US Supreme Court backs refinery biofuel waivers: Update

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The US Supreme Court, in a win for oil refiners, ruled 6-3 today that small refineries can be eligible for hardship waivers from biofuel blending mandates without having to continuously qualify, rejecting calls from biofuel industry groups to curtail the exemptions.

The lawsuit, dubbed HollyFrontier v Renewable Fuels Association, focused on the type of relief the US Congress intended to give to refineries that process less than 75,000 b/d when it enacted the law behind the Renewable Fuel Standard (RFS). Small refiners argue they should be eligible for a waiver any year they are facing a financial hardship from the program, even if they did not seek a waiver some years.

The US 10th Circuit Court of Appeals last year said small refineries must continuously receive a waiver from the RFS to remain eligible for exemptions. The 10th Circuit ruled that because the law says that small refineries can only receive an "extension" of waivers, that means the US Environmental Protection Agency (EPA) can only extend waivers that have previously been granted.

But the Supreme Court today reversed the lower court's decision and found there was nothing in the statue supporting the RFS limitation.

"Our analysis can be guided only by the statute's text — and that nowhere commands a continuity requirement," justice Neil Gorsuch wrote on behalf of the majority.

The EPA, which under Biden defended the 10th Circuit's decision, said it was still analyzing the court's opinion. The agency said it would follow the law, base its decisions on sound science and ensure transparency.

"We understand this decision has implications for our current ongoing Renewable Fuel Standard rulemaking activities and petitions from small refineries currently pending before the agency," EPA said.

EPA has yet to act on dozens of pending requests for small refinery exemptions from the RFS for 2019 and 2020, as it awaited further guidance from the Supreme Court on how it should proceed. The agency currently has 32 pending exemption requests for 2019 and 18 pending requests for 2020, according to data last updated last week.

Small refineries make up less than 10pc of US refining capacity. But because the EPA for years did not pass on obligations of exempted facilities to larger refineries, any exemptions can carry outsized sway over the costs for all parties to comply with the program. Those costs hit 22.6¢/USG in mid-May, up from an average of 5¢/USG the same week in 2020.

Refinery industry groups cheered the Supreme Court's decision. They urged EPA to act quickly to finalize biofuel blending volume targets for 2021 and process pending waiver requests, which they said would bring down compliance costs.

"Further delay from the administration in setting achievable annual volume standards, issuing small refinery waivers, and responding to numerous petitions for relief will make a bad situation even worse," American Fuel & Petrochemical Manufacturers chief executive Chet Thompson said.

Biofuel groups had grown increasingly worried about EPA's handling of the RFS after the number of small refinery waivers granted increased to 35 facilities in 2017, up from seven facilities in 2015. They believed that former president Donald Trump's administration was approving more waivers as a mechanism to seek changes to the program. The industry said despite today's ruling, they would work with President Joe Biden's administration to support the biofuel program.

"We look forward to working with the Biden administration to keep a lid on exemptions, further strengthen the RFS, and fast-track our progress toward decarbonization," said Emily Skor, chief executive of biofuels trade group Growth Energy.

The US Energy Information Administration last month attributed the jump in the cost of credits that obligated parties use to comply with the RFS to higher demand for agricultural feedstocks such as corn and soybean, which are used to produce ethanol and biomass-based diesel.

By Chris Knight