Does the term “extension” in Section 7545(o)(9)(B)(i) of the Renewable Fuel Standards require small refineries to have continuously received the hardship exemptions since 2011 to qualify for a hardship exemption under the statute?
This case asks the Supreme Court to decide whether the EPA’s Renewable Fuel Standards (“RFS”) requires small refineries to have continuously received the hardship exemption since 2011 to qualify for a hardship exemption under Section 7545(o)(9)(B)(i). Specifically, the Court must determine whether the statutory phrase “extension” acquires one of two definitions: a narrow definition, preferred by the Tenth Circuit and Respondent Renewable Fuels Association (“RFA”), which supports the case for continuity; or a broad reading, supported by Petitioner HollyFrontier Cheyenne Refining (“Cheyenne”), which effectively means to “grant” or “make available.” In selecting the appropriate definition, the Court must decide if and to what extent it should read “extension” apart from its broader statutory context, or consider other factors such as congressional purpose and whether the EPA’s interpretation receives deference. This case has policy implications for the finances of local refineries, economies of local communities, and environmental health.
Questions as Framed for the Court by the Parties
Whether, in order to qualify for a hardship exemption under Section 7545(o)(9)(B)(i) of the Renewable Fuel Standards, a small refinery needs to receive uninterrupted, continuous hardship exemptions for every year since 2011.
In 2005 and 2007, Congress amended the Clean Air Act, 42 U.S.C. § 7401, to direct the Environment Protection Agency (“EPA”) to require gasoline sold in the United States to include an increasing amount of renewable fuel. Renewable Fuels Association v. U.S. Environmental Protection Agency at 1215. Congress enacted the amendments to reduce America’s dependence on imported oil and to decrease greenhouse gas emissions. Id. at 1217–18. To ensure that gasoline sold in the United States was provided from renewable fuels, the legislation included Renewable Fuel Standards (“RFS”), setting annual requirements for the amount of renewable fuels used in motor vehicles. Id. at 1218.
Recognizing that the RFS may disparately impact small refiners, Congress created a blanket small refinery exemption to the RFS requirements. Id. at 1215, 1217. 42 U.S.C. § 7545(o)(1)(K) defines a small refinery as any refinery with an annual average daily crude oil throughput of 75,000 barrels or less. Id. at 1217. The small refinery exemption applied through 2011, but any small refinery could petition the Department of Energy (“DOE”) for a two-year extension; small refineries could continue to petition the DOE “at any time” for an extension of the exemption. Id. at 1217–18. Beyond this time frame for the initial exemption, Congress established that small refineries could petition to receive an extension of an exemption “based on an EPA determination of ‘disproportionate economic hardship’ on a case-by-case basis.” Id. at 1222. Codified at § 7545(o)(9)(B), the pertinent statutory language is that a “small refinery may at any time petition the Administrator for an extension of the exemption . . . for the reason of disproportionate economic hardship.” Id. at 1243.
Three small refinery exemption petitions are at issue in this case: a 2017 petition from HollyFrontier Cheyenne Refining (“Cheyenne”), a 2017 petition from HollyFrontier Woods Cross Refining (“Woods Cross”), and a 2018 petition from Wynnewood Refining Company (“Wynnewood”). Id. at 1226. Cheyenne was identified by the DOE as a small refinery and received the small refinery exemption through 2012. Id. at 1277. Cheyenne did not apply for the exemption in 2012 or 2013 and was granted an extension in 2015. See id. In Cheyenne’s 2017 application, the DOE recommended denying Cheyenne’s request for an extension, but the EPA granted its petition. Id. at 1228. Woods Cross had never received the small refinery exemption and the EPA granted its 2017 petition because the EPA determined “unfavorable structural conditions” meant Woods Cross met the disproportionate economic hardship requirement. Id. at 1229. Wynnewood received the small refinery exemption from 2011-2012 but had not received an extension since then. Id. Like the EPA’s finding for Woods Cross, the EPA found Wynnewood qualified for the exemption based on unfavorable structural conditions. Id.
In response to the EPA’s extension of the small refinery exemption to Cheyenne, Woods Cross, and Wynnewood (collectively, the “refineries”), Renewable Fuels Association and other renewable fuel producers (“RFA”) challenged the EPA’s exemptions in the United States Court of Appeals for the Tenth Circuit. Id. at 1214. The Tenth Circuit agreed with RFA that the EPA should not have granted the refineries an extension. Id. at 1258. As a threshold matter, the Tenth Circuit found RFA had standing to sue because they suffered an economic injury fairly traceable to the EPA’s grant to the refineries of an extension. Id. at 1233, 35–36. The Tenth Circuit then considered RFA’s three statutory construction arguments. Id. at 1244. First, the Tenth Circuit agreed with RFA that the word “extension” means that, to receive an extension, the small refinery must have been actively enjoying the small refinery exemption. Id. at 1246. Since none of the refineries received an exemption in the years preceding their application, the Tenth Circuit concluded they could not receive an extension. Id. at 1249. Second, the Tenth Circuit rejected the RFA’s argument that the EPA only considered whether the refineries suffered an economic hardship, not a “disproportionate” one. Id. at 1252. Third, the Tenth Circuit agreed with RFA that the Clean Air Act only allows extension based on economic hardship from compliance with the RFS, not from structural conditions. Id. at 1253.
On January 8, 2021, the United States Supreme Court granted certiorari to hear this case to determine whether refineries must have continuously received a hardship exemption to qualify for an extension under § 7545(o)(9)(B)(i).
HOW EXPANSIVE SHOULD THE DEFINITION OF “EXTENSION” BE INTERPRETED IN CONSIDERATION OF ITS BROADER STATUTORY CONTEXT?
Petitioners HollyFrontier Cheyenne Refining, LLC, HollyFrontier Refining & Marketing, LLC, HollyFrontier Woods Cross Refining, LLC, and Wynnewood Refining Co., LLC (collectively “Cheyenne”) argue that based on the ordinary meaning of the term “extension,” there is no reason to prefer the Tenth Circuit’s definition to mean “an increase in length of time,” thereby creating a continuity requirement for exemptions, over extension’s alternative meaning of “to offer or make available,” which would not create a continuity requirement. Brief for Petitioners, Cheyenne at 23. Cheyenne asserts that in addition to being a commonplace understanding of the word, a myriad of legislation (e.g., the “Judicial Redress Act of 2015”) and caselaw (Barr v. American Association of Political Consultants, Inc.) support the latter definition. Id. at 24.
Cheyenne also contends that where competing definitions for a disputed phrase exist, the Court must consider its broader statutory context. Id. at 25–26. For example, Cheyenne maintains that the definition of “extension” used in 42 U.S.C. § 7545(o)(9)(A)(ii)(II) refers to temporal continuity, a fact that can only be ascertained by considering its broader context. Id. at 26. But, Cheyenne maintains, the fact that “extension” means continuity earlier in the statute does not compel the same definition in subparagraph (B)(i), the relevant subsection here, because in the latter’s context, the meaning does not clearly refer to temporal continuity. Id. at 26–27. Cheyenne further claims the Tenth Circuit erroneously believed that applying multiple definitions of “exten[sion]” would “strip” the phrase of “significant meaning.” Id. at 28. Cheyenne asserts that even if Congress had intended for extension to be defined in its temporal sense, the Tenth Circuit wrongly read a continuity requirement into “extension”. Id. at 29–30. Cheyenne contends that no dictionary definition supports the Tenth Circuit’s definition of “extension;” moreover, courts routinely grant non-temporal extensions, such as periodically making non-continuous exemptions for amicus filings, suggesting it is perfectly permissible to define “extension” as having a non-temporal requirement. Id. Accordingly, Cheyenne concludes the exemption applies even to small refineries which have not received continuous, uninterrupted exemptions within a designated time period. Id. at 49–50.
Respondents Renewable Fuels Association et al. (“RFA”) argue that Cheyenne incorrectly asserts that “extension” effectively means “grant” because such a reading would result in inconsistent definitions of “extension” throughout the text of the statute. Brief for Respondents, Renewable Fuels Association et al. at 23, 39. RFA contends that the relevant statute already used the temporal definition in an earlier subsection, § 7545(o)(9)(A), so it is illogical to insist that Congress would employ multiple definitions of a phrase in the same statutory text. Id. at 39. RFA also argues that applying Cheyenne’s interpretive strategy ignores the plain text of the statute as well as the commonly held dictionary definition of extension. Id. at 20, 30. Similarly, Growth Energy and American Farm Bureau Federation (“Growth Energy”) adds that the broader context of the statute colors “extension” with Cheyenne’s “cherrypicked” definition because subparagraph (B)(iii) shows that refineries petition for “a free-standing exemption,” which cannot be reconciled with subparagraph (B)’s statement that the petition is for “an extension of the exemption under subparagraph (A).” See Brief of Amicus Curiae Growth Energy and American Farm Bureau Federation, in Support of Respondents at 13, 16. Because Petitioners acknowledge that subparagraph (A) employs the temporal meaning of “extension,” Growth Energy states that the same meaning would be logically imported to subparagraph (B) based on the language of the statute itself. Id. Lastly, RFA claims that even if Cheyenne’s interpretation of “extension” is correct, it does not comport with the standard practices of the oil refinery industry to incentivize small refineries to meet their RFS obligations. Brief for Respondents at 41. Anything other than a temporal reading of the term “extension,” RFA concludes, would allow small refineries to avoid their RFS obligations when the burden became too difficult, thus declawing the statute of practical effect. Id.
SHOULD THE EPA BE GIVEN SPECIAL DEFERENCE FOR ITS INTERPRETATION OF THE HARDSHIP EXEMPTION?
Cheyenne contends that the longstanding precedent established in Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc. requires courts to give deferential treatment to the interpretations of administrative agencies tasked with implementing legislation; a procedure also known as Chevron deference. Brief for Petitioners at 46. Cheyenne asserts that Congress granted the EPA authority to resolve ambiguities in the RFS, and since the EPA resolved the ambiguity pursuant to that authority in its 2014 eligibility rule, their interpretation deserves deference. Id. Cheyenne asserts that, in 2014, the EPA drafted two versions of a new rule. Id. at 46. Cheyenne argues the original version, later rejected, mandated a continuity requirement for RFS eligibility based on one commentator’s opinion that Congress did not want refineries cycling in and out of the eligibility rule. Id. at 47. Cheyenne adds, however, that this version of the rule was replaced by a final version in which the EPA rejected the continuity requirement because “it could unfairly disqualify a refinery from eligibility for small refinery relief based only on a single year’s production.” Id. at 47. In the updated version, Cheyenne notes a refinery only needs to show that it satisfied the requirement the year in which the exemption was sought. Id. at 47. Therefore, Cheyenne concludes, under the EPA’s interpretation that should receive deference, the Tenth Circuit incorrectly defined “extension.” Id. at 48.
RFA counters that courts should not afford the EPA’s expansive definition “Chevron deference.” See Brief for Respondents at 53. First, RFA argues that Cheyenne did not raise this argument in their certiorari petition and therefore, under Supreme Court precedent that declines to apply Chevron deference when the government fails to raise it, effectively waived this claim. See id. at 54. However, RFA asserts that even if the Supreme Court reaches the Chevron deference question, the claim has no merit because an agency determination only receives deference where Congress has formally delegated interpretative authority to the agency and the agency’s interpretation fell within the authority Congress granted to it. Id. at 55. RFA asserts that the EPA did not implement the interpretation through its formal rulemaking authority, but rather did so through informal adjudications that do not receive Chevron deference. Id. at 55–56. Further, RFA argues that there is scant evidence of even informal adjudications to reinforce Cheyenne’s claim that courts should give deference to the EPA to use a broader definition of “extension.” See id. at 55–56. RFA further contends that when the exemption rule went into effect and replaced the original “blanket” exemption, it only applied to refineries that had been continuously exempt. Id.
DOES THE EPA’S RECENT HISTORY FAVOR EITHER A BROADER OR NARROWER APPROACH?
Cheyenne argues that a holistic assessment of recent EPA trends provides ample reason to apply the broader understanding of “extension.” See Brief for Petitioners at 45–47. Cheyenne states that since 2016, the EPA has adopted the more expansive, non-continuous definition of “extension” after having previously relied on “an unduly restrictive test” that caused significant economic hardship for small refineries. Id. at 39. Cheyenne maintains that in following the more restrictive rule, the Tenth Circuit risks backsliding into the antiquated rule that overlooks the EPA’s valid reasons for abandoning it in favor of the broader definition. Id. at 39. Moreover, Cheyenne contends that it ignores Congress’ original purpose in enacting statute, which was to stimulate the production of domestic fuel, not create a blind mandate that would have the practical effect of barring new small refineries from entering the market. See Id. at 42–44.
RFA contests that in light of the existing regulatory provisions in place as well as the unambiguous language of both Congress and the law itself, there is little reason to believe the Tenth Circuit owed the EPA special deference for its past interpretations. See Brief for Respondents at 53–54. RFA cites a point of controversy from 2014, when a newly enacted eligibility rule threatened to exclude smaller refineries from the exemption because they did not qualify under the older rule. See id. But RFA maintains that the 2014 eligibility rule imposed a continuity requirement upon small refineries which qualified for the hardship exemption from that date forward, even though some had not qualified prior to the rule’s enactment. Id. at 39–41.
FINANCIAL IMPACT ON SMALL REFINERIES
Countrymark Refining and Logistics, LLC (“Countrymark”), in support of Cheyenne, argues that it will be a “death knell” for small refineries if a small refinery must have continuously received the hardship exemption each year prior to its application for another exemption. Brief of Amicus Curiae Countrymark, in Support of Petitioners at 19. Countrymark contends that when a small refinery is granted the hardship exemption, it enjoys reduced compliance costs that are realized in the subsequent year. Id. at 17–18. As a result of these lowered compliance costs, Countrymark maintains that the small refinery would not qualify for a hardship exemption in that subsequent year. Id. Thus, Countrymark concludes that under an approach that disqualifies a small refinery from the hardship exemption if the refinery does not continuously receive the exemption, receiving the exemption will ultimately disqualify a refinery from receiving the exemption in the future. Id.
The National Biodiesel Board, in support of RFA, argues that restricting the hardship exemption will not cause the financial damage the refineries claim because there are numerous ways in which the refineries can comply with the RFS requirements. Brief of Amicus Curiae National Biodiesel Board, in Support of Respondents at 13. First, the National Biodiesel Board states that small refineries can comply with the requirements by blending renewable fuel into their products, and that blending can be accomplished in inexpensive ways. Id. at 14-15. Second, the National Biodiesel Board asserts that the refineries that are not capable of blending renewable fuels can purchase credits from refiners that have created renewable fuel and pass the cost of those credits to their customers. Id. at 17.
MACROECONOMIC AND ENVIRONMENTAL IMPACT
The states of Wyoming, Texas, Louisiana, Utah, Oklahoma, West Virginia, and Montana (“Wyoming et al.”), in support of Cheyenne, argue that “small refineries cannot survive without the hardship exemption” because the costs of complying with the RFS eat into the refiners’ already slim profit margins. Brief of Amicus Curiae Wyoming et al., in Support of Petitioners at 15–16. Wyoming et al. warn that if small refineries shut down, the local communities built around these refineries will suffer. Id. at 20. Wyoming et al. further asserts that these refinery closures will directly lead to increased fuel costs, rising unemployment, and falling tax revenues. Id. Wyoming et al. then contend that these economic harms would occur at a large scale because small refineries employ large workforces and supply a significant amount of the fuel in the United States; for example, small refineries account for 25% of the refineries in Texas, the country’s largest fuel market. Id. at 22–23. Wyoming et al. thus conclude that narrowing the hardship exemption would cause widespread unemployment and greater dependence on foreign energy sources. Id.
The states of Iowa, Nebraska, Illinois, Michigan, Minnesota, Oregon, South Dakota, and Virginia (“Iowa et al.”), in support of RFA, argue that broadly granting the hardship exemption actually harms rural economies in the United States. Brief of Amicus Curiae Iowa et al., in Support of Respondents at 11. Iowa et al. note that granting large numbers of small-refinery exemptions reduces the amount of renewable fuel produced and demanded because fewer refineries are required to sell renewable fuel. Id. at 7. Because of reduced demand from the previous grants of the exemption, Iowa et al. state that renewable fuel plants across the country have already gone out of business. Id. at 11. Iowa et al. further contend that the “renewable fuel industry anchors many rural economies” and when that industry faulters, the rural economies do as well. Id. at 12. Iowa et al. also emphasize that the larger economy suffers as well, as renewable fuel industry supports more than 300,000 jobs and provides $18.6 billion of household income. Id. at 13.
- Alan Kovski, Supreme Court to Review Refining Exemption Decision for Renewable Fuels, Oil & Gas Journal (Jan. 11, 2021).
- Shannon Walker, Supreme Court to Hear Statutory Interpretation Case on Renewable Fuel Standard Program, Jurist (Jan. 10, 2021).