A clash over renewable fuels hinges on the meaning of a single word
on Apr 26, 2021 at 1:43 pm
On Tuesday, the Supreme Court will hear oral argument in HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association. The case presents an issue of statutory interpretation involving the Renewable Fuel Standard program — a part of the Clean Air Act that calls for incorporating renewable fuels into transportation fuels. With the meaning of the word “extension” at the core of the dispute, the case promises to yield insights into the justices’ interpretive stances. As clean-energy initiatives are introduced in Congress and considered by federal agencies, observers likely will also watch for whether and how the justices are willing to consider the policy implications of the broader statutory context.
To understand the question presented, some background on the statutory scheme is helpful. The RFS program — which was initially introduced in 2005 and expanded to its current form in 2007 — requires entities importing or producing gasoline and diesel fuel to blend renewable fuels into their transportation fuels. To that end, Congress established annual numerical volumes of renewable fuel, advanced biofuel and cellulosic biofuel that must be blended into transportation fuels; these requirements increase each year. Using the statutory volumes and projections by the Energy Information Administration, the Environmental Protection Agency sets the annual percentage amount that must be met to achieve the statutory volumes. In turn, regulated entities use those percentages to determine their blending obligation.
The statutory scheme establishes a credit-based compliance mechanism using Renewable Identification Numbers. These can represent either actual gallons of renewable fuels that a refiner has blended into its transportation fuels or credits purchased from others on a market established by Congress and implemented by EPA. Still, Congress recognized that compliance might cause economic hardship and included special provisions for small refineries in 42 U.S.C. § 7545 — those whose “average aggregate daily crude oil throughput is 75,000 barrels or less for a calendar year.”
These small-refinery provisions are at the heart of HollyFrontier. First, in subparagraph (A) of Section 7545(o)(9), labeled “Temporary exemption,” the statute provided that small refineries need not comply with the RFS program until 2011. This initial exemption could be extended for at least two additional years for small refineries if the Department of Energy, after conducting a study, found that compliance would cause “disproportionate economic hardship.” Second, in subparagraph (B), labeled “Petitions based on disproportionate economic hardship,” the statute provides that “a small refinery may at any time petition” EPA “for an extension of the exemption under subparagraph (A) for the reason of disproportionate economic hardship.” This finding is to be made in consultation with the Department of Energy and in consideration of “other economic factors.”
The question presented revolves around the meaning of the term “extension” in subpart (B): Can EPA grant an extension to small refineries for which the temporary exemption in subpart (A) had previously expired? Put another way, must small refineries have a continuous, unbroken exemption to be eligible for an extension of the original exemption?
The petitioners, three small refineries that have not received continuous exemptions since their initial exemptions’ expiration, sought and received economic-hardship exemptions from EPA. Several renewable-fuel associations challenged the orders, arguing that EPA could extend exemptions only to refineries that had continuously received exemptions since the beginning of the RFS program.
The U.S. Court of Appeals for the 10th Circuit agreed with the associations, reasoning that the ordinary and common-sense meaning of the word “extension” refers to an increase in, or enlargement of, a period of time. Applying this meaning to subparagraph (B)’s language “extension of the exemption under subparagraph (A),” the court concluded that if an exemption had not been continuously extended, then there would no longer be anything to prolong. The court further explained that this interpretation would funnel small refineries into compliance over time, furthering the statutory purposes of promoting energy independence and environmental protection.
The court rejected the refineries’ arguments that the language permitting them to petition “at any time” for an extension due to hardship meant that exemptions need not be continuous. Instead, the court explained that the “any time” language reconciled a different timing issue: EPA has a Nov. 30 deadline to calculate its annual percentages, but because small refineries can petition “at any time,” they need not match EPA’s timeframe. EPA does not have a mechanism for adjusting its percentages for petitions granted after Nov. 30, so the court reasoned that this language offers an important benefit to small refineries while also harmonizing all the statutory terms.
What to watch for at oral argument
As an initial matter, some observers may look for clues as to the Supreme Court’s interest in the case. There is no circuit split on the question presented, and because the 10th Circuit remanded the matter to EPA on other issues, the case could have reached resolution without the high court’s involvement. Moreover, following the change in presidential administration, EPA reconsidered its view of the interpretive issue and filed a brief explaining its conclusion that the 10th Circuit’s interpretation should stand. In their petition for certiorari, however, the refineries argued that the case’s importance justified review; otherwise, small refineries in the 10th Circuit would face disproportionate financial hardships and could be forced to shut down. A number of the amicus briefs supporting the refineries personalize this prospect. On the other hand, amici supporting the associations emphasize economic hardship to renewable fuel producers were the court to reverse; others also emphasize the need for a market to spur renewable-fuel development toward environmental policy goals.
The parties’ oral arguments will likely focus heavily on the statutory text. In their briefs, the refineries espouse a reading of “extension” that means an offering of a benefit, while the associations urge the temporal reading adopted by the 10th Circuit. Even if the term carries its temporal meaning, the refineries will argue that a continuity requirement is contrary to the statutory design, which calls for yearly updates to the fuel-blending requirements and defines small refineries based on their yearly throughput. Expect arguments as well about the meaning of “at any time,” which will largely track the considerations set forth in the 10th Circuit’s opinion.
Other issues that may be explored during Tuesday’s argument include the relevance of post-enactment legislative history and — perhaps — whether EPA is owed any deference for its interpretive decisions. Regarding the first of these, Congress has not directly confronted what it meant by “extension,” but the refineries point out that members of Congress have expressed concerns about the stringency of EPA’s requirements for demonstrating a hardship. Although the 10th Circuit did not give these expressions any weight, it is possible that the justices may explore their relevance.
The refineries’ brief also makes a somewhat unusual argument based on Chevron USA, Inc. v. Natural Resources Defense Council, Inc. The Chevron doctrine, which provides that courts owe deference to agencies’ reasonable interpretations of statutes they administer, has been criticized by some of the justices, so observers of the oral argument will be alert for any clues about the future of the doctrine. In this case, the associations rely not on EPA’s interpretation in its orders granting extensions of exemptions, but on a 2014 rulemaking in which the agency considered how to define small refineries. Originally, EPA had defined small refineries based on their throughput in 2006. In the 2014 rulemaking, EPA proposed to amend this provision to require small refineries to have always maintained the 75,000-barrel throughput. But in the final rule, the agency explained that it would not make the change because doing so could disqualify a refinery based only on a single year’s production since 2006.
The associations contend that Chevron is inapplicable in this circumstance, because EPA did not interpret the word “extension” for purposes of the 2014 rulemaking. But the refineries emphasize that EPA’s decision evinced its interpretation that the statute authorizes non-continuous exemptions: By setting the small refinery eligibility benchmark to 2006, EPA acknowledged that eligibility for the extension of the exemption might vary from year to year. If the court explores Chevron during oral argument, it may also delve into the matter of whether the Skidmore doctrine applies as a fallback. Under Skidmore v. Swift Co., an agency’s interpretations, as expressed in enforcement guidelines, policy statements and the like, are entitled to some degree of respect – albeit a lower level of deference than under Chevron. The parties did not brief this possibility, but it is another topic of considerable interest to the development of administrative law and will be a matter to look for on Tuesday.
Correction (April 27, 2021, 2:50 p.m.): This article previously stated that Congress defined small refineries as those whose “average aggregate daily crude oil throughput is 765,000 barrels or less for a calendar year.” The correct figure is 75,000 barrels or less.