Supreme Court will take up heated refinery exemption fight

Source: By Marc Heller, E&E News reporter • Posted: Monday, January 11, 2021

A battle over biofuel mandates is headed to the Supreme Court.

The justices on Friday agreed without comment to review a 10th U.S. Circuit Court of Appeals decision that created new uncertainty over waivers some small refineries receive from requirements to blend biofuel into gasoline. The case is one of the most divisive in the industry, and President-elect Joe Biden’s campaign promised to scale back the exemptions.

Industry groups fell along familiar lines in reacting to the Supreme Court announcement, which could lead to a major scaling back of small refinery waivers at EPA — or possibly vindicate the oil industry’s argument that waivers should continue unfettered.

“Our groups believe the Tenth Circuit got it right the first time, and we will continue to defend the court’s ruling and stand up for the renewable fuel producers and farmers who have been harmed by the granting of these waivers,” the Renewable Fuels Association and other biofuel groups that are challengers in the case said in a statement today.

The American Fuel and Petrochemical Manufacturers (AFPM) welcomed the news, which surprised some fuel industry groups, given the small number of cases the Supreme Court takes.

“Congress made certain to provide small refineries with a lifeline to seek relief from untenable RFS compliance costs at any time, a provision that would be essentially eliminated by the 10th Circuit,” AFPM said. “It is critically important, for the sake of many small fuel manufacturers and thousands of refining jobs, to resolve the questions of this case quickly.”

At issue is a provision in the RFS — which is part of the Clean Air Act — that allows small refineries to ask EPA for exemptions from the biofuel mandate if they can demonstrate economic hardship from meeting the requirements. Refineries can either blend biofuel or buy renewable fuel credits known as renewable identification numbers, or RINs, on an open market.

Because the price of RINs has occasionally spiked, refiners say the credits are sometimes one of the biggest costs of operation.

The 10th Circuit case involved three refineries in Wyoming, Idaho and Oklahoma owned by units of HollyFrontier Corp. and Wynnewood Refining Co. A three-judge panel for the 10th Circuit said EPA wrongly issued exemptions in those cases, and the court asserted that EPA can only extend waivers that were granted in the RFS program’s earlier days (Greenwire, Jan. 27, 2020).

That finding roiled the petroleum industry, with groups predicting that the vast majority of exemption requests could no longer be granted. Biofuel groups celebrated and said the 10th Circuit’s reasoning should apply nationwide.

Billions of gallons of ethanol and other biofuels could be at stake. Pro-ethanol groups say waivers, if issued in sufficient number, could cut into the congressionally mandated volume of 15 billion gallons of conventional biofuel annually.

Because most biofuel is made from corn, in addition to soybeans and other feedstocks grown on farms, the issue resonates in rural areas and carries political implications in states such as Iowa and Illinois.

A biofuel industry lobbyist told E&E News that the high court’s decision to hear the case was surprising, given that lawyers on that side of the case didn’t think there was a question of law still to be settled. The full 10th Circuit had declined to reconsider the case (Greenwire, April 8, 2020).

“Maybe they’re seeing something we aren’t,” he said.

Another biofuels industry representative noted that the case, while controversial among biofuel and petroleum interests, didn’t involve a split decision at the appeals court level. He said the situation is also interesting because other cases involving small refinery exemptions are still pending in lower courts.

The Supreme Court could uphold the 10th Circuit’s ruling, applying it nationwide. Or the justices could find specific flaws in the ruling and hand it back to the lower bench, among other possibilities.

Although EPA has defended its approach to waivers — which greatly increased during the Trump administration — the Justice Department had asked the Supreme Court to let the 10th Circuit ruling stand (Greenwire, Dec. 10, 2020).

The Fueling American Jobs Coalition — which consists of refining companies, gas stations and unionized refinery employees — said the case reaches the high court at an urgent time for refiners and blue collar workers.

“Already battered by suppressed fuel demand due to COVID, they currently face RIN prices not seen in three years and have to endure some 770 million gallons of unlawful obligation from Small Refinery Exemptions that were never issued,” the group said in a statement.

The high prices for renewable fuel credits — lately around 80 cents per credit — threaten plant closures if they continue, the coalition said.

In a statement, the coalition said it hopes the incoming Biden administration takes a signal from the court’s interest and understands that any economic recovery “depends on affordable and reliable fuel.”

The Supreme Court will schedule arguments in the case, which is titled HollyFrontier Cheyenne v. Renewable Fuels Association, at a later date.