Supreme Court Rules in Favor of Small Refinery Exemption

The RFS sets nationwide goals for blending certain volumes of renewable fuel in overall fuel production annually. The RFS tasks the Environmental Protection Agency (EPA) with administering the RFS, and EPA establishes the particular blending obligation that individual facilities must satisfy in a given year. Refineries may satisfy their obligation by blending renewable fuel into their fuel products, or they may comply by purchasing RINs from others and surrender them to EPA. Under either approach, the RFS imposes a substantial financial burden on refiners and small refineries in particular. Recognizing this burden, Congress included several exemption provisions for small refineries. Congress began by exempting all small refineries from the RFS until 2011 and directed EPA to extend the exemption if the Secretary of Energy determined that RFS compliance would lead to a disproportionate economic hardship on small refineries. In a separate provision, Congress also adopted a hardship exemption, which permitted any small refinery to petition EPA for an extension of the exemption “at any time” on the basis of disproportionate economic hardship.

In HollyFrontier, three small refineries petitioned for an extension of the RFS exemption on the basis of disproportionate economic hardship. Each refinery had previously been exempted, but none had continuously received an exemption. EPA granted the exemptions, and a trade group of renewable fuel producers challenged EPA’s orders in the Tenth Circuit, arguing among other things that a small refinery must have continuously been exempted from the inception of the RFS in order to be eligible for an extension of the exemption. The Tenth Circuit agreed.

The Supreme Court reversed. The Court first concluded that the term “extension” is temporal and that Congress must have meant that EPA may increase the time for which a small refinery has an exemption. That is, EPA must extend something that had already existed. But, the Court explained, the temporal nature of the word “extension” did not mean that a small refinery must have continuously received an exemption. Rather, the Court held that any small refinery that had previously been exempted from the RFS could seek an extension of that exemption even if there had been a lapse. In reaching this conclusion, the Court first noted that neither the United States nor respondents could find a dictionary definition of the term “extension” that had a continuity requirement. It also noted numerous ordinary uses of “extension” that did not require continuity. For instance, the Court explained that a student may receive an “extension” even if she had missed the assignment deadline. The Court also turned to examples in federal law, noting that Congress has allowed for an extension of deadlines even after those deadlines had passed. Additionally, the Court examined recent laws designed to extend public benefits that had lapsed or been interrupted by the COVID-19 pandemic. The Court found other textual clues in the RFS confirming that there is no continuity requirement — in particular, Congress’s use of the phrase “at any time” to describe when a small refinery may seek a hardship exemption. Although petitioners had asked the Court to give EPA’s previous interpretation on the issue Chevron deference, the Court declined to do so.

In reaching its conclusion, the Court refused to adopt the argument, made by both EPA and the trade association respondent, that the RFS’s hardship exemption was designed as a sunset provision that ultimately required all refineries to reach compliance with the RFS. The Court explained that it did not view the exemption as a sunset provision because the RFS permitted EPA to extend the automatic exemption indefinitely and because the exemption provision allowed small refineries to request an exemption “at any time.”

The Court also rejected respondents’ argument that the exemption should be construed narrowly. Instead, the Court reiterated that statutory exemptions are to be interpreted “fairly,” as they are “no less part of Congress’s work than its rules and standards — and all are worthy of the court’s respect” (quoting BP p.l.c. v. Mayor and City Council of Baltimore). The Court went on to explain that the exemption “means exactly what it says: A small refinery can apply for (if not always receive) a hardship extension ‘at any time.’”

Three justices dissented. Led by Justice Barrett, the dissenters (including Justices Sotomayor and Kagan) explained that they believed continuity was required. Justice Barrett wrote that the term “extend” typically refers to increasing the time for something that has continued without interruption and that that meaning should control here.

HollyFrontier represents a significant victory for small refineries. Given the economic disadvantages most small refineries face, the substantial burdens of the RFS program represent a significant hurdle to ongoing operations. As the Court itself noted in its opinion, small refineries sometimes supply a major source of jobs in rural communities and play an important role in the national tapestry of fuel refiners. The Court’s decision does much to protect these important industry participants.

Sidley Austin LLP argued the case for petitioners.