Supreme Court Upholds EPA's Extension of Renewable Fuel Program Extensions

Kelley Drye & Warren LLP

On June 25, 2021, the Supreme Court decided HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association, et al., Slip Op. 20-472 (June 25, 2021), which concerned small refiners’ eligibility for hardship exemptions under the federal renewable fuels standards (“RFS”) program. Petitioners, three small fuel refineries, had each applied for a hardship exemption under the RFS program, and the Environmental Protection Agency (“EPA”) had granted each request. A group of renewable fuel producers then challenged those exemptions. By a vote of six to three, the Court held that the text of the statute does not require that the exemption be held continually in order to remain valid.

The RFS program requires that domestic refineries blend a certain amount of ethanol and other renewables into the fuels that they produce. See 42 U.S.C. 7545(o). As originally enacted, the RFS program granted all small refineries (defined as those that produce, on average, fewer than 75,000 barrels per day annually) from the requirements of the program. That blanket exemption expired in 2011. See id. § 7545(i)(9)(A)(i). The RFS program then gave EPA the discretion to extend the original exemption for at least two years if the RFS obligations would impose a “disproportionate economic hardship” on a given small refinery. Id. § 7545(o)(9)(A)(ii). Finally, the RFS program provides that 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.” Id. § 7545(o)(9)(B)(i) (emphasis added).

The refineries argued that the text of the relevant statute allowed them to extend prior exemptions even if those exemptions were no longer in effect. Renewable-fuel producers disagreed, arguing that refineries must have a continuous, unbroken exemption in order to be eligible for an extension.

The U.S. Court of Appeals for the 10th Circuit agreed with the small refineries’ interpretation of “extension” and held that the EPA’s granted extensions were invalid because the three refineries had no exemptions that the EPA could “extend.” But in an opinion by Justice Neil Gorsuch, a majority of the Supreme Court reversed the court of appeals and held that a refiner that has allowed its prior exemption to lapse can apply for and receive an “extension” of its exemption.

“It is entirely natural – and consistent with ordinary usage – to seek an ‘extension’ of time even after some lapse,” Gorsuch wrote. “Think of the forgetful student who asks for an ‘extension’ of 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.”

Justice Amy Coney Barrett dissenting in an opinion joined by Justices Sonia Sotomayor and Elena Kagan. The dissenting justices argued that, while the majority attributed to Congress a meaning of “extension” that is “possible,” it did not give the term its “ordinary meaning.” In the view of the dissenters, the “ordinary meaning” of “extension” excludes a firm that has allowed its prior exemption to lapse.

The majority opinion contained an interesting administrative law tidbit. Given that a federal agency action was involved—here, the EPA's grant of a hardship exemption—one might have thought that Chevron deference might have played a role in the decision. That was not the case. As Justice Gorsuch explained, the Court did not consider Chevron because the federal government did not ask for such deference. This is yet another indication that the Court’s tendency to defer to agency interpretations of ambiguous language in agency-administered statutes that reached its apogee in 1984 when the Court issued its famous Chevron opinion has declined significantly.

This decision is a gift to small refineries who meet the scale requirements of the statute and find themselves, in any given year, hurting from the standards set forth by the RFP. These refineries can now legitimately apply for an extension of an exemption approved in a previous year but not currently in use. For its part, EPA said that it is reviewing the opinion: “We understand this decision has implications for our current ongoing Renewable Fuel Standard rulemaking activities and petitions from small refineries currently pending before the agency.” So, the ongoing battle over the small refinery hardship exemption and the RFS program itself will likely continue in the near future.

Summer associate Frank Tamberino assisted in the preparation of this advisory.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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