Supreme Court Rules on RFS Waivers

The Supreme Court (SCOTUS) on June 25 overturned a lower court ruling that had found that the Environmental Protection Agency (EPA) could only grant small refinery exemption to companies that had received such an exemption every year since 2013.  The Supreme Court found that, according to the statute that created the RFS, EPA has a wider latitude to grant small refinery exemptions, including for refineries that had not received such an exemption for many years. 

The ruling represents a victory for refinery interests and a defeat for biofuel interests, but as a practical matter is unlikely to materially alter the near-to-medium term trajectory of the RFS: The Biden Administration continues to explore ways to lower prices for Renewable Identification Numbers (RIN), as they would have even if the Court ruled against the refiners. The Biden EPA has a variety of "tools in their tool chest" that enable them to lower RIN prices;  the SCOTUS ruling simply does not eliminate an additional policy mechanism at their disposal (i.e., small refinery exemptions). 

The ruling itself focused almost exclusively on the use of the word "extensions" in the law that gave EPA authority to grant exemptions to small refiners. The majority of the court found that Congress did not mean that only those currently with exemptions could apply for an exemption. "It is entirely natural, and consistent with ordinary usage, to seek an 'extension' of time even after some lapse," the Court wrote. "Think of the forgetful student who asks for an 'extension' for a term paper after the deadline has passed, the tenant who does the same after overstaying his lease, or parties who negotiate an 'extension' of a contract after its expiration."

The dissent, the first dissent written by Justice Amy Coney Barrett, disagreed and said something must be "ongoing" before it could receive an extension. "One would not normally ask to 'extend' a newspaper subscription long after it expired," she wrote. "Or request, after child number two, to 'extend' the parental-leave period completed after child number one."

That the Supreme Court focused on this grammatical debate rather than substantive renewable fuel policy belies the fact that it did not meaningfully address a different component of the lower court ruling that it overturned: whether refiners even suffer any "economic harm" justifying an exemption when RIN prices are high. NATSO has long argued that RIN prices are "baked in the crack spread," i.e., refiners simply charge their customers more money for fuel to reflect the refiners' RIN costs.  The Biden Administration had argued to the Court that refiners recover their RIN costs in this way, something even the Trump EPA had acknowledged in 2017.  If the Biden EPA maintains this position, it is likely to dramatically scale back small refinery exemptions compared with the Trump Administration's aggressive approach, even though the Supreme Court is not necessarily compelling them to do so. 

EPA is expected within the next two weeks to propose renewable volume obligations (RVOs) for 2021 and 2022. This proposal will offer the first meaningful chance to assess how the Biden Administration intends to implement the RFS. Although no final decision has been made and things remain fluid, they are expected to try to soften RIN prices in the near-term (e.g., by tying the 2021 total RVO to actual production) without necessarily undermining the program's purpose and incentives as aggressively as the Trump Administration did.