November 18, 2020
Have you ever taken a moment to think: how did I even get here? This is probably what EPA thinks on a daily basis: how did we get here? Last month, I wrote on the 10th Circuit case where EPA was held accountable for granting small refiner exemptions to entities that didn’t necessarily qualify for the waiver. To be able to have such broad authority, EPA had to get it from somewhere: meet Sinclair v. EPA (2017).
To be fair to you guys, I kind of put the chicken before the egg last month by talking about the 10th Circuit case first. Keep in mind, I’m a lawyer, not an existential crisis counselor. The reason that the 10th Circuit case was so important (besides the obvious), is because of the Sinclair case. Wait, what’s the Sinclair case? I’m so glad you asked…
Before you read any further, just as a friendly reminder, to be a small refinery, you had to be “small” (have a throughput of less than 75,000 barrels per day) and you had to be able to show that compliance with the regulations would result in a “disproportionate economic hardship.” Under the first iteration of the Renewable Fuel Standard (RFS 1), small refineries could petition EPA for an exemption to the requirements of the RFS through the year 2011. Following the year 2011, small refineries meeting the requisite qualifications could file for an extension of that exemption through the year 2013.
In 2017, Sinclair Refining brought a case before the 10th Circuit. Yes, the same exact circuit that we talked about last month. Sinclair had two small refineries in the state of Wyoming. Sinclair had timely filed and had been granted a small refiner exemption under RFS 1. Sinclair also petitioned EPA for an extension of the original exemption through the year 2013, claiming an economic disproportionate hardship if Sinclair had to comply with the requirements of RFS1. EPA denied this petition and then Sinclair timely filed for a review of that petition with the 10th Circuit. I know this seems like a lot of rigamarole, but you have to understand how we got here.
In the 10th Circuit case, Sinclair argued that there “can be no disproportionate economic hardship unless compliance with the RFS Program is so costly that it will eventually force a small refinery to shut down” and that EPA’s interpretation would cause a threat to the viability of an operation, which was outside the scope of EPA’s authority. Essentially, Sinclair argue that, while a hardship can be burdensome, EPA’s interpretation as requiring a threat to a refinery’s long-term viability was nonsensical with the requirements of the RFS.
In a stunning blow to the RFS, the 10th Circuit granted Sinclair’s petition for review and overturned EPA’s decision to deny Sinclair’s exemption. While there were many issues the 10th Circuit considered, the court’s decision ultimately hinged on the meaning of “disproportionate economic hardship.” The court concluded that “[a]s a matter of common sense, an experience that causes hardship is less burdensome than an experience that threatens ones very existence.” The court went on to say that EPA’s analysis of the Department of Energy’s study as well as other factors was “…morph[ed] into a single question: a threat of closure inquiry” while the EPA was supposed to “…take the holistic evaluation as required by Congress…”
So, why does this matter? I mean it’s just one case in one circuit. It must be an isolated incident that is unlikely to be repeated. Except, that’s not at all how that went. Due to the fact that this case changed the way EPA analyzed Small Refiner Exemption petitions, EPA was able to grant these petitions much more readily than in previous years and have an easy justification for doing so. As we’ve all seen, the over-abundance of the granting of these petitions has led to a fundamental undermining of the RFS. This is also why the 10th Circuit case from last January was such a big deal. By deciding the January case in the way that it did, the 10th Circuit essentially put an “outer limits” on the acceptable way EPA is supposed to grant Small Refiner Exemptions. Does this mean that the RFS will stopped being undermined by Small Refiner Exemptions and enjoy the same rippling effect as this past 10th Circuit case? Maybe. The RFS can be a tricky place and can be influenced by a variety of factors, court decisions being just one of those many factors. So, what does this all mean in the grand scheme of things? It’s like I told you at the beginning, I’m a lawyer, not an existential crisis counselor.