Tenth Circuit Vacates EPA Order Denying Small Refiners’ Request for RFS Program Exemption

On August 15, the U.S. Court of Appeals for the Tenth Circuit decided the case of Sinclair Wyoming Refining Company, et al., v. U.S. EPA. In a split decision, the Tenth Circuit vacated a final order of the Environmental Protection Agency (EPA) which denied the plaintiff small refiners’ request for an exemption from the strictures of EPA’s Renewable Fuels Standards (RFS) Program.

In 2005, the Congress passed the Energy Policy Act and the RFS program, which places heavy emphasis on the use of renewal fuels by petroleum refiners. However, the Congress also established a statutory exemption for small refineries that faced economic difficulties in achieving compliance. The exemption expired in 2011, but case-by-case administrative procedures were developed under the law by which qualified small refineries could obtain regulatory relief.

Here, the refiners argued that they would face a disproportionate economic hardship if they were compelled to comply with all requirements of the program. The U.S. Department of Energy concluded that the plaintiffs would face economic hardships in trying to comply, but EPA, the panel majority concluded, determined that only an “existential threat” to the survival of the refinery would be sufficient grounds to grant the relief.

On review, and applying Skidmore (Skidmore, et al. v. Swift & Co.) and not Chevron (Chevron U.S.A., Inc. v. NRDC) deference, the panel majority concluded that EPA’s interpretation of the concept of “disproportionate hardship” “falls outside the boundaries of permissible choice” and must be overturned.

Two recent federal appellate decisions cited by the agency in support of its position were distinguished by the majority, but the dissenting member of the panel was not persuaded by their reasoning.