The single most important policy in the U.S. biofuels arena is finally having its day in the country’s highest court. It’d be difficult to overstate just how important the outcome of this trial will be for biofuel producers, petroleum refiners, and the future of the Renewable Fuel Standard (RFS). However, before we get into any of that, let’s backtrack a little bit, as the case has implications for not only the program’s future but also its past and present.
Background
At the heart of the case is the matter of small refinery exemptions (SREs), specifically whether companies that have been previously granted these waivers are exempt from meeting the RFS program’s Renewable Volume Obligations (RVOs) temporarily or in perpetuity.
Essentially, petroleum refiners argue that “once exempt means always exempt” while biofuel producers maintain that refiners must be continuously granted waivers year after year in order for the RFS program to function as intended.
In January 2020, in the case of HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association, the Tenth Circuit Court of Appeals ruled that the United States Environmental Protection Agency (EPA) had exceeded its authority by automatically extending waivers to refiners like Hollyfrontier that hadn’t secured SREs continuously.
Renewable fuel producers rejoiced at the decision, noting that, if upheld, it would invalidate almost all of the SREs that EPA granted under the Trump administration. Obviously, refiners disagreed with the decision and appealed to the Supreme Court. In January 2021, the Supreme Court agreed to hear the case.
In February 2021, the EPA announced that it had changed its tune and taken a new position on SREs. “After careful consideration, EPA supports Tenth Circuit’s Renewable Fuels Association decision,” the agency wrote, adding that the appeals court’s interpretation of SREs “better reflects the statutory text and structure, as well as Congress’s intent in establishing the RFS program.”
This was a big moment in the buildup to the Supreme Court hearing. In a sense, it amounted to EPA telling biofuel producers, “You were right about the RFS, we were wrong, and in fact, we, the federal agency tasked with administering the program in the first place, will now support your position before the nation’s highest court.”
Trial
In the lead-up to the trial, various associations representing biofuel producers and petroleum refiners filed amicus briefs with the Supreme Court. The National Biodiesel Board (NBB) asked the court “to respect the appropriate limits Congress placed on refiners’ eligibility for small-refinery exemptions, and to restore the conditions that allowed biomass-based diesel production to flourish, with all the attendant environmental, economic, and energy security benefits that Congress intended in enacting the RFS.”
The organization estimated that SREs granted since 2017 have directly destroyed demand for more than 550 million gallons of biodiesel and renewable diesel, resulting in 5.5 million metric tons of carbon emissions from use of petroleum diesel that would’ve otherwise been replaced with the cleaner fuels.
Supreme Court justices heard oral arguments in the case on Tuesday, April 27. Representing HollyFrontier was attorney Peter Keisler. Matthew Morrison argued for the Renewable Fuels Association. The EPA was represented by Department of Justice Solicitor General Christopher Michel.
As expected, justices questioned the attorneys on their interpretation of the word ‘extension’ in the RFS statute.
“Suppose that I rented an apartment five years ago and I rented it for a year, and then I decided to give it up,” Justice Elena Kagan said to Keisler. “And five years later, I'm now really tired of where I'm living now, and I want to move back, and I call the landlord and say, ‘I'd like an extension of my lease.’ What would the landlord say? I think the landlord would scratch her head and think that's a very strange context in which to be using the word extension."
Kagan asked Keisler if a refiner who was exempt from the RFS in 2011 but has since consistently met its RVOs should be able to claim an extension of the initial waiver 30 years later. “While that’s an extreme example, we think it is still more in keeping with the statutory purposes and text,” Keisler responded.
Solicitor General Michel argued that refineries could only receive extensions to SREs that they maintained over time. "That is the ordinary, common-sense meaning of the statutory text,” he said. “It gives the word extension the same meaning in adjacent interconnected clauses, and it reflects the statute's objective to boost production of clean, renewable fuel, while providing transition time for small refineries to comply. In common parlance, it would be awkward at best to seek an extension of something that has lapsed, especially if it were described as temporary."
While Michel focused on the clean-energy goals of the RFS, Keisler honed in on its energy independence objectives, arguing that extensions need not be continuous in the event of economic hardship. “Driving those small refineries out of the market would undermine the statute’s energy independence goals and that’s one of the reasons Congress authorized them to petition at any time based on hardships,” he said.
Notably, Trump appointees Justices Brett Kavanaugh and Amy Coney Barrett followed that line of reasoning throughout the hearing. The latter has been criticized for her family’s ties to the petroleum industry. Her father, Michael Coney, worked as an attorney for the Shell Oil Company for 29 years and held a chairmanship at the American Petroleum Institute for 20 years.
Implications
The Supreme Court is expected to issue its decision in June. Until then, petroleum refiners and biofuel producers wait with bated breath.
Biofuel producers have argued that should the court rule in favor of the Renewable Fuels Association, all but just a few SREs issued over the past few years would now be in question. Indeed, the EPA is waiting to reexamine many waivers and other disputes over the RFS pending the court’s decision.
If the EPA were to rescind additional waivers, the biofuel industry would likely welcome the move with a collective sigh of relief, if not open celebration, while the petroleum industry would inevitably challenge the reversal in court.
No matter what decision comes down, both sides acknowledge that the fight is far from over. In fact, the Supreme Court case deals with but one aspect of the Tenth Circuit’s ruling in HollyFrontier v. Renewable Fuels Association. There are several other facets of this judgment that are up for debate, and many other cases in the courts dealing with SREs.
Nonetheless, demand for certainty and transparency in the RFS is at an all-time high. The EPA will determine RVOs after 2022 based on a review of the RFS up until that point. We are now approaching the end of that “up until” stage, so what happens here will be weighed along with and against everything that has transpired so far. The past, present and future of the RFS are all at stake.
Note: oral arguments in the Supreme Court case can be found here.