Calumet Shreveport Ref., L.L.C. v. U.S. Envtl. Prot. Agency

86 F.4th 1121

CALUMET SHREVEPORT REFINING, L.L.C.; Placid Refining Company, L.L.C.;

Ergon Refining, Incorporated; Wynnewood Refining Company, L.L.C., Petitioners, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, Respondent,

Wynnewood Refining Company, L.L.C.; Calumet Shreveport Refining, L.L.C.;

San Antonio Refinery, L.L.C.; Petitioners, v. United States Environmental Protection Agency, Respondent,

Ergon Refining, Incorporated;

Ergon-west Virginia, Incorporated, Petitioners, v. United States Environmental Protection Agency, Respondent,Placid Refining Company, L.L.C., Petitioner, v. United States Environmental Protection Agency, Respondent.

No. 22-60266

Consolidated with No. 22-60425

Consolidated with No. 22-60433

Consolidated with No. 22-60434

United States Court of Appeals, Fifth Circuit

FILED November 22, 2023

Petitions for Review of Actions of the Environmental Protection Agency, Agency Nos. 87 Fed. Reg. 24300, 87 Fed. Reg. 34873, EPA-420-R-22-011, 87 Fed. Reg. 34873, 87 Fed. Reg. 34873.

Jonathan Hardin, Alexandra Bromer, Michael R. Huston, Perkins Coie, L.L.P., Washington, DC, Gregory James Morical, General Counsel, Calumet Specialty Products Partners, L.P., Indianapolis, IN, Sopen B. Shah, Perkins Coie, L.L.P., Madison, WI, Karl J. Worsham, Perkins Coie, L.L.P., Phoenix, AZ, for Petitioners Calumet Shreveport Refining, L.L.C., Placid Refining Company, L.L.C.

Samuel P. Hershey, White & Case, L.L.P., New York, NY, Andrew Gershenfeld, Attorney, Thomas E. Lauria, White & Case, L.L.P., Miami, FL, Taylor Robert Pullins, White & Case, L.L.P., Houston, TX, for Petitioners Wynnewood Refining Company, L.L.C., Ergon Refining, Incorporated.

Bryan James Harrison, Trial Attorney, Jeffrey Hughes, U.S. Department of Justice, Environment & Natural Resources Division, Jeffrey Prieto, Environmental Protection Agency, Office of General Counsel, Washington, DC, for Respondent United States Environmental Protection Agency.

Shelby Leigh Dyl, Attorney, Matthew W. Morrison, Pillsbury Winthrop Shaw Pittman, L.L.P., Washington, DC, for Intervenors Renewable Fuels Association, also known as RFA, American Coalition for Ethanol, also known as ACE, National Farmers Union, also known as NFU, National Corn Growers Association, also known as NCGA.

Shelby Leigh Dyl, Attorney, Matthew W. Morrison, Pillsbury Winthrop Shaw Pittman, L.L.P., Washington, DC, David Lehn, Boies, Schiller & Flexner, L.L.P., Washington, DC, for Intervenor Growth Energy.

Before Higginbotham, Smith, and Elrod, Circuit Judges.

Jerry E. Smith, Circuit Judge:

Six small refineries¹ ("petitioners") challenge the EPA's decision to deny their requested exemptions from their obligations under the Renewable Fuel Standard ("RFS") program of the Clean Air Act ("CAA"). The EPA denied petitioners' years-old petitions using a novel CAA interpretation and economic theory that the agency published in December 2021. We conclude that the denial was (1) impermissibly retroactive; (2) contrary to law; and (3) counter to the record evidence. We grant the petitions for review, vacate the challenged adjudications, deny a change of venue, and remand.

I.

A. Statutory and Regulatory Background

In 2005 and 2007, Congress amended the CAA, 42 U.S.C. § 7401 et seq., to establish the RFS.² That program mandates annual increases in "applicable volumes" of four categories³ of renewable fuel for the transportation sector. Id. § 7545(o)(2)(B)(i)(I)-(IV).

To implement the RFS, Congress delegated to EPA the authority to (1) set annual renewable fuel percentage standards and (2) establish an RFS compliance program. See id. § 7545(o)(3), (7). EPA sets the annual percentage standards based on the amount of renewable fuel needed to meet the statutorily stipulated volume requirements in § 7545(o)(2). Obligated parties—refiners, blenders, and importers of transportation fuel—use that annual-percentage standard to determine their volume obligations for the four categories of renewable fuel. See 40 C.F.R. § 80.1406. Obligated parties must satisfy their individual volume obligations by the RFS annual compliance date set by EPA. Id. § 80.1451(f)(1)(i)(A).

EPA tracks obligated parties' RFS compliance with a credit-trading program. Credits are called Renewable Identification Numbers ("RINs"). There are two ways blenders may acquire RINs: First, they can generate RINs by blending renewable fuel into conventional fuel. See id. § 80.1429(b). That's because RINs are "attached" to the renewable fuel the obligated party buys for its blending operation. Once blending has occurred, the RIN "separates" and exists independently of any batch of fuel. See id. §§ 80.1425-29. Second, obligated parties can meet their annual volume obligations by purchasing RINs from other obligated parties. See generally id. §§ 80.1425-29; 42 U.S.C. § 7545(o)(5)(B).

RINs are generally fungible—with one catch. A RIN may be used for compliance only during the calendar year in which it was generated or the calendar year following. 40 C.F.R. § 80.1427(a)(6)(i); see also id. §§ 80.1428(c), 80.1431(a)(iii). For example, a RIN that was created in 2018 can be used only to meet an obligated party's 2018 or 2019 RFS volume obligations. See id. § 80.1427(a)(6).⁴ Obligated parties demonstrate they have met their volume obligations—thereby complying with RFS—by "retiring" their RINs at their annual compliance demonstration. Id. § 80.1427(a)(1).

Congress, recognizing that RFS might impose disproportionate economic hardship on "small refineries"⁵ from RFS, created three exemptions from the compliance regime:

• First is the blanket exemption, which automatically exempted all small refineries from RFS until 2011. 42 U.S.C. § 7545(o)(9)(A)(i).

• Second is the refinery-specific exemption initiated by the Secretary of Energy. If, after conducting the statutorily mandated Department of Energy study, the Secretary determined that a small refinery was subject to a disproportionate economic hardship, "the Administrator shall extend the exemption under clause (i) for the small refinery for a period of not less than 2 additional years." Id. § 7545(o)(9)(A)(ii).

• Third, the subparagraph (B) exemption allows small refineries to "petition the Administrator for an extension under subparagraph (A) for the reason of disproportionate economic hardship." Id. § 7545(o)(9)(B)(i). "In evaluating a petition . . . the Administrator, in consultation with the Secretary of Energy, shall consider the findings of the study under subparagraph (A)(ii) and other economic factors." Id. § 7545(o)(9)(B)(ii). Further, "[t]he Administrator shall act on any petition . . . not later than 90 days after the date of receipt." Id. § 7545(o)(9)(B)(iii).

B. Procedural History

This matter involves the last of the three small refinery exceptions enumerated in the CAA. Petitioners challenge two EPA actions—each of which adjudicated and denied multiple exemption petitions ("Denial Actions"): The first is EPA's April 7, 2022, action "denying 36 petitions from 36 small refineries seeking exemption from their [RFS] obligations for the 2018 compliance year" ("April Denial").⁶ The second is EPA's June 8, 2022, action denying "denying 69 petitions from 33 small refinery petitioners seeking exemption from their [RFS] obligations for the 2016-2021 compliance years" ("June Denial").⁷

1. The April Denial

On April 7, 2022, EPA published the April Denial—that is, the agency's final adjudications rejecting a total of thirty-six small refinery exemption petitions for the 2018 compliance year. Among those were petitions submitted by Calumet, TSAR, Ergon, Placid, and Wynnewood.⁸ EPA denied those petitions using its revised interpretation of the subparagraph (B) exemption provision and RIN-passthrough economic theory.

Notably, the April Denial was not the first time EPA had evaluated these thirty-six petitions. Indeed, thirty-one of them had been granted by EPA in 2019.⁹ These August 2019 grants were subsequently ensnared in proceedings litigated in the D.C. Circuit unrelated to the dispute at hand. What is relevant, however, is that EPA moved for voluntary remand without vacatur to consider those petitions with regard to the Tenth Circuit's "alternate holdings" in Renewable Fuels Ass'n v. EPA ("RFA").¹⁰ The D.C. Circuit granted EPA's motion on December 8, 2021.¹¹ Shortly thereafter, EPA provided notice of its intent to include those previously decided petitions in the April Denial action.¹²

2. The June Denial

EPA once again applied its new interpretation and approach in June 2022 when it denied sixty-nine exemption petitions for the 2016 through 2021 RFS compliance years. Among those were petitions from (1) Calumet for 2019 and 2020; (2) TSAR for 2019, 2020, and 2021; (3) Ergon for 2019 and 2020; (4) Ergon-WV for 2019 and 2020; (5) Placid for 2019 and 2020; and (6) Wynnewood for 2017, 2019, 2020, and 2021.

EPA's new interpretation and approach—which it applied in the Denial Actions—displaced the adjudicative methodology the agency had relied on for over a decade. In that prior approach, EPA granted and denied petitions based on DOE's findings through its application of the DOE scoring matrix. That scoring matrix—developed as part of the statutorily-mandated 2011 DOE study—"was designed to evaluate the full impact of disproportionate economic hardship on small refiners and used to assess the individual degree of potential impairment."¹³ But, starting with the April Denial, EPA has now completely abandoned the scoring matrix.

Instead, EPA now adjudicates petitions using an approach it announced in a December 2021 publication.¹⁴ That approach rests on two components.

First is a revised interpretation of the statutory term "disproportionate economic hardship" as used in 42 U.S.C. § 7545(o)(9)(A)-(B). Under the agency's new interpretation, a small refinery's disproportionate economic hardship must be caused solely by RFS compliance costs.¹⁵

Second is a new economic theory. Called "RIN passthrough," EPA now theorizes that (A) the "cost of RINs is...