On June 25, the Supreme Court issued its decision in Holly Frontier Cheyenne Refining LLC. v. Renewable Fuels Association. This case turned on the interpretation of the statutory term “extension” contained in the Renewable Fuel Program. In an effort to encourage refineries to produce renewable fuel, Congress directed the EPA to require refineries to blend certain percentages of renewable fuel into their products, while allowing certain exemptions to small refineries.
In this case, the exemptions granted to several small refineries had lapsed. When they reapplied and received exemptions, biofuels interests sued. They argued that, because these refineries' exemptions had lapsed, they were no longer eligible under the terms of the statute, which provides that small refineries can apply for “an extension of the exemption [for] . . . disproportionate economic hardship.”
The Tenth Circuit interpreted the statutory language to bar an exemption grant based on the lapse—granting an exemption after a lapse would not be an “extension.” The Supreme Court reversed, holding that “extension” as used in this statute does not require “unbroken continuity” and determining that the statutory language’s context indicated Congressional intent to allow small refineries to apply for an exemption even if they hadn't continuously received one before.
Justin Schwab, former EPA Deputy General Counsel and founder of CGCN Law, previewed the case for us on April 27, 2021. He joins us again to discuss the opinion.
Justin Schwab, Founder, CGCN Law, PLLC
To register, click the link above.
Dean Reuter: Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group Teleforum calls, become a Federalist Society member today at fedsoc.org.
Nick Marr: Welcome, everyone, to this Federalist Society virtual event. This event is going to be audio only. So, just a note to the audience -- be prepared for that. It's going to be audio only. It will be posted and published as a podcast later. So, this afternoon, June 29, 2021, we're having a Courthouse Steps Decision Webinar on a case called Holly Frontier v. Renewable Fuels Association.
I'm Nick Marr, Assistant Director of Practice Groups here at The Federalist Society. As always, please note that expressions of opinion on our call today are those of our expert. We're very pleased to be joined by our expert who covered this case at oral argument for us, Mr. Justin Schwab. He's former EPA Deputy General Counsel and the founder of CGCN Law. His longer bio can be found on our website and on this event page.
So, with that, a quick note to the audience -- we will be looking to you for questions. So, keep those in mind. Please submit them through the chat as we go along and we'll take them after Justin finishes his remarks. So, with that, Mr. Justin Schwab, thanks very much for being with us. The floor is yours.
Justin Schwab: Thank you very much for having me. Hi everyone, I'm Justin Schwab. As Nick noted, I did cover this case for The Federalist Society's webcast back in April a few hours after oral argument, and so I'm not going to go too deeply into the background of the case and the underlying regulatory framework. But I do think I should talk about it a little.
So, first, I'm going to start with a just a very brief description of what the Court held. Then I'm going to get into that condensed background of the Renewable Fuel Standard Program, how smaller refinery exemptions play into that, and then the background of the case and how we got to the Supreme Court case. Then I'm going to go into both the majority and the dissenting opinion, just note some interesting aspects and features of those, and then just look at some big picture questions going on here both for the future of the RFS program, and then just the, sort of, more abstract questions of administrative law and statutory interpretation.
So, the case we're talking about today, the full name of it is Holly Frontier Cheyenne Refining LLC v. The Renewable Fuels Association. The Supreme Court issued its opinion last Friday, on June 25. It was a 6-3 vote. The dissent was written by Justice Barrett, joined by Justices Sotomayor and Kagan. The majority opinion was written by Justice Gorsuch and joined by the five other Justices of the Court.
In brief, what the Court held is that when the Renewable Fuels Statute uses the word "extension" in providing that small refineries may apply for an extension from the obligations of the Renewable Fuel Standard Program and Regulations, in order to be eligible to apply for that extension of an exemption, does the refinery in question have to have received that extension every year of the exemption program continuously? Or can there be a lapse in the exemption for one or more years of the history of the program the small refinery didn't apply for or didn't receive an exemption? Is it, nevertheless, still eligible to apply in a future year? Does the term "extension," in this statutory context, only allow for continuously re-upping without any lapse in coverage? Or can a refinery apply for "an extension" of the exemption even if there was that lapse?
So, the Court held -- the majority opinions holds, there is no requirement of continuity. So long as the small refinery, at some point, previously received the exemption it may obtain -- it is eligible to apply is really what they're saying -- for an extension even if there was a lapse of one or more years of previous coverage. They reversed the Tenth Circuit here and they sided with the petitioner refineries. They sided with the position that the United States government had held until the briefing of this case before the Supreme Court and that's what they resolved.
The implications of this for the program going forward, on its face, is fairly obvious. And small refineries that initially received the exemption -- and I'll get into the history of the exemption in a little to explain what I mean by that -- all small refineries are eligible to apply for these exemptions now and in future years. However, this does not mean that the refineries in question in the case here, or other refineries out there in the world, are necessarily going to get the exemption when they apply. It's just a question of threshold eligibility to apply.
If SCOTUS had upheld the Tenth Circuit, only those very handful -- small handful of refineries that had continuously received the exemption would even be eligible to apply at all. But now that SCOTUS has clarified, "No, that it's not a limitation to the Statute places," it still is, ultimately, going to be up to EPA's discretion analyzing whether the small refinery in question, when it applies, has demonstrated economic hardship -- disproportionate economic hardship sufficient to obtain the exemption.
Let's get a little into condensed background of the underlying program and then how we got here in the litigation. The Renewable Fuels Program was added to the Clean Air Act by Congressional Statutes in 2005 and then expanded in 2007. In brief, its policy goal is to ensure that an annually increasing amount of renewable fuel is introduced into the Nation's supply and consumption of transportation fuel.
How the program works, basically, is like this. Congress wrote tables into the Statute of the total number of volume of gallons of different kinds of renewable fuel that it wanted to be, or expected would be, reasonable to be introduced into commerce in a chart starting at the beginning of the program and then going out until -- just the next few years is when the numbers run out.
EPA takes those numbers and then, based on some information it gets from the Department of Energy based on other factors—other analysis and discretion it has—it takes the Congressional tables and then it actually sets -- "Okay. What is the volume for this upcoming year going to be?" And then it translates that into a percentage obligation for each of the parties that have obligations under the program and hear it for refineries or its relevance in order for them to, then, say they have an obligation for that upcoming compliance year to either, themselves, blend an amount of renewable fuels into their product to meet the percentage, or to obtain credits, so-called RINs -- or Renewable Identification Numbers -- from other parties that have themselves traded the biofuel. So, it's a market-trading credit system that backs this all up.
That's how the program works in general. It’s obvious from the face of the Statute that Congress was concerned about the economic impact that these obligations to either blend or to get RINs would have on small refineries in particular. The Statute defines a small refinery as having a throughput of 75,000 barrels a day or less. It doesn't matter how big your owner is on the face of the Statute, just matters how big the throughput of the individual facility is.
And we know that Congress was solicitous of the impact on small refineries because of the way that they wrote into the Statute, "Small Refinery Exemption Program." Here, the Statute [inaudible 09:05] Title 42 Section 7545 – that’s Section 211 of the Clean Air Act. It’s codified at 42 U.S.C. § 7545, and then it's subsection (o), paragraph 9, Small Refineries.
Congress designed this exemption program for small refineries in three phases. First, Congress itself, provided that for all small refineries, none of them would have any obligations under the Small -- Renewable Fuels Program until calendar year 2011 -- so for the first five years of the program, basically.
Congress also directed the Department of Energy to do a study to determine whether the Renewable Fuels Program would "impose a disproportionate economic hardship on small refineries." And then the administrator of EPA was directed -- if energy determined "Yes, that is the case. There is a disproportionate economic hardship from this program on small refineries," -- EPA was directed to extend the exemption for at least two more years.
And then there was a third phase, which is the phase we're in now. And this is in 211(0)(9) subparagraph B. Under this, "A small refinery may, at any time, petition the administrator for an extension of the exemption under subparagraph A," which was the first two phases -- blanket exemptions we were just referring to -- for the reason of disproportionate economic hardship.
So, that's the design here. First phase, Congress blanketly says, "All smalls are exempt for the first five years of the program. Second phase energy, do a study. If you determine there's disproportionate economic hardship on smalls, EPA extend for at least two more years -- that exemption. And then phase three, the one we're in now, a small refinery may, at any time, petition EPA for an extension of that exemption for the reason of disproportionate economic hardship.
Now, the case in question here, in the Tenth Circuit, The Renewable Fuels Association challenged EPA's issuance of three small refinery exemptions. And this was the major grounds -- there were other grounds, but the main grounds on which the Tenth Circuit held that those exemptions were in error was this question of eligibility and continuous receipt. All of the refineries in question had had at least some lapse in either applying for or receiving these exemptions. And then EPA had, again, granted the exemptions on petition from the refinery owners during the current third individual petition phase of the program.
The Tenth Circuit held, can't do that, the Statute requires continuous receipt. They had two main reasons for that: Textual and purpose. Textual is just -- they zoom right in on this word "extension." They say this naturally has to be read as a continual exemption. They confirmed this -- the Tenth Circuit thought they confirmed this by noting the structural relationship that it's an extension of this exemption under the earlier phases. If you don't still have that thing, you can't have it exempted. That was their textual reading.
On the policy reading, looking at the structure, the design, really what was Congress' goal here, the Tenth Circuit sides with the view that the small refineries -- that the Renewable Fuels Program envisioned that small refineries would be funneled towards eventual universal compliance with the program, that this was meant to be a temporary measure to allow companies to adjust, to assess their needs, to change their operations or otherwise change their business model and, then quite literally, eventually get with the program.
So, so much for the Tenth Circuit. The refiners sought CERT, the Department of Justice opposed the granting of CERT, but CERT was granted. After CERT was granted, and after changing administrations also, the EPA announced that it had changed its view and that it now sided with the Tenth Circuit and that the Statute does require continuous receipt of an exemption in order to be eligible to continue applying for and potentially receive them.
EPA announced that it had changed this position in a press statement which was a little unusual and which Justice Gorsuch noted that fact, somewhat snarkily, at oral argument in this case. So, when it came time to the actual substantive briefing before the Supreme Court, you had the Renewable Fuels Association and the Department of Justice saying, "Affirm the Tenth Circuit. The Statute and the word "extension" in this context requires continuous receipt of an exemption in order to still be eligible.” The refiners were arguing, "No. It doesn't."
The primary arguments on text and purpose for the parties arguing to affirm the Tenth Circuit were basically what I just laid out. The refiners also had both text and purpose arguments. As regards the statutory text, the effort of the refiners was really to decouple the third phase of the exemption program—the current phase we're in now—where parties apply individually to EPA. Refinery owners apply individually to EPA for an exemption to decouple that as much as they could from the earlier phases of the exemption program.
Now, obviously, they were limited in their ability to do this because the Statute says you can petition for an extension of that earlier exemption but the refineries mined the Statute for as many textual and structural clues as they could -- that this third phase—the current individual petition phase—was really its own thing.
For example, they note that in this subparagraph B, at one point, Congress just referred to these exemptions as a hardship exemption not an extension of them. They noted that "temporary" appears in the headline of this subparagraph for the earlier phases of the exemption, the ones that were blanket from Congress or following the Department of Energy study. But the word "temporary" does not appear in the heading of subparagraph B which governs the current third phase of the individual applications for exemption. So, in text, they were trying to create as much separation textually, structurally, conceptually between these things as they could.
On purpose, the refinery’s arguments were, "Look this funnel towards compliance is completely the wrong model. Instead, this is a safety valve that really needs to be in existence throughout the entire run of this RFS program." Why is that? At least two main reasons: One, Congress designed the volumes and the tables that I described to be continuously increasing. You've gone from a few billion gallons in the initial years of the program to dozens of billions of gallons that Congress envisioned would be required to be blended into the national supply.
Well, if the obligations are mounting year on year, it seems weird that you would -- that seems contrary to this funnel because the burdens are going to increase as time goes on. They also argued, "Look, this market fluctuates." The market not only for fuel but also of these RINs -- these credits, right, that represent the blending of renewable fuel -- the price of that in those markets vary widely. Congress knew that. Why would one good year for a company and for a facility in which they are able to comply -- why would that knock them out of eligibility to apply for exemptions down the road in future years where, both because the mounting burdens of the Statute and because the fluctuations of the market, they may have a completely different situation in a future year even if one or two good years meant they didn't apply or didn't receive an exemption back then.
So those were the arguments before the Court. Now, as I observed on the webinar after oral argument, a lot of folks in D.C. and in the Bar were kind of a little surprised that this case had been taken by the Supreme Court. And I think we're expecting affirmance. But oral argument, I think it's fair to say, did not go as well for the government and its new position and for the Renewable Fuels Association and its continued position as many people had expected.
And you started to get some questions from even justices like Justice Breyer who had asked the government, "Hey, isn't this a tradable rights regime? Is this a permitting market regime?" Is this -- he didn't use this word I don't think -- he was analogizing through a cap-and-trade scheme. So, it's a market regime, right? Well, in other words, he zoomed right in on this policy argument from the refineries of why would one or two good years early on have anything to say about eligibility in a down year.
No huge surprise that Justice Breyer would analyze it through this lens. He wrote a lot on administrative law before becoming a Justice. He's very, very solicitous of the flexibility that agencies might need in the program that they administer. This is a constant theme of his questioning and his writing on the Court. But I don't know if -- the Department of Justice did not necessarily have a very good answer for that.
It was also evident from argument that Justices Kagan and Sotomayor were telegraphing pretty strongly that they were not buying the refinery’s argument. They just couldn't get out of the zone in which extension has a plain and unavoidable meaning that it has to be a continuous temporal extension. It can't be picking up something that's already lapsed.
Justice Barrett, on the other hand, asked fairly tough and probing questions of both sides. She was definitely seen, I think, as a likely vote to affirm the Tenth Circuit. But maybe a little less predictable than Justices Kagan and Sotomayor in this situation. And, in any event, a little bit of a surprise that she ended up writing the dissenting opinion.
Now, when we look at the majority opinions and the dissenting opinion themselves here, we notice what is glaringly absent. And that is Chevron deference. Both the majority and the dissent -- but especially the majority -- put a lot of emphasis on the fact that they are not deferring to anybody's view of what the Statute means whether it's the government's old view before this switch in position, whether it's the refinery’s view -- they're not doing any deferring.
And Justice Gorsuch makes this very clear, both the in footnotes in which he has a dialogue with Justice Barrett's dissent and then in the body of opinion itself. He says, "We are persuaded by their argument—by the refinery’s argument—as to what this Statute means-- that it does not require continuous receipt in order to be eligible to keep applying for the exemptions. We're not deferring to them." The dissent comes pretty close to saying that's disingenuous. They don't quite use that word, but there's some snark in the dissent.
If you look at footnote one in the dissent, which is, I believe, on the third page of the slip opinion -- they essentially accuse the majority of being in the Chevron mind frame without admitting it. And what I mean by the Chevron mind frame is, the dissent frames the majority as repeatedly following into the following groove of thought to say, "Well, it could mean this. You could read extension in some context to be something that doesn't require continual, temporis continuity."
And the dissent is saying, "Well, yeah, yeah, yeah, yeah. Maybe you could, in some circumstances, read it that way, but the dissent says that is just the outlier meaning," -- is what they call that here. The dissent actually says the majority is catering to an outlier, meaning as following the lead of the refineries here, rather, the dissent basically seems to be saying or hinting -- rather than the majority just, itself, straightforwardly deciding what the Statute says. The majority, unsurprisingly, does not accept that characterization of what it's doing. And it stresses, "We, the majority," -- using traditional tools of Statutory interpretation -- "we are coming to our conclusion of what the right reading of this Statute is.
Now, why is there no Chevron going on here? There's two things going on. One is a prior Tenth Circuit case, and then the other is related to the government's change in position in the current case. First, in the prior Tenth Circuit case -- in an earlier small refinery exemption case from the Tenth Circuit -- this is the Sinclair Refining case. The site for this is 887 F.3d 986 and that's the Tenth Circuit in 2017. Among other things, the majority in that panel held that EPA's decisions on these applications for small refinery exemptions and its interpretation of the Statute that is implicit or explicit within those decisions is not entitled to Chevron deference. It's only going to receive the Skidmore, Mead, whatever you want to call it -- the power to persuade. Justice Scalia always called it the -- or, by the end of his career anyway -- Justice Scalia was calling it the "deference that isn't really deference," right?
That's what they got in the Tenth Circuit. The government did not challenge that opinion at all let alone that aspect of it. Here, though, in this particular case as to whether Chevron plays any role or not, one argument that the refineries made is that EPA had already essentially reached this question in a 2014 regulation where EPA had decided, "Okay. Who do we figure out who's a small refinery?" And in that EPA Reg, and in the discussion, they already said, "You don't have to be small -- i.e., under the 75,000 barrel-a-day level. You don't have to maintain that status continuously through every year of the program in order to be eligible to apply for an exemption. We're going to look to the immediately preceding year and in the year for which you apply."
So, refineries said, "Look, implicitly then -- implicitly within that and with the discussion of preamble of that reg, and from the reg itself, they have to be taking the view that this ain't a program that requires continuity of any particular status or receipt." Well, when it came to the briefing in the Supreme Court, that's what the refiners asked for. They asked for deference both to that reg—2014 Reg—and for EPA's understanding of the Statute as reflected in the fact that it ran to these exemptions and therefore must have thought they were eligible.
DOJ, for its part, said, "Look, that 2014 Regulation is not on point. That deals who's small, not who can apply." In any event, they said, "We're not asking you for any deference here. The United States government no longer adheres to the position that petitioner belief is implicit here. The biofuels—the Renewable Fuels Association—unsurprisingly said, "There's no ambiguity here, at all. Even if there were, the Reg just doesn’t have any interpretation of the particular statutory question that's at issue here." The refinery’s reply -- they said, "Look, EPA can't just abandon its regulations in a press release. We think the language of this Statute is unambiguously in our favor,"—the refinery’s favor. But, "Assuming arguendo the Statute is ambiguous. EPA reasonably decided in its 2014 rule that the Statute authorizes non-continuous exemptions."
Now, the majority in the Supreme Court doesn't -- now, Justice Gorsuch, in his questioning, did notice this, and, as I noted, said to the government, somewhat pointedly, "I understand that you abandoned your regulation in a press statement." Which is not, maybe, quite what had happened but was –his take in questioning.
It doesn't come up in that stark terms in the majority, but the majority opinion does note, EPA did ask the Court of Appeals to defer to its understanding of the Chevron but here does not. And I'm quoting from the majority. This is page 10 onto11 of the Slip Opinion. "With the recent change in administrations," the government has changed position, "we, therefore, decline to consider whether any deference might be due to the regulation."
Interesting to note here -- some academic commentary that has sprung up just in the last few days on Chevron waiver, which is a pre-existing of the interest of academic broad practitioners and academics, both Professor Jonathan Adler at Reason and then Aaron Nielson at the Blog, noted some comments at the Yale Journal on Regulation. They both noticed this Holly Frontier discussion and plugged it into that ongoing analysis, or Chevron waiver, i.e., does an agency have to ask for Chevron to get it? Is that sort of an element of Chevron deference?
Mr. Neilson is predicting that SCOTUS eventually will take that question which doesn't really squarely come up here, right? It's sort of a drive-by here. But whether that is going to be formally resolved is a question presented in the future in some future case. Academics have already noted that.
Other interesting things in the opinion. I would just say -- I would note this interesting dynamic you have going on here where each writing purports to be just going after the plain text and context and all the traditional statutory interpretation tools to figure out what Congress' intent here was. Did you have to have continuous receipt of exemption in order to apply for one again or not?
But they both, kind of, can't help dipping into their understanding of the purpose and the policy of the Statute in order to square that up. So there's almost a media strip going on where you'll be in a textual discussion and it slips into policy and vice versa. I think that's true of both the majority and the dissent here. I think it's true of the Tenth Circuit's opinion, frankly. And I think it's -- we try very hard to keep questions of statute interpretation and separation of powers -- good stuff of the -- of the judiciary interpreting and read Congress' intent and not plain policy. We all try to do that. All these jurists are trying, in very good faith, to do that, and you can come up with diametrically opposite views of what the right reading of the Statute is, they're going to be informed by your policy bids.
Both the majority and the dissent here take pains to say we are not looking to policy to make our decision here. They both say, in different words, "Look, there's strong policy arguments on both sides. That's why, ultimately, we're just sticking to the traditional schools of statutory interpretation. But your question of what is a reasonable reading in this context of extension, does it require the continual temporis extension or not, is going to be informed by -- almost can't help but be informed by your understanding of what it is that Congress was trying to do here even though that kind of formulation threatens to tip us back into an older understanding of how you interpret statutes that even Justice Breyer, himself, these days wouldn't wholeheartedly subscribe to. And you've got to look back to the glory days of Justices Marshall and Stevens in the '70s and later when both of them would -- especially Marshall, but even Stevens would openly say, "We know what Congress is trying to do here, and the text confirms that."
That is not -- I want to clarify -- that is not the methodology that either the majority or the dissent apply here, and they are not -- at least to hear them say it -- they are not deferring to anybody here. But they are inevitably going to have to keep taking peeks at the statutory design in order to see what makes sense to them. And for the majority? It's just that this design of an ever-increasing burden and an underlying fluctuating market that might have -- the majority just says at one point, "Ability to comply in one year is not a predictor of ability to comply in out years." So, to them, that's why, in this context, the right reading of extension is that it does not require continuous receipt and temporally unbroken extension.
And the dissent just -- it takes a different -- it uses the word "funnel" repeatedly. I don't think the dissent expressly acknowledges that they are borrowing the word "funnel" from the Tenth Circuit. But in terms of this policy view of funneling all parties eventually to universal compliance, that then colors the dissent's view. That extension, they say, both of the overwhelming majority of the plain meaning of it and then here also has to require continuous receipt.
And, with that, I'm happy to take any questions that anybody might ask.
Nick Marr: Okay. Great. Thanks very much, Justin. That was great. We don't have any questions in the chat, right now.
Justin, I have a question. How did the result in the case and ruling—all those things—track with your expectations coming out of oral argument?
Justin Schwab: Coming out of oral – so, I said at the last webinar I'm not in the prediction business. And so, I didn't make an official prediction there. So, I'm not going to claim that I'm psychic. I did say, in the last webinar, something to the effect of, a lot of people in town in the industry—in the Bar—might have been expecting an easy affirmance going into this argument. After that argument, whatever it's going to be, it ain't going to be easy. You know, it may not be affirmance but it's definitely not going to be easy, right?
And I think that was borne out by the fact that the opinion did come out late. It's not the longest opinion in the world, but the entire PDF, including syllabus, majority, and dissent, is 32 pages, so it's not nothing either. There’s forceful, but respectful, engagement with each other's views. In other words, this must have had some memos going around, some back and forth, right, between the majority and the dissent.
So, in terms of the top line, I was not at all -- I mean, wouldn't have bet the farm on a reversal here, but wasn't shocked by a reversal either. As I noted during questioning, the idea that one block of votes would be Justices Barrett, Sotomayor, and Kagan, that seemed a strong possibility coming out of argument. But then Justice Kavanaugh was pretty even-handed in his questioning. So, I think, there was nothing to say on the face of it. He could have gone either way just from questioning. Chief Justice Roberts played it very straight in questioning. So, it was hard to predict with him.
The big surprise for a lot of folks at argument was that Justice Breyer came out fairly hot against the Tenth Circuit's position and some fairly tough questioning of the government in that regard. And so she looked like a very reasonable expectation that he would vote to reverse the Tenth Circuit. So, that it was 6-3 instead of 5-4 was a little surprising maybe, but I remember just, in all candor, saying to a friend and colleague after argument, "In theory, everything from unanimous affirmal to unanimous reversal is on the table here." And when we started to try and count votes, it was seen that, yes, Justices Barrett -- in this order, I would say -- Sotomayor, Kagan, and then Barrett in terms of most hostile to the refinery's position versus leaning against them but still open. That nucleus was there, but then the details and really the forcefulness with which the dissent tweaked the majority on, -- "Look are you doing Chevron here or aren't you?" -- is interesting stuff.
Nick Marr: Yeah. It makes sense. And in the meantime, we've gotten a question from the audience. So, this one's from Steven Baden. He says, given the Biden administration's legal positions that these waivers should be rare, what will the practical effect of the Court's ruling be on the number of waivers actually granted?
Justin Schwab: So, that is an excellent question. And, hi Steven, it's very good to hear from you. –So, I'm still not in the prediction business, but what I can do is I can give some more context here. I need to be careful here because, as I discussed in the earlier webinar, vast aspects of this program are shrouded as claimed confidential business information. And so, I'm going to talk limiting in terms of what's publicly visible from published court opinions and so forth and things that are a matter of public record.
But I will say this. There are two aspects to these applications. One is just, are you eligible to apply for an exemption at all? The Supreme Court has now very clearly removed one barrier to eligibility, right? On the face of the opinion, as long as you were in the original that was getting the exemption, even if you have a lapse of one or more years of not getting the exemption, that's no barrier on your eligibility to apply. Another element of eligibility to apply is you have to actually be a small refinery within the meaning of -- within the expressed definition of the Statute. That's the 75,000 barrels a day or less -- average throughput of daily crude oil, I think it is.
Those are the threshold categorical impressions of eligibility and frankly it stands for interpretation. So there are some technical – technical judgment will come into the case of "Are you really a small refinery or not? Are you juking your stats?" That might come up. But more or less that's just okay. Did Congress intend you to be eligible to apply?
But then there's what I'll call the much more technical side which is what the Statute contemplates. EPA receives these applications for an exemption, they refer them to the Department of Energy, and then EPA, informed by, among other things, Department of Energy's analysis, will determine whether to grant the waiver or not. Now, there's a piece called Ergon from the Fourth Circuit, which is a matter of public record and which has gone into some detail, in fact, even showing a matrix that Department of Energy has developed and has used to score these applications. I don't want to get into too much detail about that, just to note that's how the program works.
Some Circuit Court opinions here and there have addressed certain aspects of that. Ergon in the Fourth Circuit is one of those. Sinclair from the Tenth Circuit in 2017 also gets into this territory a little bit. And so, if folks are interested, they can take a look at that case law. But the reason I mentioned is to say, SCOTUS didn't touch that at all. And still pending -- and the Tenth Circuit, in addition to the eligibility holding—the extension, the continuous exemption—did ding EPA on some economic issues here. So, for the particular applications at issue, SCOTUS did not just say," EPA shall reissued these exemptions." They're going to still have to go through some economic analysis.
On the broader implication of Steven Baden's question of what does this mean for the application of the program as a whole, his point's very well taken. And as the -- in other words, beyond just these three facilities that applied for exemptions and were granted them by EPA, but then that was set aside by the Tenth Circuit -- but now the Tenth Circuit's holding on the statute interpretation has been reversed.
But then you have the broader universe of several dozen, a couple score, maybe, small refineries that are potentially eligible that had, at one point or another, received this exemption at its earlier phases. Well, as the majority opinions background section relates here and as the dissent points out, the number of these exemptions that were handed out has varied pretty widely. During this third current phase of the exemption program where EPA rules on particular applications that are sent in by particular refineries, that number has dropped during the Obama administration to single digits per year. And then under the Trump administration had climbed to dozens per year.
Now, there's a lot going on there which is beyond the scope of this conversation which gets into delivered or confidential things that we can't get into. But what I'll just say as a general matter is the agencies, both the Department of Energy and EPA, have a fair amount of flexibility as to how they want to both, potentially, revisit how they do the analysis of the economic and structural circumstances of a refinery to determine whether it has demonstrated "disproportionate economic hardship," both in terms of potentially revising the materials they do, or certainly on an ad hoc case-by-case basis making those decisions.
These are very much in the nature of adjudications that happened in an iterative way. There's some underlying regulations passed with notice and comment that structure how they're going to do it, but there's a lot of ad hoc ability. So, to sum up, bottom-line answer, Steven, if the Supreme Court had affirmed the Tenth Circuit, that would have all but eliminated the exemption program because only a very few, if any, refineries would still be eligible to apply—those who had previously received it. But there's a bit of an asymmetry going on here where this decision does not, by itself mean, that all-of-a-sudden you're going see dozens issued here.
Now, I will note that the administration has been sending signals -- or at least there have been some leaks in reporting of signals -- that they are concerned about impact on refineries and looking for ways to provide relief, but there's mixed signals there, right? Because they've also revoked some that were issued. That fact is they've not opposed the [inaudible 38:47] or some that were issued, etc.
So, there's, at most, from the refineries' perspective, there's mixed signals, I think, from the administration coming on what they intend to do here now. And I think, overall, the ten and the tenure of the administration's messaging, notwithstanding some more recent signals to the contrary, has been that they're not thrilled about the exemption program.
Nick Marr: Okay. Great. Well, if there are any more questions from the audience, please send
them in via chat. We don't have any right now, so the queue is wide open. If you have them, send them in via chat.
Otherwise, Justin, I'll give you a chance if there’s any closing remarks you want to offer. I'll let you know if a question comes, but otherwise I'll defer to you here.
Justin Schwab: Well, I'll just note one thing that was missing from the opinion, possibly as a result of who wrote it -- a majority opinion. And then another is kind of a bigger picture question.
Justice Kavanaugh, in his questioning in oral argument, repeatedly framed the issue as one of separation of powers and who gets to decide. Justice Kavanaugh said -- and his question was, "If we agree with the Tenth Circuit, Congress already spoke, no one is eligible to apply once they have lapsed for at least one year. Article 3 just needs to impose that will of Article 1 and we're kind of done."
On the other view—on the refinery’s view—it's Article 2, the executive agency that gets to continue to decide in its technical judgment, informed by its interpretation of the Statute, etc. But it's technical in policy judgments who should continue to receive these even after eligibility had lapsed. Justice Kavanaugh joined the opinion by Justice Gorsuch -- he did not write it. And this was -- there were hints of it here and there, but this, basically, was not a point to be put in. But when you think about this in this in a broader, kind of, Federalist Society separation of powers and all that, it's just an interesting way to think about the question.
The other would be the bigger question picture and then with an implication for another major matter -- it may or may not come before the Supreme Court -- and that's this: There are, sort of, dueling doctrines of statutory interpretation and administrative law that potentially could be activated here. One of them is well-rounded in Supreme Court and D.C. Circuit precedent or otherwise. And that is an agency's powers all come from Congress, right? And they need an agency in order to say, "We have the authority to do X," -- has to be able to point to an implicit or explicit grounding of that delegation of authority in the Statute.
Arguing from authority based on the absence of constraint of that authority normally doesn't cut it, right? So, well and good. That's very well established, right? But there's another, sort of, way to look at it specifically when you're dealing with administrative statutes that do delegate power. And it's kind of -- Congress is not normally in the habit of saying, "We want you to be able to these ten kinds of actions or take these ten kinds of views under the Statute or pass these ten kinds of regulations and that's it," right? They often speak in pretty broad or loose terms about how they want an agency to conduct itself in order to give itself the flexibility, in order to give itself -- and this is what Justice Breyer is constantly hammering in this question, especially also his writings, on the Court is, "Look, we're just nine lawyers who happen to be smart and hard-working and well-connected who ended up here. We're not the experts here in the programs or the reality on the ground. That's both-- that's the folks in the Bar, that's the folks in the industry, but it's also the thousands of hard-working experts in the administrative state who make it run," right?
So, those are kind of the two ways of looking at it. Well, I can't help but note, in closing, that you might have echoes here of the whole saga of the Clean Power Plan, its repeal, the Affordable Clean Energy Rule, and then the D.C. Circuit's striking down the Clean Power Plan repeal, striking down the Replacement ACE Rule. There is -- I think, a lot of this audience will know -- the question is, EPA under Section 111 of the Clean Air Act identifies what the best system of emission reduction for pollutants from a particular kind of facility is and then set standards based on the application of that.
But the Statute does not literally explicitly say, based on the application of that BSER reduction to a particular facility. And so, springing out of that is the whole crux of the question of whether EPA, when it's designing standards for power plants, is limited to measures, controls, or practices that can be done at and to the level of an individual power plant or whether, as it did in the Clean Power Plan, it can design standards that rely heavily on a cap-and-trade scheme that would basically shift electric generation onto the grid at the aggregate level away from one source of energy towards another.
And there again, you have somewhat similar – no, Congress didn't say explicitly, "You can't do that," right? But is it really a reasonable reading of the Statute that EPA can do that kind of grid-wide design of a regulation? The D.C. Circuit, on January 19, ruled that "No, there is no such constraint. There's no such short, specific constraint." There, the Trump rule had said, "We're not asking for any deference. It's a Chevron one. It can be unambiguous. We cannot do that." The D.C. Circuit said, "Well, you're wrong about that. And we're not going to go on to determine whether there's any ambiguity here because you didn't purport to identify any and you didn't give us your argument for why your reading is reasonable. You just said this is the only permissible reading of the Statute."
Now, there are certain petitions pending before the Supreme Court asking to take this question. The government's response is due next week. The government is anticipated to argue that the case is moot or that it is otherwise inappropriate to take. If the Supreme Court does take that case, you will see similar questions and statutory interpretations, Chevron, etc. floating around. Even if the Supreme Court doesn't, these are issues which will recur inevitably in all administrative law cases but that seem, really, to crop up over and over again in Clean Air Act cases for a variety of reasons. It is no coincidence that Chevron itself was a Clean Air Act case.
And unless anybody else has any questions, I'm happy to just conclude my remarks there.
Nick Marr: Okay. Great. No more questions, but I want to thank you very much, Mr. Schwab, for the benefit of your valuable time and expertise this afternoon covering this case. This was a great discussion.
Thank you to the audience for questions and for tuning in. As a reminder, keep an eye on your email and our website for announcements about upcoming calls like this one. Especially as the Supreme Court term winds down we're covering all these cases this week and into next, so keep an eye out for those.
Well, with that, until the next event, though, thank you all for joining us. We are adjourned.
Dean Reuter: Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.