Reexamining the Renewable Fuel Standard in Letter and Spirit

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In a recent case, the Supreme Court failed to address the purpose of exemptions from EPA’s renewable fuel standard.

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In HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association, the U.S. Supreme Court determined that the Environmental Protection Agency (EPA) may extend a small oil refinery’s previously received exemption from the Clean Air Act’s renewable fuel standard (RFS) even if that exemption had lapsed. Focusing on statutory interpretation and the meaning of the word “extension,” the Court neglected a key opportunity to examine both the RFS and EPA’s implementation of the standard.

The Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007, which amended the Clean Air Act, established and expanded the RFS. The RFS’s stated purpose was to reduce greenhouse gas emissions and secure domestic fuel sources, thereby addressing the nation’s reliance on foreign crude oil imports.

The RFS “requires U.S. transportation fuel to contain a minimum volume of renewable fuel.” Unlike gasoline and diesel, renewable fuels, such as biofuels, are transportation fuels made from biomass, such as corn, sorghum, and barley. The ethanol derived from the biomass is typically blended with gasoline or diesel. As a welcome boon to Midwest corn farmers and other agricultural communities, biofuel production also increases crop prices and benefits rural economies.

But recognizing that small refiners may not be able to accommodate RFS-required blending, Congress authorized various options for relief. One option was at the heart of HollyFrontier. Under the RFS, a small refinery can petition EPA to grant an extension of exemption for reason of “disproportionate economic hardship.” In HollyFrontier, EPA granted the three, small refinery petitioners an initial blanket exemption, followed by a few other exemptions. After their exemptions lapsed, the refineries petitioned EPA for an extension of their hardship exemptions; the refiners’ petitions were granted.

Displeased with these grants of extensions, the renewable fuel producers sued, arguing that EPA exceeded its statutory authority to grant the petitions. The Tenth Circuit concurred, vacating the agency’s decisions and holding that “the refineries were ineligible for an ‘extension’ of their exemptions because all three had allowed their exemptions to lapse at some point in the past.”

The Supreme Court disagreed. Writing for the majority, Justice Neil Gorsuch restated a common statutory interpretation principle that, if a definition is not provided, the Court seeks to afford a statutory term “its ordinary or natural meaning.” Pointing to various statutory language within the Clean Air Act and to other pieces of legislation, the Court sided with the refineries, agreeing that an extension of time is permissible even after lapse—in other words, temporal continuity is not required to invoke the hardship exemption.

Justice Gorsuch further reasoned that an extension of an exemption does not require continuity because of the inherent market volatility in renewable fuel markets. Prices may be extraordinarily high one year––preventing the purchase of blending fuels––and then lower another. An interpretation that affords EPA flexibility in issuing exemptions and their extensions provides small refineries with the ability to manage this volatility.

Lurking behind the statutory interpretation arguments of HollyFrontier, however, is the ever-present struggle between two behemoth American industries—agriculture and oil.

The oil industry has long complained that biofuels are costly and artificially-competitive due to government policies that support production. The industry is already under pressure to find refining capacity in a market that is rapidly turning to biofuels. Biofuel producers respond that RFS is an incentive, but are themselves facing challenges to sustain ethanol production as a result of higher corn prices due to the pandemic and increased drought conditions. And even refiners are struggling to adapt to the changing market, amassing “up to a $1.6 billion shortfall in the credits they will need to comply” with the RFS. This volatile environment and need for refining flexibility support Justice Gorsuch’s arguments.

But neither majority nor dissent directly addressed whether the statutory interpretation each adopted would fulfill congressional intent. Justice Amy Coney Barrett’s dissent came closest to this question, asking whether the purpose of EPA’s exemption power is to give small refineries time to get into compliance or simply relieve small refineries of that directive altogether. If the former, then extending exemptions without commitment or consequence provides no incentive to comply with the RFS. If the latter, then EPA’s exemptions and extensions are simply an agency mechanism to delay or undo the intent of Congress.

EPA’s ability to exempt participants from compliance has severe repercussions for the effectuation of legislative policy. Moreover, changes in presidential administrations have resulted in vastly differing policies with respect to EPA function. Under the Trump Administration, for example, EPA announced that no additional measures were necessary to mitigate adverse air quality impacts related to the RFS and considered a potential general waiver to exempt refiners from blending obligations.

But there is agency vacillation even within presidential terms, as impending elections and constituent preferences drive agency action. This administrative oscillation is untenable with long-planned refinery infrastructure, which is relatively inflexible.

The RFS has been in place for well over a decade. In that time, there has not been a comprehensive review of whether it has accomplished its original goals or even of whether those original goals are still relevant. For example, although biofuels increase supply diversity, they are less efficient than alternative sources of energy and increase burdens on food production, water consumption, and soil health. Moreover, the RFS anticipated the expansion of cellulosic biofuels, which are more efficient and less impactful than food-based biofuels, and a likely discovery of “other advanced biofuels,” which is not even defined in the statue. But neither technology has been successful.

And while decreasing fossil fuel combustion serves the necessary and noble purposes of mitigating climate change and greenhouse gas emissions, replacing fossil fuels with biofuels does not supplant the combustion reaction during which carbon dioxide is always produced. Further, Congress’s concerns about overreliance on foreign oil imports are less pronounced due to the growth in domestic production.

The White House recently delayed the annual process of deciding biofuel blending amounts, indicative of the conflict between the agriculture industry, oil industry, and environmentalists. With the bipartisan infrastructure bill currently before lawmakers, Congress has an auspicious time to revisit RFS mandates as part of critical infrastructure and the opportunity to reengage in substantive U.S. energy and environmental policymaking.

Monika Ehrman

Monika Ehrman is an associate professor of law at the University of North Texas at Dallas College of Law.

This essay is part of a nine-part series, entitled The Supreme Court’s 2020-2021 Regulatory Term.