicable
qualification period. 48 Further discussion of EPA’s
past and current interpretation of small refinery eligibility criteria is provided in Section IV.A.
The CAA includes two additional provisions regarding extensions of the SRE for the period after the initial
blanket exemption expired:
1)
Under the first statutory mechanism, applicable
to 2011 and 2012, if DOE determined, through a
study mandated under the CAA, that compliance
with the RFS requirements would impose DEH
on a small refinery, EPA was required to extend
the small refinery’s exemption by at least two
CAA section 211(o)(9)(A)(i).
“Regulation of Fuels and Fuel Additives: Renewable Fuel
Standard Program,” 72 FR 23900 (May 1, 2007).
47
40 CFR 80.1441(a)(1).
48
72 FR 23900, 23924 (May 1, 2007); 40 CFR 80.1441(b). EPA’s
regulations allowed for small refineries that had submitted verification letters to qualify for the original statutory exemption under
EPAct / RFS1 to also qualify under the SRE provisions in EISA /
RFS2. The small refineries were not required to re-certify their
throughput to maintain eligibility under the RFS2 program.
45
46
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years. 49 In 2009, DOE completed its study and
found that, in a liquid and competitive RIN market, compliance with the RFS requirements
would not impose DEH on any small refinery.
Subsequently, some members of Congress directed DOE to revisit the 2009 DOE Small Refinery Study 50 and in so doing to solicit input
from the small refineries themselves. 51 In 2011,
DOE completed a second study that used the
small refinery input to develop a set of financial
and operational metrics intended to inform DOE
whether a small refinery was likely to experience DEH. 52 Contrary to the 2009 DOE Study,
the 2011 DOE Study did not assume that RFS
compliance costs would be the same for all refineries in a competitive market, and instead, assumed that small refineries could face higher
compliance costs by purchasing RINs when
compared to large integrated refiners that
would acquire RINs through blending. Furthermore, neither study considered the possibility that refineries would recover the cost of
RINs through higher prices for their products. 53
DOE organized the metrics into a two-part maCAA section 211(o)(9)(A)(ii)(II).
“EPACT 2005 Section 1501 Small Refineries Exemption
Study,” Office of Policy and Internation Affairs, U.S. Department
of Energy, February 2009 (hereinafter the “2009 DOE Study”).
51
Senate Report 111-45, at 109 (2009).
52
“Small Refinery Exemption Study, An Investigation into Disproportionate Economic Hardship,” Office of Policy and International Affairs, U.S. Department of Energy, March 2011 (hereinafter the “2011 DOE Study”).
53
See infra, Section IV.D.
49
50
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trix with sections addressing “disproportionate
impacts” and “viability impairment.” 54 DOE
also developed a scoring protocol for the matrix
that required the score in both sections of the
matrix to exceed an established threshold for
DOE to find that DEH existed at a given small
refinery. Using this regime, the 2011 DOE
Study found that DEH existed at 14 small refineries, but again, assumed that small refineries
bore a higher cost of compliance in the acquisition of RINs and that no refineries recovered the
RIN compliance costs in the prices for their
products. As required by the statute, EPA
granted those small refineries a two-year extension of the original exemption (through 2012).
2)
The second statutory mechanism provided that
small refineries “may at any time petition the
Administrator for an extension of the exemption
under [section 211(o)(9)(A)] for the reason of
[DEH].” 55 The Supreme Court recently opined
on the meaning of “extension” in the context of
CAA section 211(o)(9)(B), overturning one holding in the Tenth Circuit’s RFA opinion that required a small refinery to have continuous exemptions to be eligible for further exemption extensions. 56 When evaluating SRE petitions, the
Act directs the Administrator, “in consultation
2011 DOE Study at 32-36.
CAA section 211(o)(9)(B)(i).
56
See HollyFrontier, 114 S. Ct. at 2181. Consistent with that
decision, small refineries that received the initial blanket exemption but have not received continuous exemption extensions remain
eligible to petition for future exemptions.
54
55
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with the Secretary of Energy,” to “consider
the findings of the study under [CAA section
211(o)(9)(A)(ii)(I)] and other economic factors.” 57
After DOE conducted its 2011 DOE Study and
EPA granted two-year extensions to the 14 refineries the study identified, additional refineries came forward to EPA to seek exemptions for
2011 and 2012. EPA shared these new petitions
with DOE, which applied the matrix scoring
methodology developed in the 2011 DOE Study
and shared the scoring results with EPA. EPA
chose to satisfy the statutory requirements for
consultation and consideration of the 2011 DOE
Study by using DOE’s scoring results in its evaluation of each SRE petition. Consistent with
the extensions of exemptions it granted to the 14
small refineries through the 2011 DOE Study,
EPA then decided to grant an extension of the
exemption to an additional ten small refineries
for 2011, and to nine for 2012. Since 2013, EPA
has shared all incoming SRE petitions and supplemental information with DOE. 58
Since 2013, DOE and EPA have changed their treatment of the scoring matrix several times as informed by
direction from members of Congress, court decisions,
and changing administration policies. For DOE, the
CAA section 211(o)(9)(B)(ii).
DOE continued to make findings to EPA based on its scoring
matrix, which does not assess the degree to which small refineries
recover their RFS compliance costs in higher prices for their refined products (i.e., it does not consider RIN cost passthrough).
See infra, Section IV.C, for a description of EPA’s current consultation process.
57
58
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most significant change in approach did not involve the
matrix evaluation or the scoring methodology. Rather,
in 2016 DOE modified the finding it provided to EPA for
a given score on the matrix (i.e., as described below,
DOE implemented new direction from Congressional
report language to recommend 50% exemptions, as opposed to the exclusively 0% or 100% recommendations
in prior years). For EPA, the changes involved the
weight EPA afforded DOE’s findings relative to the
“other economic factors” EPA considered when evaluating SRE petitions. However, in none of these years did
EPA require small refineries to demonstrate that they
faced RFS compliance costs that were higher than for
other obligated parties (i.e., disproportionate), nor did
EPA require a demonstration that the hardship was
caused by compliance with the RFS program, including
an explanation for how compliance costs harmed them
in a market characterized by RIN cost passthrough.
In some prior decisions, DOE and EPA concluded
that DEH existed only when a small refinery experienced both disproportionate impacts and viability impairment, as measured by the matrix. In response to
concerns that the two agencies’ threshold for establishing DEH was too stringent, Consolidated Appropriations Act report language directed DOE to recommend
50% relief when a small refinery’s score on either section of the matrix exceeded the applicable threshold. 59
Consolidated Appropriations Act, 2016, Pub. L. No. 114-113
(2015). The Explanatory Statement is available at 161 Cong. Rec.
H9693, H10105 (daily ed. Dec. 17, 2015): “If the Secretary finds
that either of these two components exists, the Secretary is directed to recommend to the EPA Administrator a 50 percent
waiver of RFS requirements for the petitioner.”
59
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Subsequent Senate Report language directed EPA to
follow DOE’s recommendation, and to report to Congress if it did not. 60 This direction was not included in
the Explanatory Statements for the 2022 fiscal year appropriations bill. 61
The Congressional direction, along with changing administration policies, prompted EPA to change its approach to finding DEH at a small refinery. Whereas
EPA had previously exercised discretion in evaluating
“other economic factors” in its analysis of a small refinery’s petition, EPA changed its approach to instead rely
on DOE’s findings and began granting a full exemption
whenever DOE findings indicated that the small refinery could receive at least 50% relief, based on its matrix
score. 62 Under this approach, EPA exempted small reSenate Report 114-281, 71 (“When making decisions about
small refinery exemptions under the RFS program, the Agency is
directed to follow DOE’s recommendations which are to be based
on the original 2011 Small Refinery Exemption Study prepared for
Congress and the conference report to division D of the Consolidated Appropriations Act of 2016. Should the Administrator disagree with a waiver recommendation from the Secretary of Energy, either to approve or deny, the Agency shall provide a report
to the Committee on Appropriations and to the Secretary of Energy that explains the Agency position. Such report shall be provided 10 days prior to issuing a decision on a waiver petition.”).
61
Consolidated Appropriations Act, 2022, Pub. L. No. 117-103
(2022). (“The Committees recognize that the Renewable Fuel
Standard (RFS) under Clean Air Act Section 211(o)(9) provides
that EPA may exempt small refineries from compliance with the
RFS in certain circumstances and that a small refinery “may at any
time petition the Administrator for an extension of the exemption
. . . for the reason of disproportionate economic hardship.”)
62
We note that under this approach, EPA granted full SREs to
some very profitable refineries. A substantial number of small re60
75a
fineries from their RFS obligations solely based on this
DOE finding, which was derived from metrics that assumed some refineries faced higher RFS compliance
costs and that did not account for RIN cost passthrough.
Thus, neither EPA nor DOE required any demonstration that the DEH a small refinery claimed to experience was due to the RFS program. Nor did EPA reconcile this reasoning with EPA’s own finding that the
costs of RINs used for compliance with the RFS program are the same for all obligated parties and passed
through by all obligated parties to consumers (RIN cost
passthrough).
EPA’s approach to evaluating SRE petitions has
been challenged several times by small refineries and
other parties in different U.S. Courts of Appeals, as well
as in the Supreme Court. 63 The approach to evaluating
DEH we apply in this action is informed by the outcome
of the RFA litigation in the Tenth Circuit. Biofuels
groups led by the Renewable Fuels Association challenged EPA’s actions in granting three individual SREs,
and the affected small refineries intervened on EPA’s
behalf. 64 The court vacated and remanded EPA’s acfineries that showed no viability impairment on the matrix received
a 50% waiver finding from DOE, based only on the small refinery’s
disproportionate impacts score.
63
See e.g., Hermes Consol., LLC v. EPA, 787 F.3d 568 (D.C. Cir.
2015); Lion Oil Co. v. EPA, 792 F.3d 978 (8th Cir. 2015); Sinclair
Wyoming Refining Co. v. EPA, 887 F.3d 986 (10th Cir. 2017);
Ergon-West Virginia, Inc. v. EPA, 896 F.3d 600 (4th Cir. 2019)
(EWV-I); Ergon-West Virginia, Inc. v. EPA, 980 F.3d 403 (4th Cir.
2020) (EWV-II); Renewable Fuels Ass’n, et al. v. EPA, 948 F.3d
1206 (10th Cir. 2020) (RFA); Renewable Fuels Ass’n., et al. v. EPA,
No. 19-1220 (D.C. Cir.).
64
RFA at 1206.
76a
tions for three reasons. First, under the Tenth Circuit’s reading of the CAA, a small refinery would be eligible for SRE relief only if it has received extensions of
the initial exemption in every year since 2010. 65 Second, the court found that EPA may grant relief only
when it finds that the small refinery would suffer DEH
caused by compliance with the RFS program and not
due, even in part, to other factors. 66 Third, the court
held that EPA had acted arbitrarily and capriciously by
failing to explain how granting the exemptions was consistent with the Agency’s longstanding findings on RIN
cost passthrough. 67
After the Tenth Circuit’s RFA opinion, the small refinery intervenors petitioned the Supreme Court for a
writ of certiorari, appealing only the Tenth Circuit’s
first holding that, in order to be eligible for exemption,
a small refinery needed a continuous, uninterrupted exemption history. 68 The Supreme Court granted the petition for a writ of certiorari and reviewed the Tenth Circuit’s holding. EPA—which changed its prior litigation
position—and RFA filed briefs in opposition, arguing
that the Court should uphold the Tenth Circuit’s ruling.
On June 25, 2021, the Supreme Court held that the term
“extension” as used in CAA section 211(o)(9)(B) does not
include a continuity requirement and reversed the
Tenth Circuit opinion only on that issue. 69 The Supreme Court did not review the other two holdings in
RFA as those were not appealed by the small refineries,
RFA at 1244-49.
Id. at 1253-54.
67
Id.
68
Pet. for Writ of Certiorari at (i), HollyFrontier.
69
HollyFrontier, 141 S. Ct. at 2183.
65
66
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and on July 29, 2021, the Tenth Circuit issued its mandate in RFA. On August 19, 2021, EPA filed a motion
for clarification regarding the legal effect of the court’s
mandate. The Agency stated that, if the court concluded no further clarification was needed, EPA would
proceed with its understanding that the alternative
holdings of RFA remain in effect and the SRE decisions
at issue in RFA are remanded to EPA without vacatur. 70
On August 26, 2021, the court denied EPA’s motion. 71
Accordingly, EPA considers the remaining holdings of
RFA to remain in effect, as explained to the court in its
motion.
After the Supreme Court issued its opinion in the
HollyFrontier case, EPA met with several of the petitioning small refineries in individual meetings, 72 received additional supplemental information from petitioning small refineries, 73 informed all petitioning small
refineries of the opportunity to submit additional information to EPA for consideration, 74 and conducted an
EPA’s Motion for Clarification of the Court’s July 29, 2021
Mandate at 2, RFA, 948 F.3d 1206 (10th Cir. August 19, 2021).
71
Order, id. (10th Cir. August 26, 2021).
72
See “Memorandum on EPA Meetings with Individual Small
Refinery Petitioners Between June 25, 2021, and December 7,
2021,” available in the docket for this action.
73
These supplemental materials were submitted under claims of
confidentiality and are, therefore, not included in the public record.
Where the supplemental information was not confidential or such
that EPA could aggregate and summarize it, we have done so and
provided this information and our responses to it in Appendix B.
We have also responded to confidential information through confidential, refinery-specific appendices to this action.
74
Email from Karen Nelson, EPA, sent bcc to all SRE petitioners (August 17, 2021) (email on record with EPA).
70
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open meeting with the small refineries, inviting them to
participate and provide feedback. 75 EPA then issued
its Proposed Denial 76 on December 7, 2021, which initiated a public comment period allowing all interested
parties to inform this final analysis and decision. 77 We
especially sought additional information that would support or refute the proposed finding that small refineries
do not experience DEH caused by compliance with the
RFS program. We also requested information demonstrating that the cost of compliance with the RFS program is the same for all obligated parties and is passed
on to consumers.
On December 8, 2021, the U.S. Court of Appeals for
the D.C. Circuit granted EPA’s motion for voluntary remand without vacatur of EPA’s final action granting or
denying 36 SRE petitions for the 2018 compliance year
and ordered EPA to issue new decisions by April 7, 2022.
EPA had requested remand without vacatur to reconsider the final action in light of the intervening judicial
opinions and to provide a more robust explanation for
any action taken on remand. 78 After the court granted
EPA’s motion for remand, EPA notified the 2018 SRE
petitioners of the remand via emails to each individual
petitioner, requesting comment on “whether or not to
Email from Byron Bunker, EPA, with meeting invite sent bcc
to all SRE petitioners (August 16, 2021) (email on record with
EPA).
76
“Proposed RFS Small Refinery Exemption Decision,” EPA420-D-21-001, December 2021 (hereinafter the “Proposed Denial”).
77
86 FR 70999 (December 7, 2021).
78
See, e.g., EPA’s Motion for Voluntary Remand Without Vacatur, Sinclair Wyoming Refining Co. v. EPA, No. 19-1196 (D.C. Cir.
August 25, 2021), pg. 5.
75
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include those 36 petitions under the Proposed Denial of
other pending SRE petitions or to adjudicate the petitions separately,” and inviting comment on “any aspect
of this issue.” 79 On April 7, 2022, EPA denied the 36
remanded SRE petitions for the 2018 compliance year.
EPA is now taking final action on 69 SRE petitions consistent with the April 2022 SRE Denial and the Proposed Denial.
III. EPA’s Approach to Determining DEH When Evaluating SRE Petitions
This section describes EPA’s approach to evaluating
SRE petitions based on DEH, as explained in more detail in the remainder of this document.
Section
211(o)(9)(B)(i) of the CAA authorizes the EPA Administrator to temporarily exempt small refineries from their
RFS obligations for the reason of DEH. The statute
directs EPA, in consultation with DOE, to consider the
DOE Study and other economic factors in evaluating
SRE petitions. The statute does not define “disproportionate economic hardship” and identifies no particular
“economic factors” to be considered, giving EPA “substantial discretion” for purposes of implementing these
exemption provisions. 80 EPA, however, must interpret
79
“Memorandum: Scope of Action and Notification,” EPA-HQOAR-2021-0566-0027.
80
Hermes, 787 F.3d at 575 (“The statute gives no further instruction and identifies no particular economic factors or metrics to be
considered. That sort of statutory silence about the particular
factors that an agency must consider conveys ‘nothing more than a
refusal to tie the agency’s hands’ (internal citation omitted). As
long as EPA consults with DOE and considers the 2011 Study and
‘other economic factors,’ EPA retains substantial discretion to decide how to evaluate hardship petitions.”).
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these provisions in a reasonable manner, consistent with
the purpose of the statutory provisions at issue.
In the past, EPA’s approach to interpreting these
statutory provisions and evaluating SRE petitions was
that a small refinery could receive an exemption from its
RFS obligations by demonstrating it was experiencing
DEH for any reason, including reasons unrelated to
RFS compliance. 81 In this action, EPA is applying the
approach proposed on December 7, 2021, and adopted in
the April 2022 SRE Denial, requiring the small refinery
to demonstrate that compliance with the RFS program
is the cause of the DEH experienced by the small refinery. EPA has previously performed analyses and reviewed academic studies on the RIN market that verify
the passthrough of RFS compliance costs to wholesale
purchasers. However, our prior approach to evaluating SRE petitions did not require a showing that DEH
was caused by RFS compliance because we concluded
that our consideration of “other economic factors” extended beyond economic factors addressing DEH caused
by RFS compliance. The Tenth Circuit in RFA determined that EPA’s prior approach was contrary to the
language of the CAA authorizing exemptions only due
to DEH caused by compliance with the requirements of
the RFS program. 82 Under our current approach, a
small refinery must demonstrate a direct causal relationship between its RFS compliance costs and the DEH
it alleges; assertions regarding other real but unrelated
financial difficulties a small refinery may be experiencing will not satisfy this requirement. Additionally, a
small refinery must demonstrate how its specific RFS
81
82
See supra, Section II.D.
RFA, 948 F.3d at 1253-54.
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compliance costs are disproportionate compared to
other refineries’ RFS compliance costs and are of sufficient magnitude to warrant the exemption. EPA has
weighed several considerations in developing this new
approach and this interpretation is consistent with the
language of the Act, the purpose of the SRE provisions,
and is the most reasonable approach for implementing
the RFS program. 83
Our change in approach is primarily informed by the
RFA opinion, which laid out a rationale for the Tenth
Circuit’s conclusion that the statutory SRE provisions
require DEH to be caused by RFS compliance. 84 Additionally, the court in RFA held that EPA had acted arbitrarily and capriciously when the Agency ignored the
relevant evidence in granting three SREs without addressing EPA’s long-standing position that RIN costs
are passed through by refineries and ultimately borne
by consumers. After review of the court’s decision,
EPA agrees that these holdings both reflect a better interpretation of the Act and comport with EPA’s longstanding conclusions regarding RIN cost passthrough. 85
Our change in approach is also supported by DOE’s
definition of DEH in the 2011 DOE Study. Under the
CAA, DOE was directed to “conduct for the Administrator a study to determine whether compliance with the
requirements of [the RFS] would impose a [DEH] on
small refineries.” 86 In the 2011 DOE Study, DOE
See infra, Section IV.D.1.
RFA, 948 F.3d at 1253-54.
85
See infra, Section IV.D.2.
86
CAA section 211(o)(9)(A)(ii)(I).
83
84
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stated that DEH “must encompass two broad components: a high cost of compliance relative to the industry
average, and an effect sufficient to cause a significant
impairment of the refinery operations.” 87 In other
words, for a small refinery to demonstrate DEH, it must
have disproportionate RFS compliance costs and actual
economic hardship due to those disproportionate RFS
compliance costs. The approach adopted in the April
2022 SRE Denial, and applied in this action, aligns with
DOE’s definition: EPA’s analysis shows that the costs
of compliance with the RFS program through blending
or buying RINs are the same; therefore, small refineries
do not have disproportionate RFS compliance costs. 88
Additionally, the RIN cost passthrough analysis demonstrates that there is no economic hardship caused by
RFS compliance costs; therefore, no small refinery experiences DEH as a result of compliance with the RFS
program. 89 EPA now has data to demonstrate that the
assumption DOE relied on in the 2011 DOE Study that
RINs generated through blending renewable fuels
would be free to those generating them—whereas RINs
purchased through the market would represent a disproportionately high costs of compliance on obligated
parties that complied that way—is false. 90
EPA also considered “other economic factors” in
evaluating whether a small refinery’s RFS compliance
costs cause DEH. While the CAA does not require
EPA to consider any particular number or types of economic factors, it does require that DEH be caused by
2011 DOE Study at 3.
See infra, Section IV.D.2.
89
Id.
90
See infra Section IV.D.2.
87
88
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compliance with the RFS program. Thus, it is clear
that the “other economic factors” EPA may consider
when evaluating SRE petitions must still be related to
determining whether the small refinery’s compliance
with its RFS obligations is what caused its alleged DEH.
EPA may not consider economic factors in its evaluation
of SRE petitions that may show a small refinery is
struggling financially when those struggles are unrelated to its RFS compliance. By performing the analyses described in Section IV.D.2, and in the responses
to comments in Appendix B and in the confidential,
refinery-specific appendices, EPA has evaluated and
considered many “other economic factors,” including,
but not limited to, the dynamics and characteristics of
the fuels and RIN markets, publicly available price data,
confidential financial and other refinery-specific data
submitted by the petitioning small refineries, and all the
data other commenters submitted on the Proposed Denial. Fundamentally, EPA has reviewed all the information the small refineries and other interested parties
submitted to ensure the Agency has considered all the
appropriate “other economic factors” provided in determining that small refineries do not experience DEH
caused by RFS compliance.
Using this new approach, we evaluated the information and data available to us, including data we received responding to our request for comment, to assess
whether any of the petitioning small refineries demonstrated DEH. The data confirm that the market-based
design of the RFS program with the RIN system for
compliance has equalized the cost of compliance among
all market participants, making it highly unlikely any
one refinery would face a disproportionate cost of compliance. We have evaluated an extensive amount of
84a
data and available literature, including academic and
commissioned studies submitted by commenters, and
our analysis shows that the cost of RINs is the same
whether refineries acquire the RINs by blending renewable fuel or by buying RINs on the open market. 91 The
data and available literature also informed our finding
that RFS compliance costs are passed through in the
price of refined products. Therefore, considering all of
this information and analysis as more fully explained in
later sections of this document, we find that no small refinery experiences DEH due to its compliance with the
RFS program.
As described in the April 2022 SRE Denial, when an
agency changes its position, it must “provide a reasoned
explanation for its action” and “display awareness that
it is changing position.” 92 In doing so, EPA does not
need to show “that the reasons for the new policy are
better than the reasons for the old one; it suffices that
the new policy is permissible under the statute, that
there are good reasons for it, and that the agency believes it to be better, which the conscious change of
course adequately indicates.” 93 The approach explained in this final action is reasonable as it is supported by the language and construction of the CAA and
data analyses performed by EPA and independent parties. 94 For the reasons described herein, EPA believes
that this approach is the best interpretation of—and the
See infra, Section IV.D.2.
FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009).
93
Id. (emphasis in the original).
94
See infra, Section IV.D.
91
92
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most reasonable way to implement—the statutory SRE
provisions. Therefore, we apply it here.
IV. EPA Evaluation
This section explains in detail EPA’s evaluation of the
69 SRE petitions on which it is taking final action, including its evaluation of eligibility for the exemption, of
DEH, and of other economic factors.
A.
Eligibility to Petition for Extension of a Small Refinery Exemption
EPA is denying 69 pending SRE petitions for failing
to demonstrate DEH. In addition, we determine that
two of the refineries receiving denials were additionally
ineligible to petition for SREs for the 2019 and 2020
compliance years, each for failing to meet one or more
requirements for eligibility. One refinery is ineligible
because its throughput exceeded 75,000 barrels per day
(bpd) in a petitioning year—making it ineligible to petition for an SRE in the petitioning year and the subsequent year—and also because it did not receive the initial RFS blanket exemption under CAA section
211(o)(9)(A). 95 The second refinery is ineligible because it did not receive the initial blanket exemption.
In making this finding, we are adopting the interpretation proposed in the Proposed Denial and applied in
the April 2022 SRE Denial interpreting the RFS statute
to mean that only small refineries that received the initial blanket exemption are eligible to petition for an extension of that initial exemption, consistent with a prior
This initial exemption is sometimes called the “blanket exemption” since it could be obtained by all eligible small refineries producing transportation fuel for the years 2006-2010.
95
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EPA interpretation. 96 Note that this does not mean
that any refinery that met the definition of “small refinery” at the start of the RFS program is qualified to seek
exemption for later years; the small refinery must have
actually received the blanket exemption for the years
before 2011 pursuant to the RFS statute and implementing regulations. This means that the small refinery
must have been producing transportation fuel, such that
it was an obligated party under the RFS program to
qualify for the blanket exemption from the RFS requirements (i.e., a refinery processing fewer than 75,000 bpd
of crude oil into products only other than transportation
fuel could not have received an exemption from an RFS
obligation it did not have). This is why, under the RFS
program, a refinery that met the definition of a “small
refinery” was additionally required to submit a verification letter to EPA confirming its status as a small refinery before receiving the blanket exemption.
1.
Definition of Small Refinery
As part of EPAct, Congress defined a small refinery
as “a refinery for which the average aggregate daily
crude oil throughput for a calendar year (as determined
by dividing the aggregate throughput for the calendar
year by the number of days in the calendar year) does
not exceed 75,000 barrels.” 97 This definition was main96
At the same time, we are maintaining our approach to sizebased eligibility—only small refineries with an average aggregate
daily crude oil throughput that does not exceed 75,000 bpd for the
calendar year they petition and the prior year are eligible to petition for an SRE. See CAA section 211(o)(1)(K), 40 CFR 80.1401,
40 CFR 80.1441(e)(2)(iii).
97
CAA section 211(o)(1)(K); EPAct of 2005, Pub. L. No. 109-58,
119 Stat. 594 (2005).
87a
tained in EISA. 98 These definitions informed EPA’s
implementing regulations in 2007 and 2010, which similarly defined a small refinery as processing less than
75,000 bpd in 2004 and 2006, respectively, for purposes
of determining eligibility for the initial blanket statutory
exemption from 2006-2010. 99 In 2014, EPA promulgated regulations related to eligibility and requirements
for SRE petition extensions. 100 In these regulations,
EPA modified the eligibility requirements such that
small refineries qualified to seek exemption extensions
based on their crude oil throughput for the petition year
and the prior year. 101 This requirement is still in effect
and means that, to qualify as a small refinery eligible to
seek an extension of its exemption, a refinery must have
processed no more than 75,000 bpd of crude oil in both
the year for which the refinery requests an exemption
and the prior year. 102
EISA of 2007, Pub. L. No. 110-140, 121 Stat. 1492 (2007).
40 CFR 80.1101(g), 72 FR 23900 (May 1, 2007); 40 CFR
80.1401, 80.1441(a)(1), 75 FR 14670 (March 26, 2010).
100
79 FR 42128 (July 18, 2014).
101
40 CFR 80.1441(e)(2)(iii) (“In order to qualify for an extension
of its small refinery exemption, a refinery must meet the definition
of ‘small refinery’ in § 80.1401 for the most recent full calendar year
prior to seeking an extension and must be projected to meet the
definition of ‘small refinery’ in § 80.1401 for the year or years for
which an exemption is sought. Failure to meet the definition of
small refinery for any calendar year for which an exemption was
granted would invalidate the exemption for that calendar year.”
(emphasis added)). See also 79 FR 42128 (July 18, 2014).
102
40 CFR 80.1401. We are not modifying this regulation in this
action.
98
99
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2.
Requirement to Have Received Initial Blanket Statutory Exemption
In 2016, EPA took an action finding a refinery ineligible to petition for an exemption extension because the
refinery did not exist in 2006 and, thus, could not have
received the initial blanket exemption. 103 In that adjudication, EPA relied on the RFS regulations that state
“a refiner may petition the Administrator for an extension of its small refinery exemption. . . . ” (emphasis added). 104 Additionally, EPA reasoned that “newer
small refineries have the ability to consider whether
they believe the establishment of the RFS program and
its requirements will cause economic hardship before
beginning operations.” 105 Beginning in 2017, EPA
shifted to a different approach to small refinery eligibility and granted exemptions for refineries that had not
received the initial blanket exemption. With the April
2022 SRE Denial, consistent with the Supreme Court’s
holding in HollyFrontier, we adopted and applied the
requirement that, to be eligible to petition for an SRE,
a refinery must have actually been an obligated party
under the RFS program prior to 2011 and received the
initial blanket exemption, though a small refinery need
not have had a continuous exemption since the original
statutory exemption. In this action, we are again applying this interpretation.
See Pet. for Review, Dakota Prairie Refining, LLC v. EPA,
No. 16-2692, at 8 of 17 (8th Cir. June 13, 2016).
104
40 CFR 80.1441(e)(2).
105
Pet. for Review, Dakota Prairie at 8-9 of 17.
103
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3.
Changed Approach to Eligibility
In the April 2022 SRE Denial, EPA explained that it
had changed its approach to SRE eligibility to require
that a petitioning small refinery must have received the
initial statutory exemption prior to 2011 in order to qualify for an extension of the initial exemption under CAA
section 211(o)(9)(B) because we believe this policy aligns
with the text of the CAA, which describes a small refinery’s ability to “at any time petition the Administrator
for an extension of the exemption in subparagraph (A)
for the reason of [DEH].” 106 Furthermore, we believe
this interpretation best supports the policy interests of
implementing the RFS program in promoting greater
use of renewable fuels. This is particularly true since
exemptions provide a significant windfall profit to exempted small refineries, as the small refineries passthrough their RIN costs and then, when exempted, sell
any RINs they had acquired or generated. Such a result would be particularly unfair if granted to new participants in the RFS program that were not producing
transportation fuel during the statutory blanket exemption period of 2006-2010 because these new participants
would have had the opportunity to prepare and plan for
compliance with the RFS program prior to starting operations or otherwise being subject to an RFS obligation, unlike the refineries that received the initial blanket exemption. 107 Additionally, refineries that exceeded
the 75,000 bpd throughput threshold in 2006 were not
the intended recipients of the initial exemption for small
refineries, and new entrants to the transportation fuels
industry after this blanket exemption ended have know106
107
CAA section 211(o)(9)(B)(i) (emphasis added).
See infra, Section IV.D.2.
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ledge of the requirements of the RFS program, and
make an informed decision whether to enter the transportation fuels business. Thus, we are acting consistently with congressional intent by continuing to exclude
these parties from receiving an SRE.
While the Supreme Court has held that a small refinery need not have had a continuous exemption since receiving the initial blanket exemption, the Court’s decision suggests that an exemption must have existed at
some point for it to be extended. 108 The Court agreed
with the Tenth Circuit that, as used in CAA section
211(o)(9), the word “extension” has a temporal meaning
(i.e., an extension of time), and not the alternative meaning of “extension” to grant or offer. 109 The Court, however, clarified that an extension may still be given after
108
See HollyFrontier, 141 S. Ct. at 2177 (“It is entirely natural—
and consistent with ordinary usage—to seek an “extension” of time
even after some lapse.”); id. at 2181 (“And fairly read, the key
phrase at issue before us—‘A small refinery may at any time petition the Administrator for an extension of the exemption under
subparagraph (A) for the reason of disproportionate economic
hardship’—simply does not contain the continuity requirement the
court of appeals supposed.”); id. at 2184 (Barrett, J. dissenting)
(“Yet, HollyFrontier insists, the term “extension” is not always
used that way. Instead, it might sometimes refer to a “noncontinuous extension”—in other words, an extension of something
that used to exist but no longer does. . . . [T]he Court concludes that Holly-Frontier’s reading must be right—which means
that EPA can provide an “extension” of an exemption that is no
longer in effect.”); id. at 2177-78 (the Court’s extension analogies
assume something existed initially to be extended, i.e. “a term paper after the deadline has passed, the tenant who does the same
after overstaying his lease, or parties who negotiate an ‘extension’
of a contract after its expiration.”).
109
See supra, Section II.D.
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a lapse. 110 In order for something to lapse, it must have
existed to begin with. The Court applied several analogies to illustrate this, including that of a student requesting an extension of a deadline to submit a paper
after the deadline has already passed. 111 Applying that
analogy to a small refinery that did not receive the original exemption, but requests an extension of that exemption, would be like a student that was never in the class
asking the professor for an extension of a deadline for a
paper that was never assigned to that student to begin
with (i.e., there is no due date for the professor to extend
just as there is no exemption period for EPA to extend).
Thus, the language of the statute indicates that, without
having received “the exemption under subparagraph
(A),” there is nothing for a small refinery to petition
EPA to extend temporally. 112 Thus, if a small refinery
did not receive the original statutory blanket exemption,
HollyFrontier, 141 S. Ct. at 2177 (“Ultimately, however, we
agree with the renewable fuel producers and the court of appeals
that subparagraph (B)(i) uses “extension” in its temporal sense—
referring to the lengthening of a period of time.”). The HollyFrontier decision is further discussed in Section II.D.
111
Id. at 2177-78.
112
Id. at 2181-82 (“Indeed, the dissent finds it ‘odd’ that our reading would permit hardship relief only to small refineries in existence in 2008 and not to new ones, post, at 2189-2190 . . . Nor is
there anything odd about the fact that Congress chose only to protect existing small refineries rather than new entrants. Often
Congress chooses to protect existing market participants from
shifts in the law while applying new restrictions fully to future entrants.”)
110
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it is ineligible to have EPA extend the duration of that
exemption. 113
4.
Alternative Eligibility Determinations for Two Refineries
In this final action, EPA is denying four SRE petitions for the 2019 and 2020 compliance years from two
refineries, not just because they have failed to demonstrate DEH, but also on alternative grounds: EPA here
determines that both refineries are ineligible to petition
for SREs. These two refineries submitted refineryspecific comments under claims of confidentiality specifically addressing their eligibility to submit SRE petitions. EPA addresses general eligibility comments in
Appendix B and addresses refinery-specific eligibility
comments in confidential, refinery-specific appendices
to this action.
For the first refinery, EPA determines that it is ineligible to petition for an SRE under the approach described in Section IV.A.3. The refinery did not receive
the initial blanket exemption because it did not qualify
as a “small refinery” in 2004 or 2006, since its average
aggregate daily crude oil throughput exceeded 75,000
bpd during those qualification years. 114 The refinery,
therefore, did not submit the verification letter required
by regulation to receive the initial blanket exemption,
and, because it did not receive that exemption, it is ineligible to petition for an SRE. EPA additionally deterWe note that this issue was not before the courts in RFA or in
HollyFrontier because the three small refineries at issue in those
cases had all received the initial blanket exemption.
114
40 CFR 80.1141(a)(1), 72 FR 23900 (May 1, 2007); 40 CFR
80.1441(b), 75 FR 14670 (March 26, 2010).
113
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mines that this refinery is ineligible for to petition for an
SRE for the 2019 and 2020 compliance years because it
exceeded the 75,000 bpd throughput limit in 2019,
thereby making the refinery ineligible to petition for an
SRE in both 2019 and 2020. 115 This eligibility determination is alternative and added to our denial of its 2019
and 2020 SRE petitions because the refinery did not
demonstrate that it experienced DEH caused by RFS
compliance as described generally for all small refineries in Section IV.D.2, based on our review of the petitions, supplemental information, and comments submitted by the refinery. As such, even if this refinery was
eligible to petition for an SRE for the 2019 and 2020
compliance years—which EPA determines it was not—
the petitions are denied on DEH grounds.
For the second refinery, EPA determines that it is
also ineligible to petition for an SRE under the approach
described in Section IV.A.3. The refinery did not receive the initial blanket exemption because it was not an
RFS obligated party at the time the initial blanket exemption was available prior to 2011. Even though this
refinery met the statutory definition of a “small refinery,” it did not receive the blanket exemption because it
did not produce transportation fuel from 2006-2010;
therefore, it had no RFS obligation, and thus, there was
nothing to exempt. Therefore, the refinery did not submit the verification letter required by the RFS regulations to receive the initial blanket exemption, and because it did not receive that exemption, it is ineligible to
petition for an SRE. This eligibility determination is
alternative and added to our denial of its 2019 and 2020
SRE petitions because the refinery also did not demon115
40 CFR 80.1441(e)(2)(iii).
94a
strate that it experienced DEH caused by RFS compliance described generally for all small refineries in Section IV.D.2 for these compliance years, based on our review of the petitions, supplemental information, and
comments submitted by the refinery. As such, even if
this refinery was eligible to petition for an SRE for the
2019 and 2020 compliance years—which EPA determines it was not—the petitions are denied on DEH
grounds.
B.
Compliance with SRE Petition Requirements
When submitting an SRE petition to EPA, the small
refinery bears the burden of demonstrating that compliance with the requirements of the RFS program causes
DEH for that small refinery. The RFS regulations require that an SRE petition specify the factors that
demonstrate DEH, provide a detailed discussion regarding the hardship the refinery would face in complying with the RFS requirements, and identify the date by
which the small refinery anticipates that compliance
with the RFS requirements can reasonably be achieved.116
Since the Tenth Circuit issued its opinion in RFA, many
small refineries have contacted EPA to supplement
their original SRE petitions and to provide additional
information about their financial situations. In addition,
EPA received extensive input in response to its request
for comment on the Proposed Denial. EPA greatly appreciates this information. EPA has completed a thorough evaluation of the data and information provided in
the SRE petitions, supplemental submissions, and comments to determine if any of the petitioners have demonstrated that the cost of compliance with the RFS is the
116
40 CFR 80.1441(e)(2).
95a
cause of their alleged DEH and that such costs are not
passed through by that small refinery to the wholesale
purchasers under the RIN cost passthrough principle. 117
C.
DOE Consultation and EPA Consideration of the
DOE Study
CAA section 211(o)(9)(A)(ii) required that EPA grant
exemptions for “not less than 2 additional years” (i.e.,
2010 and 2011) upon DOE’s determination that a small
refinery “would be subject to a disproportionate economic hardship.” 118 Section 211(o)(9)(B), in contrast,
provides how EPA will evaluate petitions, “in consultation with the Secretary of Energy,” but does not dictate
any particular action that EPA must take following that
consultation, nor does it not provide any further direction on the form EPA’s consultation with DOE must
take. In fact, “Congress placed no limits on how DOE
should provide its consultation to EPA under [the
RFS].” 119 This absence of direction provides “substantial discretion” to the agencies to determine how DOE
will provide consultation for the pending SRE petitions. 120 Both agencies previously relied on DOE’s
findings through its application of the DOE scoring matrix to effectuate DOE’s consultation on each SRE petition. 121 For this action, EPA shared all SRE petition
and comment information with DOE. However, DOE
did not apply the scoring matrix because it was not deSee infra, Appendix B, for a summary of the comments and
EPA’s responses.
118
See supra, Section II.D.
119
Hermes, 787 F.3d at 577.
120
Id. at 575.
121
See supra, Section II.D.
117
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signed to account for RIN cost passthrough. Rather,
EPA consulted with DOE through discussions in meetings and phone conversations regarding the pending
SRE petitions, the supplemental supporting information the small refineries provided, other comments
submitted in response to the Proposed Denial, and the
analysis and determinations that supply the basis for
this final action. 122
In evaluating petitions for SREs under CAA section
211(o)(9)(B), EPA is directed to “consider the findings
of the [DOE] study.” DOE, in fact, conducted two studies, one in 2009 and an update to the study in 2011. 123
The original 2009 DOE Study concluded that small refineries would not face DEH from compliance with the
RFS program given the proportional obligations of the
program as a function of their gasoline and diesel fuel
production and the opportunity for refineries to comply
by blending or by purchasing RINs, provided that the
RIN market proved to be liquid and competitive. The
RIN market has developed to be open, competitive, liquid, and functioning as intended; 124 hence, the 2009
DOE Study accurately forecasted what was likely to occur given the highly competitive fuels market with which
DOE was familiar.
When DOE expanded its study in 2011, it posited that
small refineries could face DEH “if blending renewable
While not legally required, EPA has added a memorandum to
the docket for this action describing the EPA-DOE consultation
process. See “Memorandum on DOE Consultation from Byron
Bunker,” available in the docket for this action (hereinafter the
“DOE Consultation Memo”).
123
See supra, Section II.D.
124
See infra, Section IV.D.2.
122
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fuel into their transportation fuel or purchasing RINs
increase[d] their cost of products relative to competitors.” 125 DOE expressed a similar possibility another
way noting, “If certain small refineries must purchase
RINs that are far more expensive than those that may
be generated through blending, this will lead to disproportionate economic hardship for those affected entities.” 126 Looking to a potential future where RIN
prices rose significantly (as they have since done), DOE
projected, “there are numerous circumstances when
RIN prices could rise, increasing the cost of compliance
and perhaps increasing the cost of compliance more for
refineries that rely on [purchasing] RINs for compliance
compared to those that do not.” 127 To make clearer the
circumstances it was envisioning where such disproportionate costs could arise, DOE provided a detailed appendix (Appendix B) that laid out scenarios for three refiners in different circumstances relative to the RFS
program. 128 The first case was a refiner that blends all
its production with ethanol and does not have to purchase ethanol RINs. The second case was for a refiner
that does not do any blending and must purchase all its
RINs to meet its RVOs. Finally, the third case was for
a refiner with excess RINs to sell into the market.
DOE assumed in Appendix B that the refiner that got
its RINs through blending ethanol would get the RINs
at nearly no cost, while the refiners that had to buy
RINs would be forced to pay the higher market cost for
compliance. Based on this assumption, DOE projected
2011 DOE Study at vii (emphasis added).
Id. at 2 (emphasis added).
127
Id. at 3 (emphasis added).
128
Id. at B-4.
125
126
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that some refineries could face a disproportionate cost
of compliance. Through the matrices in its report,
DOE evaluated whether those disproportionate costs
rose to a level such that a refinery faced DEH due to
those higher costs. DOE articulated bringing those
two elements together when it stated: “[d]isproportionate economic hardship must encompass two broad
components: a high cost of compliance relative to the
industry average, and an effect sufficient to cause a significant impairment of the refinery operations.” 129
However, DOE did not assess in its 2011 study whether
its assumptions that refiners bear different costs for
blending or purchasing RINs and that they may not be
able to pass these costs on to wholesale purchasers in
the marketplace would actually occur. 130
A number of small refineries have stated to EPA that
DOE’s projection in the 2011 DOE Study is exactly what
has come to pass, reiterating these assertions in their
comments on the Proposed Denial. Ethanol (D6) RIN
prices have risen significantly, and small refineries argue that they bear these higher RIN costs while integrated refiners (refiners that blend renewable fuels)
and non-obligated blenders receive RINs at almost no
cost. Further, they argue that these disproportionate
costs are significant enough that they constitute DEH
for the refineries just as DOE articulated. EPA has
carefully reviewed data, contracts, and other information from small refineries to evaluate if, as DOE posited in 2011, refineries that acquire RINs through
blending get them at a lower cost than do refineries that
129
130
Id. at 3.
See DOE Consultation Memo.
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purchase RINs on the open market. 131 What we have
found is that the RIN discount phenomenon applies—
blenders, in fact, discount their sales price for E10 by
the market price of the RIN (i.e., the sales price of E10
reflects the cost to buy ethanol minus the market price
for selling the RIN). Hence, while the blender gets the
RIN for “free” when it purchases a gallon of ethanol, it
has to discou
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