Refiners Sue EPA Over Retroactive RFS Waiver Denials, Sparking Venue Fight

Source: By Stuart Parker, Inside EPA • Posted: Sunday, May 8, 2022

Refiners are suing EPA in different federal appellate courts over the agency’s novel retroactive denial of 36 waivers from renewable fuel standard (RFS) biofuel blending obligations for 2018, signaling a venue fight with EPA that may set a precedent for other possible litigation.

Louisiana refiner Calumet Shreveport Refining filed the first such suit in the U.S. Court of Appeals for the 5th Circuit, though its May 3 petition for review does not state legal arguments, though Calumet has previously sued EPA over the agency’s decisions not to grant the company RFS waivers.

By bringing suit in the regional court, Calumet is heading for a clash with EPA over venue, which EPA says can only lie in the D.C. Circuit, which hears Clean Air Act cases over EPA actions that are “nationally applicable” or that EPA declares to have “nationwide scope or effect.”

Another refiner, Sinclair, has already filed a similar suit May 4 in the D.C. Circuit, indicating more suits are likely to follow.

EPA states in its waiver denial rule that the action is “nationally applicable” and hence under the jurisdiction of the D.C. Circuit. “In the alternative, to the extent a court finds this final action to be locally or regionally applicable, the Administrator is exercising the complete discretion afforded to him” under the Clean Air Act “to make and publish a finding that this action is based on a determination of ‘nationwide scope or effect.’”

If litigation is heard only in the D.C. Circuit, EPA can avoid potentially contradictory rulings by regional courts on the same policy. However, Calumet is likely to argue the decision is a locally applicable adjudication and therefore venue is correct in the 5th Circuit.

The company appears to have not so far filed suit in the D.C. Circuit as a protective measure in case its 5th Circuit challenge is dismissed or transferred to the D.C. Circuit.

However, Sinclair Wyoming Refining and Sinclair Casper Refining swiftly followed Calumet’s lead May 4, but filed their challenge in the D.C. Circuit instead, ensuring that at least one such challenge is likely to survive in that court.

Given the large number of waivers scrapped, still other refiners are likely to also file suit over EPA’s denial of the exemptions, which the agency published in the Federal Register April 25. The air act gives litigants 60 days from publication to sue.

The disposition of the Calumet and Sinclair cases may therefore set a precedent for other such suits over venue, and possibly merits arguments that will likely focus on the lawfulness of retroactively denying previously approved waivers.

Waivers are in theory available for small refiners — those processing up to 75,000 barrels of oil per day — that can demonstrate “disproportionate economic hardship.”

But EPA’s current policy is to deny all such waiver requests, on the basis that the RFS biofuel blending mandate does not harm refiners, which must comply by either blending biofuel or purchasing RFS credits, known as renewable identification numbers (RINs), from others. Smaller refiners often lack the means to blend biofuels themselves, and are reliant on buying RINs at sometimes inflated prices.

Remaining Waiver Requests

EPA bases this policy on a key 2020 ruling of the 10th Circuit in Renewable Fuels Association v. EPA, in which the court found both that economic hardship has to be tied directly to the RFS, and that the Trump EPA in granting some waivers failed to explain its departure from the agency’s prior position that refiners “pass through” RIN costs to customers, and are hence unharmed.

Some 65 waiver requests remain outstanding, and EPA has proposed to deny all of them. The agency may issue a final decision on those waivers alongside its long-delayed final RFS blending volumes for 2021 and 2022, and a likely retroactive volumes cut for 2020, rules that are due by June 3 under a consent decree deadline reached with biofuels groups Growth Energy.

Meanwhile, the retroactive denial of the 36 waivers from 2018, 31 of which the Trump EPA previously approved, further underscores the Biden administration’s determination to move away from the small refinery exemptions, which it regards as inherently temporary. Biofuels groups oppose the waivers as undermining the RFS’ goals of increasing biofuels blending.

Alongside the 2018 waiver denials, EPA issued a rule establishing an alternative compliance mechanism that would enable refiners to avoid having to “surrender” RINs to EPA for the 2018 compliance year.

EPA says this is merely an acknowledgement of the practical difficulty of obtaining RINs of the correct vintage, but biofuels groups have criticized the move as letting refiners off the hook. It is therefore possible that biofuels advocates may choose to challenge this compliance alternative in the courts.