EPA Loses 5th Cir. Fight Over Renewable Fuel Standard Exemptions

Agreeing with a group of six small refineries, the US Court of Appeals for the Fifth Circuit on Wednesday ruled that the Environmental Protection Agency invoked an “impermissibly retroactive” standard to hold them to the Clean Air Act’s renewable fuel standard program obligations.

The conservative court’s ruling deals a blow to the Biden-era EPA, which had used a new rationale to deny dozens of such RFS exemptions.

The program, which was created in 2005, establishes annual, nationally applicable volume targets for the four categories of renewable fuel. Those standards have to be followed by refiners and gas and diesel fuel importers. The refiners can either blend more biofuel into their products or purchase credits, known as RINs, from other refiners that can blend more than the required amounts.

Small refineries can petition the EPA for an exemption if they show they’d experience “disproportionate economic hardship.” But, when the six suing refineries, and others, sought those exemptions, the EPA denied them. The companies argued those June 2022 denials were arbitrary and capricious, and premised on a new evaluation method unveiled just the previous December, supplanting one used by the agency for more than a decade.

“Petitioners justifiably relied on EPA’s past agency practice when applying for the exemptions at issue,” Judge Jerry E. Smith wrote for the 2-1 majority. Rejecting the EPA’s argument that the refiners were on notice of its impending changes, Smith said all of the exemption requests had been submitted before the agency posted its intent to change methods in the Federal Register.

The EPA’s retroactive application of its new methodology “harshly penalizes” the refiners for their good faith reliance on the agency’s prior approach, the appeals court said. The panel also disparaged the agency’s approach to defining disproportionate economic hardship as “misguided.” The agency also failed to identify “a single benefit of retroactive application,” the Fifth Circuit said.

Judge Jennifer Walker Elrod joined in the majority’s ruling. Judge Patrick E. Higginbotham dissented, saying that venue for the dispute in the Fifth Circuit was improper and that it should have been heard by the US Court of Appeals for the District of Columbia Circuit.

Higginbotham accused his colleagues of reading words into 42 USC 76707(b)(1), to avoid the conclusion the case belongs in the nation’s capital.

In a related ruling also issued Wednesday, the panel unanimously sent to Washington a separate challenge by one of the six petitioners, Wynnewood Refining Co., challenging an April 2022 EPA determination.

The Fifth Circuit heard argument on Oct. 2.

“Today’s ruling by the 5th Circuit, striking down EPA’s denials of small refinery hardship relief under the Renewable Fuel Standard, is a victory for small refineries and gives us even more reason to be thankful as we head into the Thanksgiving holiday,” said Alexandra Magill Bromer, an attorney for the Small Refineries Coalition.

“Hardship relief does not negatively impact the RFS’s goal of increasing the volume of renewable fuels in U.S. transportation fuel supply,” Bromer said. “Instead, efforts to end hardship relief risk inflicting real and significant financial damage on our nation’s small refineries, who play a critical role in the domestic energy supply.”

The EPA did not immediately reply to a request for comment.

The cases are Calumet Shreveport Refining LLC v. EPA, 5th Cir., 22-60266, 11/22/23 and Wynnewood Refining Co. v. EPA, 5th Cir., 22-60357, 11/22/23