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In a loss for ethanol makers and a win for the oil industry, the U.S. Supreme Court ruled Friday that the government has wide latitude to exempt refineries from federal mandates that they mix plant-based renewable fuels into gas and diesel.
In a 6-3 decision, the justices rejected arguments that the Environmental Protection Agency's power to issue exemptions is limited to only a handful of refineries that have received uninterrupted annual waivers from the nation’s Renewable Fuel Standard.
Writing for the majority, Justice Neil Gorsuch said nothing in the fuel law itself "commands a continuity requirement."
Under Democratic President Joe Biden, the EPA is expected to issue fewer waivers and force more refineries to satisfy annual biofuel quotas by either blending alternatives like corn-based ethanol into their products or buying compliance credits from other companies that have. However, the Supreme Court precedent will give future administrations wide clearance to exempt more oil refineries from the annual blending quotas.
"Today's decision allows refiners to request an RFS exemption extension, but it does not make it easier for refiners to actually receive one," said Monte Shaw, executive director of the Iowa Renewable Fuels Association, in a statement. "We fully expect the Biden EPA to keep their commitment“ to the renewable standard, he said.
“Today’s ruling by the U.S. Supreme Court is a disappointing setback for Iowa agriculture and our renewable fuel industry. The decision not only undermines demand for ethanol and biodiesel, but creates an environment where waivers could grow exponentially,” Republican Gov. Kim Reynolds said in a statement. “Now more than ever we need the Biden Administration to take a clear stance against small refinery exemptions in order to limit the negative impact of this ruling. The Administration should now set robust annual renewable volume obligations and clear all additional hurdles for consumers to access cost-effective, clean-burning renewable fuels.”
Under the Renewable Fuel Standard law, Congress authorized EPA exemptions for small refineries that face an "economic hardship" in complying. Refineries that win exemptions can save tens to hundreds of millions dollars annually that they might otherwise spend buying biofuel compliance credits.
The waivers had surged under former Republican President Donald Trump, provoking a backlash from biofuel advocates who argued Congress only intended the exemptions to be short-term relief, helping funnel refiners into compliance with the blending requirements over time. Refiners, by contrast, have argued Congress intended the waivers to serve as an essential safety valve, helping insulate a critical domestic industry from spiking compliance costs.
In his opinion for the court, Gorsuch noted the lack of clarity from the law itself on the matter. "Neither the statute's text, structure, nor history afford us sufficient guidance to be able to choose with confidence between the parties' competing narratives and metaphors," he wrote.
The case turned on the justices' interpretation of just a few words in the Renewable Fuel Standard law — specifically its provision allowing a small refinery to petition the EPA "at any time" for an "extension" of its initial, automatic exemption. Biofuel producers unsuccessfully argued the law's use of the word "extension" inherently meant refineries can only qualify if they have an existing exemption to prolong.
In a dissent, Justice Amy Coney Barrett argued the most natural reading of "extension" is as a continuation — whether the matter is a tourist extending a hotel stay, a newspaper reader extending a subscription or a refinery seeking an extension of a biofuel waiver.
But Gorsuch wrote it was "entirely natural — and consistent with ordinary usage — to seek an 'extension' of time even after some lapse," much as a forgetful student might seek "an extension for a term paper after the deadline has passed."
Gorsuch was joined by Chief Justice John Roberts and Justices Clarence Thomas, Stephen Breyer, Samuel Alito and Brett Kavanaugh in ruling for refiners. Justices Sonia Sotomayor and Elena Kagan joined Barrett in dissent.
The ruling provides the Biden administration with more options for addressing concerns by some lawmakers and industry officials that climbing compliance costs imperil some independent refiners, particularly in the Northeast United States. The law requires that refiners not meeting the blending requirement buy credits — called renewable identification numbers — from refiners that do. But the cost of the credits has been rising sharply.
Refiners celebrated the ruling, asserting the EPA should liberally use its validated waiver power to exempt refineries.
"As refiners both large and small face all time high renewable identification number costs and are recovering from the economic impacts of COVID-19, we urge EPA to immediately take action to make the RFS a workable program for U.S. refiners and consumers," refiner HollyFrontier said in an email.
Chet Thompson, president of the American Fuel and Petrochemical Manufacturers Association, said he hoped the EPA would now move swiftly "to provide critical relief to those small refineries that have demonstrated disproportionate economic harm resulting from the RFS."
The EPA, which is now drafting a proposed slate of biofuel-blending quotas for 2021 and 2022, said it was analyzing the court’s opinion.
"We understand this decision has implications for our current ongoing Renewable Fuel Standard rule-making activities and petitions from small refineries currently pending before the agency," EPA spokesman Nick Conger said by email. "The agency will follow the law and base our decisions on sound science while ensuring transparency."
The dispute at the Supreme Court arose after the Renewable Fuels Association and other biofuel supporters challenged three waivers the EPA issued to refineries owned by HollyFrontier and CVR Energy's Wynnewood Refining Co.
In January 2020, the 10th U.S. Circuit Court of Appeals sided with the challengers, saying Trump’s EPA had exceeded its authority. The refineries appealed to the Supreme Court, and the federal government, under Biden, switched sides to favor the biofuel supporters instead.
“We are concerned with the potential consequences of today’s Supreme Court’s decision, which could have a devastating impact on farmers and producers who are still fighting to recover from the volatile markets, unpredictable weather, and trade instability of the past several years,’’ said a statement from the U.S. House Biofuels Caucus, which is co-chaired by Iowa Democratic Rep. Cindy Axne. ”However, we are encouraged that the Environmental Protection Agency had reversed its position on small refinery exemptions prior to the Supreme Court’s final opinion, and we urge the Administration to apply the same logic in deciding not to grant future waivers.“
Bloomberg contributed to this report.