8th Cir. Rejects Appeal of EPA’s Denial of Small Refinery’s Petition for Extension of Exception Under RFS


On July 8, 2015, the Eighth Circuit Court of Appeals rejected petitioner Lion Oil Company’s appeal of EPA’s denial of this small El Dorado, Arkansas’ refinery’s petition that its exception from the Renewable Fuel Standard program be extended for another year (through 2013), citing disruption to a key supply pipeline and noting its “financial position has not improved.” Lion Oil Company previously received exemptions through 2012. The case is Lion Oil Company v. EPA.

By law, “small” refineries (those that process 75,000 or less of crude oil on a daily basis) were excepted from the RFS obligations for two years (until 2011), and this exception could be extended for additional periods if the refinery could demonstrate a “disproportionate economic hardship”. See, generally, 42 U.S.C. § 7545. EPA must coordinate its review of such petitions with the Department of Energy (DOE), which was directed to conduct a study to determine whether Lion Oil Company would face such hardships.

DOE completed its study in 2011 and concluded, “Disproportionate economic hardship must encompass two broad components: a high cost of compliance relative to the industry average, and an effect sufficient to cause a significant impairment of the refinery operations.” As explained in the Court of Appeals order, to implement these components, DOE created a dual-index scoring matrix; one index measures disproportionate structural and economic impact and the other, RFS compliance on refiner viability. The viability index has three metrics–3a (“Compliance cost eliminates efficiency gains”), 3b (“Individual special events”), and 3c (“Compliance costs likely to lead to shut down”).

Before EPA considered Lion Oil Company’s petition, DOE first scored Lion Oil Company on its matrix, as amended by the addendum, determining that it did not score high enough on the viability index to show disproportionate economic hardship. Specifically, DOE concluded that, on metric 3b, the pipeline disruption was not an “individual special event” because “several refineries . . . were impacted by the reduced flow.” EPA’s 23-page decision summarized DOE’s analysis, citing it as a “primary factor” in its decision to deny the extension. EPA also said it “evaluate[d] viability . . . in the same manner that DOE considers viability in its own methodology,” noting that it did not re-score Lion Oil Company on DOE’s matrix but, instead, “independently” analyzed the pipeline disruption and Lion Oil Company’s blending capacity, projected RFS-compliance costs, and financial position.

While such matters involving a nationwide Clean Air Act standard are routinely heard by the U.S. Court of Appeals for the DC Circuit, the statute also authorizes regionally applicable challenges to be heard in other federal circuits, such as the Eighth Circuit. Here, the Court of Appeals held that EPA’s action was not arbitrary and capricious, and that EPA did not unreasonable interpret the term “disproportionate economic hardship.” The Court of Appeals also noted that the DC Circuit, in a decision released last month, vacated another EPA action denying a similar petition filed by an even smaller refinery, but that decision was based on mathematical errors conceded by EPA. That DC Circuit case is Hermes Consolidated, LLC, dba Wyoming Refining Company, v. EPA, decided June, 2, 2015.