On April 27, 2021, the Supreme Court will hear oral argument in the case of HollyFrontier Cheyenne Refining v. Renewable Fuels Association.
In this litigation, three refineries are challenging the Tenth Circuit’s ruling, which limits the availability of an EPA hardship exemption under the Renewable Fuel Standard of the Clean Air Act to those small refineries that can show “disproportionate economic hardship” and who have applied for an exemption for all preceding years. While the Tenth Circuit relies on the textual structure of the RFS, the refineries argue the Court’s interpretation belies the purpose of the exemption which Congress stated should be available for application “at any time.”
The Supreme Court takes up a question of statutory interpretation deciding whether a small refinery must not only show “disproportionate economic hardship,” but also receive continuous uninterrupted hardship exemptions to qualify for an additional RFS hardship exemption.
Justin Schwab, Founder, CGCN Law, PLLC
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Evelyn Hildebrand: Welcome to The Federalist Society’s Teleforum conference call. This afternoon, April 27th, we discussed the Supreme Court’s oral argument in HollyFrontier Cheyenne Refining v. Renewable Fuels Association. My name is Evelyn Hildebrand, and I am an Associate Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the expert on today’s call.
Today, we are fortunate to have with us Mr. Justin Schwab. Mr. Schwab is the founder of CGCN Law, a solo law practice in D.C., focusing on environmental, energy, and administrative law. He served as Deputy General Counsel at EPA from 2017 through 2019. Prior to that, he practiced administrative law at BakerHostetler's DC Office. He clerked for the Second Circuit and the Utah Supreme Court, and he has a law degree from Yale and a PhD in Classics from Berkeley. And we’re very pleased to welcome Mr. Schwab to this call this afternoon.
After our speaker gives his opening remarks, we will turn to you, the audience, for questions, so be thinking of those as we go along and have them in mind for when we get to that portion of the call. With that, thank you for being with us today. Justin, the floor is yours.
Justin Schwab: Thank you very much, Evelyn. I plan to speak for around 20 minutes, and then I’m happy to take any questions that you may have. First, I’d like to offer a disclaimer: I worked on this case when I was at EPA, but my comments here are based entirely on public information, mostly, including the Tenth Circuit’s opinion, the briefing and argument in the Supreme Court, and the history of the Renewable Fuels program, in general, and the small refinery exemption aspect of the program in particular. Any views expressed are entirely my own and should not be attributed to any other party, let alone to the federal government.
The case we’re discussing today is HollyFrontier Cheyenne Refining LLC v. Renewable Fuels Association. It’s number 20-472 on the Supreme Court docket. It was argued before the Court earlier today. It’s on certiorari from the Tenth Circuit, who’s 2020 opinion is reported at 948 F.3d 1206, and it’s docket No. 18-9533 in that court.
The question presented is: when Congress said that a small refinery can petition EPA “at any time” for “an extension of an exemption from the renewable fuels program on the basis of economic hardship,” did that mean that a refinery is only eligible for an exemption if it continuously receives such exemptions every year in the past? That’s the textual question. Running parallel to that textual question is a policy dispute. The small refineries, petitioners here, argue that the exemption program is a safety valve and that a small refinery is eligible to apply if the fluctuations of the market or the increasing burdens of the program impose economic hardship on them in an outyear, even if they didn’t receive the exemption in every previous year.
The renewable fuels interests and, as of this February, the federal government side with the Tenth Circuit, which viewed the exemption program as a funnel—that’s the word they used—a funnel towards compliance with eligibility narrowing over time, until eventually all small refineries are expected to comply in full. On that basis, the funnel basis, the continuous exemption basis, the Tenth Circuit ruled that three exemptions under review were improperly granted because each of the three refining facilities in question had at least one year of the program where they hadn’t received an exemption.
We’re talking here about the Renewable Fuel Standard program, or RFS as it’s universally known. For those playing along at home, it’s codified. It’s Section 211(o) of the Clean Air Act at 42 United States Code § 7545, subsection (o), as in “Oscar.” This case hinges on the small refinery exemption aspect of the RFS program, which is at paragraph (o)(9), but I’m going to start by talking about the statutory design and the administrative history of the RFS program as a whole.
RFS is extremely complicated as a matter of statutory text and structure, of policy, economics, politics, legally, everything else. We’re only going to scratch the surface here, but it’s important to frame the scope of the program so that the particular discussion about today’s small refinery exemption case makes sense in context.
So here it goes: RFS is the last major piece that Congress added to the Clean Air Act as we know it today. It was first enacted in the 2005 Energy Policy Act, and notably after a change in congressional control in 2006 elections, from Republican to Democratic majority in both chambers, it was expanded significantly by the 2007 Energy Independence and Security Act. A major policy goal of the RFS was to reduce this country’s dependence on fossil fuels imported from overseas by requiring a steadily increasing amount of renewable fuel to be introduced into the national market.
To illustrate this, the Tenth Circuit quoted a 2007 statement from Senator Durbin, “With this bill, we shift some of our energy reliance from the oil fields of the Middle East to the cornfields of the Midwest.” When we say renewable in this context, we’re not talking solar or wind. We’re talking biomass—basically, fuel derived from plant matter as opposed to petroleum oil. And we’re also talking about—I’m quoting from the statutes definitions here—fuel “used to replace or reduce the quantity of fossil fuel present in a transportation fuel.”
So basically, in the context of the RFS program, renewable fuel is fuel derived from biomass that’s used to substitute for some portion of fossil fuel in the fuel used by cars, trucks, and nonroad vehicles. When you fill up your car at the pump, and you see a sticker saying 10 percent ethanol, that’s one aspect of the consumer-visible end of the RFS program.
To simplify, a very complex process, here’s roughly how the RFS works: Congress provided EPA with a set of tables, setting out increasing annual volumes for each category of renewable fuel to be contained in “gasoline sold or introduced into commerce in the United States for that year.” As one example, for the total renewable fuel category, in 2006, the first year of the program, the table reads 4 billion gallons. It increases the next year to 4.7 billion, and the year after that to 9 billion, and for 2022, the final year on the table, it reads 36 billion gallons or a ninefold increase from 2006 to 2022.
But these congressional tables are just the starting point for how the actual regulatory obligation takes shape. EPA is supposed to set volumes for an upcoming year by November 30 of the previous year, and it does this through notice-and-comment rulemakings. EPA takes estimates from the Energy Information Administration, within the Department of Energy, that predicts the total amount of transportation fuel and a certain types of advanced renewable fuel that will be “sold or introduced into commerce in the United States for the next year.”
EPA makes certain adjustments and potentially exercises certain statutory waiver authorities to fiddle with the figures on the table. And at the end of all that, EPA derives volumes for each category of renewable fuel and expresses those terms in terms of a percentage of the nation’s fuel supply that have to be accounted for by each category of renewable fuel. It’s actually much more complicated than this. I’m simplifying to situate the issues in the case. So that’s where the topline volume in terms of number of gallons and percentage of the fuel supply comes from.
The actual regulatory obligation falls on so-called obligated parties. EPA, by rule, has decided that obligated parties are importers or domestic manufacturers of transportation fuel. And these are the folks, who at the end of each compliance year, have to demonstrate to EPA that of the fuel that they import or refine, a certain percentage of it is meeting, at a minimum, the percentage for the categories of renewable fuel the EPA sets the volumes and percentages for.
But the obligated parties are free to do so through a tradable credit program. These are the famous RINs, which stands for Renewable Identification Number. When each quantity of biofuel that appears in the United States has a RIN associated with it, and you get a RIN either by blending yourself into fuel or by purchasing the RIN from another party, who has either blended themselves or who has purchased or obtained the RIN in turn from a third party. At the end of the year, you true up, giving EPA your RINs, and RINs can be traded on a market that it is created and overseen by EPA.
Now, everyone agrees that Congress was aware that the RFS might have a disproportionate economic impact on small refineries and that Congress intended, at least, some relief for, at least, some period of time for the small refineries, but that’s about all that’s undisputed in this case. Congress itself defined what counts as a small refinery at 211(o)(1)(k). You have to have an average daily crude oil throughput of 75,000 barrels a day or less over a calendar year.
On the face of the statute, the size of the company that owns the facility is irrelevant. You can be the proverbial “Mom & Pop,” or you can be the biggest corporation in the world. Either way, your refinery or refineries are small if they’re under that statutory threshold, and they’re not small if they’re not.
A side note that’s important here: the applications for a small refinery exemption include even the fact and the identity of an applicant, certainly, all of the materials submitted with the application, are typically claimed as confidential business information by the applicant. Under EPA’s regulations, EPA has to treat this as confidential information, unless and until either a court or EPA decides that it’s not confidential information.
So apart from those parties, that have been publicly identified through their own choice or in the course of litigation, we’re going to be talking, and everybody talks in terms of aggregates, hypotheticals, and generalities here.
Let’s turn now to the terms of the small refinery exemption provision, which is 211(0)(9) 42 U.S.C. § 7545 subsection (o), paragraph (9). You see here that the exemption takes place in three phases.
The first of these phases, which is in subparagraph (a), is Congress itself provided a total across-the-board exemptions for all small refineries until calendar year 2011, i.e., for the first five years of the RFS program from 2006 through 2010 inclusive. For this period, if you’re a small, under the definition, you just don’t have to deal with the RINs at all.
Phase two, still in subparagraph (a), hinges on a Department of Energy study they’re supposed to do to determine whether compliance with the requirements of paragraph (2), which is the tables, basically, would impose a disproportionate economic hardship on small refineries. Department of Energy did this study and first determined that was not the case. There wasn’t hardship.
In appropriations language, Congress urged DOE to do this study again and to speak more with smaller refineries, and the new version of this study determined, for some baker’s dozen or more of refineries, there is hardship, and a two-year extension was afforded on that basis of the exemption.
Now, we turn to phase three, the current phase of the exemption program in subparagraph (o)(9)(B), and that’s what’s directly at issue in this case. This provides that at any time a small refinery may petition the administrator “for an extension of the exemption under subparagraph (a) for the reason of disproportionate economic hardship.” Now, EPA’s regulations, implementing this aspect of the RFS program, are key to one of the small refinery’s arguments, so I’m going to mention them here.
In 2010 regulation, your eligibility, whether you were a small refinery or not, was determined by looking at your throughput in 2006—the first year of the RFS program. In 2014, EPA proposed to amend this to require small status continuously from 2006 on, but they finalized a requirement that would look for eligibility in terms of whether you’re small at the year for which you’re applying for the exemption and the immediately preceding year. And EPA said disqualifying based potentially on only one year of exceeding the volume threshold would be unfair.
Now, I think we have enough background about the statute and the program to dive into the HollyFrontier case itself here. To recap, the Renewable Fuels Association, which represent biofuels interests, sued in the Tenth Circuit, challenging three EPA small refinery exemptions that EPA issued to facilities within the boundaries of the Tenth Circuit. And I do a pull quote here from the Tenth Circuit to just starkly illustrate its core holding.
The [tinsite 14:47] here is 948 F.3d at 1214. “The amended Clean Air Act allows the EPA to grant an extension of the small refinery exemption, not a standalone exemption in response to a convincing petition. This statute limits exemptions to situations involving ‘extensions’ with the goal of forcing the market to accept escalating amounts of renewable fuels over time. None of the three small refineries here consistently received an exemption in the years preceding its petition.”
And so the three exemptions were vacated because each of the three facilities had, at least, one year of the program where they hadn’t received an exemption. There were other issues decided, mostly revolving around the meaning of economic hardship, but those issues are not before the Supreme Court. But zoom out a little here. There’s two things going on in the Tenth Circuit’s opinion: text and purpose.
On the text side, the Tenth Circuit reasons that a common definition of extension is an increase in length or time. If you were to grant an extension after an interruption of one or more years, you’d “really be renewing or restarting it, not extending it.” They deal with the “at any time” text in subparagraph (B) in the third ad hoc EPA decision on petition phase that allows refineries to apply at any time.
The Tenth Circuit deals with that by saying, one, that just says when you can apply, not whether you’re eligible to receive. Two, they say, “Well, that does give you some benefit, even under the Tenth Circuit’s reading because what it means is that your application window is unmoored from EPA’s annual November 30th deadline to establish the volume and percentage obligations. That’s on the level of text.
Two, on the level of purpose: The Tenth Circuit, it’s a textual decision, but they affirm what they’re reading the text by looking at the purpose. They say it’s a funnel. They used that word towards compliance. Congress gave “a substantial amount of time to adapt, but after that, if you have one year where you don’t receive an exemption, you get to get with the program, from then on in perpetuity.” So much for the Tenth Circuit’s holding. En banc was denied, and then we move onto the Supreme Court.
At the stage of petition for certiorari, the Trump administration opposed cert. They said there’s no circuit split here. This is a bad vehicle because there are other grounds for vacatur and remand which petitioners haven’t challenged, again, that had mostly to do with the economic analysis, and they said there was no violation of core principles of statutory interpretation.
The Supreme Court granted cert. After the start of the Biden administration, on February 22nd, the same day I believe the petitioner refineries filed their merits brief, EPA announced in a press release that it had changed its position and that it decided that the Tenth Circuit’s reading was correct after all, and so they ended up filing the brief as a federal respondent.
If I can characterize, generally, the merits briefing. The petitioner refineries, their core arguments on text say that another common meaning of extension makes more sense here in the statutory scheme. It’s not just extending in terms of time or space, but it can be affording someone a certain treatment. I extend you an invitation. I extend to my enemies an olive branch.
But even as a fall back or an alternative, even if the Tenth Circuit is right that there’s a temporal meaning of extension of time, the petitioners say that does not rule out a renewal after a lax. Under either the extend means “afford treatment reading” or the extend means “grant more time reading,” neither of those requires a temporal continuity.
And then the phrase “at any time,” you can apply at any time, very broad unended temporal language drives this home. So much for the petitioners on text. On purpose, they note that the volumes, by congressional design, increase annually and that the market for fuel, and specifically for the RIN credits, fluctuate sometimes wildly. Congress knew this would happen, allowing for exemptions for smalls that need them at any time, even if they didn’t need or didn’t get them in a previous year, makes sense in terms of Congress’s broader energy independence purpose.
But the Tenth Circuit’s reading in which one good year, in which case you can comply with that hardship, knocks you out of eligibility and perpetuity, petitioners say that does not make sense. And then they say that the Court should afford Chevron deference to the 2014 EPA regulation in which speaking of whether you’re small or not, you weren’t held to your original position as an original 2006 small refinery fleet member, and then some discussion in the preamble there, which petitioners say would also apply in the context of whether you’re eligible, even apart from the definition of small refinery.
Now, the respondent’s briefs, in general, if I can synthesize them, both the federal government and the Renewable Fuels Association, on text, they note that subparagraph (B), which is the phase of the exemption program we’re talking about, the ad hoc EPA phase of the program, speaks of it as an extension of the exemption under subparagraph (a). If you don’t have that, you can’t have it extended. It’s temporal, and it’s continuous. In other words, extension in some other context might be able to mean affording or granting someone a certain treatment, but in this context, it can’t and, at any time, has any number of meanings.
The November 30th decoupling, where you can ask for multiple year lookbacks or what have you, or maybe in the DOE study, if you weren’t identified as having hardship in the DOE study in phase two of the program, but you could still go to EPA then and say, “Hey, give me one notwithstanding.” So the respondents offer a lot of readings as to what “any time” might mean other than perpetual eligibility once you have the discontinuity.
And then on purpose, they go all in on forcing a significant increase in renewable fuel production, giving significant maybe time to comply in this three-tiered exemption system, but the eventual policy goal is full compliance from all refineries. And then they say the 2014 Reg isn’t on point because that speaks to who’s small not which smalls are eligible, and they note the government no longer adheres to the position that petitioners are impugning to that regulation, even if that really were on point, and so the no Chevron should be given, they’re saying, where the government disclaims the position.
So I’ve gone a little over the 20 minutes, but I’d like to spend a few minutes characterizing today’s oral argument before we open it up for questions. Oral argument just concluded a few hours ago. It lasted for 100 minutes. It was very respectful, but you had a very engaged bench with tough questions and probing questions being asked to both sides. All three arguers both for the petitioner refineries, and then the federal government, and the Renewable Fuels Association split time to the respondents.
I would commend a transcript or the audio to all of you. I just took 10 single-spaced Word file pages of notes. Here’s my initial attempt to synthesize them. I’m not in the prediction business here, but I will say many had been surprised that the Court took this case, especially, over DOJ’s opposition to cert, and many were predicting a relatively easy affirmance. After this argument, I don’t know how many people are still thinking it’s easy, even if it is an affirmance at the end of the day. As for how the argument went, I’d like to split it again onto two main tracks of text and purpose.
In the modern Court, basically, all of the justices—with some grumbling from some—agree that absent extraordinary circumstances, plain text should win the day, or even text that in context, SCOTUS can gleam—that was Justice Barrett’s word today—can gleam what Congress meant. But purpose was very much at play in the argument here, including from some justices who are normally associated with the more or less strict textualist.
On the text, multiple justices seemed skeptical that a discontinuous reactivation of some status is really an extension, as opposed to a renewal or a restarting. There didn’t seem to be a lot of appetite for refineries’ argument that Congress elsewhere uses extension in that context. Refineries relying heavily on congressional language in the COVID relief context that had reactivated some benefits programs that had lapsed and referred to that as an extension. Didn’t get a lot of takers on that.
But on text, petitioners did have some points to make, especially, when you look at context. They noted that the heading of subparagraph (a), which is the earlier phases of the exemption program, blanket from Congress or after the study from energy, says temporary exemption. But then subparagraph (B), when you have the EPA run petition phase, doesn’t say temporary, and in (B) (iii), just calls it a hardship exemption with no reference to an extension at all.
Respondents have some contextual points, too, that they were firing back with though. They note and hammer home, (B) references (a). (B), they say, is an extension of the exemption under (a), and if (a) is continuous, then (B) has to be as well. On purpose, you’ve really got a mix bag here. Multiple justices expressed a lot of interest in the refineries’ argument that this statute had an energy independence purpose, and the exemption program, in particular, was very solicitous to the particular characteristics of small refineries, and that it just doesn’t make sense for one good year of an ability to comply to kick you out of the exemption program permanently, especially, as petitioners kept hammering home where the tables are explicitly designed to keep increasing the obligations on the program year over year.
Respondents were quick to reassure the justices that the respondents of the Tenth Circuit’s reading does not mean that all small refineries will now go out of business, including by pointing to other waiver authorities that EPA has elsewhere in the RFS program. As a matter of sort of political science, Justice Kavanaugh, who is no stranger to the Clean Air Act from his tenure on the D.C. Circuit, Justice Kavanaugh repeatedly noted that in his view, a real question here is who gets to decide on the separation-of-powers front?
Did Congress itself decide that once a refinery had elapsed an exemption, that refinery could never be eligible again? Or did Congress want EPA to decide that, based on the merits of an application, even from a refinery that had not sought or obtained an exemption every single year of the program but that might have an economic hardship case to make in the current year.
I’d like to end on one policy note, on the connection between the small refinery exemption program and the broader RFS program. And key to note here is that to my knowledge, this is the very first Renewable Fuels case—at least, under this program, post 2005—that the Supreme Court has taken. This is the question of the so-called top-up.
For a long period of time, EPA had declined to upward adjust the volumes it was setting, based on this anticipation of the exemptions that it might then give for that cycle, whereas biofuels interest had very much wanted that to happen so that the exemptions would still leave the actual numbers meaning as they say what Congress intended.
But in late 2019, EPA signaled that it would begin to do so in future rulemakings. EPA, for that reason, may be very reluctant to make any move on the broader RFS until SCOTUS designs this case, not just because of the implication for small refineries exemptions but even on the implication for how EPA administers the broader program of setting the volumes and percentages. That concludes my remarks. I’m happy to entertain any questions that folks may have.
Evelyn Hildebrand: Wonderful. Thank you so much. We’ll now go to audience questions. And while we’re waiting for audience members to join the queue to ask a question, were there any surprises that you found in oral argument, any questions that were particularly surprising to you or perhaps a justice who approached the issue from a perspective that was different than what you anticipated?
Justin Schwab: That’s a great question, and, yes, there were. I’ll just go through a couple of examples of them here. I had teased this a little by saying that all justices, but some with a little grumbling, will acknowledge in this era that the text should always control, and I was thinking there mostly of Justice Breyer.
Justice Breyer makes no bones as being the most purposivist and with an eye towards what it is practically that the agency and administrative statutes is being tasked to do. And when Justice Breyer starting questioning the government, he went more or less exactly in that direction. He asked the government, “Am I right—” I’ll be Justice Breyer here; I won’t do the imitation. I’ll leave that for Professor Eskridge.
“Am I right that this is a trading program and a marketable right analogous to the right to pollute in a credit program?” The government said, “Yes.” And Breyer says, “Okay. Am I right that this is a wildly fluctuating market, both the RINs and maybe the fuel in general?” I’m paraphrasing. I’m synthesizing different parts of the questioning. The government said, “Yes.” He says, “Okay, then how the heck does it make any sense that the exemption would be requiring continuous, when who knows versus who’s going in and out of the market, and the RINS, and this and that, and the fluctuations of the market. We like this flexible design.
But why if you have a good year, or a couple of good years, are you then all of a sudden, when the market of the RIN, or whatever, might turn against you to not be able to apply?” And the government said, “Well, there was this five-year blanket exemption.” Justice Breyer said a little, not heated, but a loud voice, “It doesn’t matter. After five years, you’ve still got the same kind of fluctuation going on.”
So that was an old school question of “Okay, what are the practicalities here?” but tied back into the intertextual and textual reading. He wasn’t going pure purpose. He wasn’t saying disregard this statute. Later on, he did request some legislative history. I believe he asked for that from the fuel’s interest, just say – and if you give me a second, I can do a control-F here on my notes. Well, I don’t actually have that, but he was asking for some legislative history to say, “I want the DOE study.” Here it was. Justice Breyer was noting in real time, I think, that the DOE study says, at least, two years of exemption under the blanket, or pseudo blanket, DOE study. It could've been 50 years. So what’s your legislative history tell me they wanted to wrap this up quick, and they wanted to kick people into compliance. So that was interesting from Justice Breyer.
Justice Gorsuch – and it’s well known that Justice Gorsuch is very interested in questions of Chevron and Auer, etc., as are they all, but he was famously so, even before his elevation to the high court. Justice Gorsuch was the only one who really went into the Chevron argument based on the 2014 Reg. And Justice Gorsuch was the one who noted the fact that EPA had changed position on the ultimate question of eligibility and continuity in a press statement. He said those words directly and with some heat behind them, and so he was the one who came the closest towards teeing up the Chevron question and the question of EPA’s eligibility regulations on the question of who’s small.
Other highlights from argument, I would say, multiple justices, including Justice Alito, reframe this and say, “Okay. Is this a sunset provision?” The government said, “Yeah. It’s a sunset.” And then Justice Alito said, “Well, this is a weird kind of sunset, right? It’s not a—” And the counsel for the petitioners had made a similar point in his [inaudible 31:10]. “It’s a very unique sunset,” they’re saying, “that is just up to the vagaries of when each individual recipient of the extension might fall out of eligibility or not even bother to apply for one year.
And an analogy was given by the questionee there, to say, “Well, it’s like a Visa program. If I come in, and I’m here on a Visa, I might run out and then not be able to re-receive it, but that’d be based on the circumstances of where I’m staying, or my employer, or anything like that.” And so that was some of the questioning there.
I would stress that especially the government, to a lesser extent, the fuels party, stressed over and over again that the Tenth Circuit’s reading of the statute, under which you have to have continuously received the exemption in order to be eligible to receive an extension of that exemption in the current regime, they said that will not force all smalls out of business. They place a lot of emphasis on the view that the cost of the RIN can ultimately just be recovered and passed through to the consumer, and they said, “Look, to our knowledge, only one small has gone out of business in recent years, and plenty of folks, small or not small, have in fact been able to comply.”
So there was a lot of empirical stuff being thrown in there. A question whether all that’s really in the record, but the justices seemed willing to entertain it, at least, for the purposes of argument. And again, very heavy – despite the textual grounding, a very heavy purpose of his flavor to all of the arguments, and frankly, questioning, on both sides and of all questioners.
And I want to note here, SCOTUSblog, with all respect to that great institution. I don’t mean that sarcastically. They’re a wonderful outlet, a wonderful service, but SCOTUSblog’s remarks said something like, “The fate of fuel standard may hinge on one word: the word extension.” And I think that with respect to SCOTUSblog that it’s a little too narrow a frame because you don’t just have the one-word extension; you have the tie-in between the different history phases of the program. You have the “at any time,” and then you have “heavy purpose,” even heavier I think coming out of questioning and argument than it was evident on the face of the briefs themselves.
Evelyn Hildebrand: Fantastic. Thank you. And I will now hand the floor over to our first question.
Caller 1: Just a quick question, Justin, facts matter and implications matter, so could you talk about why – if the association wins, what the RFA, what do they win if the other side – what’s the practical impact of having the Tenth Circuit’s decision stand or not for the real people on the ground, and what would happen next if there is a vacatur of the Tenth Circuit decision?
Justin Schwab: So that’s an excellent question. On the first point, if the Tenth Circuit is affirmed – so just a recap, as a matter of law what that means is that a small refinery is not eligible to receive an exemption from the RIN requirement, unless they have continuously received an exemption for each year of the RFS program, whether from Congress, whether based on the Department of Energy study, or now in the third phase of the EPA regime. So if you haven’t continuously gotten it, you’re out of luck.
Now, the practical impact here, I think everybody agrees is that would significantly narrow the set with small refineries in the country that are even eligible to apply for the exemption, let alone they then still have to make the showing that they have disproportionate economic hardship within the meaning of the statute.
Because of the confidential business information aspect that I mentioned at the beginning, no one, apart from certain folks, maybe, in EPA or in the industry, are completely sure as to how large the universe of folks who continuously receive the exemption every single year since 2006, and therefore would still be eligible to apply. But I think everybody agrees it’s quite few, and I think it’s publicly been thrown around by various entities and parties that it could be not just one hand but one finger. I don’t know. I cannot speak to that personally, both because the confidentiality and frankly because I was on the law side, not the policy side, and because I left before the briefing really heated up at the en banc and then search stage in this case.
So it would significantly reduce the universe of folks and maybe eliminate of folks who are eligible to apply for these exemptions. That would mean on the papers from the refiners that there would be – at a minimum, they would say price increases in terms of those refineries’ products that would have to be passed on because they would now have to comply in full with the RIN obligation, and it could lead potentially the petitioners stress. The geographic remoteness and isolation, especially in the Rocky Mountains, Great Plains, and broader west of the country, that there are some areas where there’s only one small serving a whole bunch of folks. What’s going to happen with those? They don’t know.
So that would be, I think, the refineries, and maybe the broader industry, definitely, the small refiner’s view of the consequences. On the respondents here, the federal government and the Fuels Association stressed that there were other tools under the statute to deal with really severe economic impact, but the petitioner’s counsel, I believe, noted, that those other waiver authorities operate at a general national level for EPA to fiddle with the numbers in gross across the board, whereas, they asserted that the small refinery exemption is the only one that’s targeted to afford relief to particular individual parties and facilities. So that’s the universe, I think, that you’d be in is potentially hard straights or small refiners.
The flip side of that is, if the Tenth Circuit’s judgment is reversed on this question, and Justice Kavanaugh’s frame on the question of eligibility, it would be EPA choosing whether individual or small refiners can demonstrate a disproportioned economic hardship, rather than construing Congress to just shut the door once there’s a break in continuity of the exemption. But there are still other issues in the Tenth Circuit’s remand to EPA, having to do with the economic analysis, where cert was not sought but alone granted and where that’s still going to have to be worked out.
So for this particular facilities, in theory, they are not necessarily going to get it, even if the Tenth Circuit is reversed on the statutory interpretation question. In that regard, I’d like to note a side issue. Remember that the petitioner refineries have two readings of extension. One of them has nothing to do with temporal extension at all and just says I afford you treatment, which earlier was afforded to a separate or smaller group of folks. Under that reading, if you’re a small refinery – this was the very first question, I think, that the Chief Justice asked at the beginning of the argument to petitioners.
Under that reading, my understanding is, even if you were a small refinery that was constructed after the statute was passed and after the program began, and you’re not in the original blanket exempted class of 2006—even up by Dolton, 2015 as a small—I can still apply. I’m still eligible to apply under the fallback reading that the petitioners offer, and certainly under the Tenth Circuit’s reading, those folks are not eligible to apply. That’s all I have to say about that.
Evelyn Hildebrand: Great. Thank you. And while we’re waiting for additional questions, I just wanted to ask if you know of other cases or other issues that face a similar situation where this decision will have a direct impact?
Justin Schwab: It will have a direct impact on first – well, cases on the administrative docket, yes, absolutely. In terms of administrative adjudication, this is going to be massively important to the future, certainly, of the exemption program but also potentially, as I alluded to at the end of my prepared remarks, even for setting the volumes and the percentages in the first place.
Because if the Tenth Circuit is affirmed, and if you have a narrow or potentially [inaudible 39:20] set of facilities that are eligible to apply for the extension, then it seems like there would be no need to overshoot the volumes, based on your anticipation, that some of that’s going to be backed out through exemptions.
Anybody with a pending extension application, this is obviously going to be the first – let me back up a little. This is the first time the Supreme Court is going to speak to RFS program at all, and so anybody who practices law, in any aspect of the program, is going to be looking for anything, even if it’s dicta, even if it’s just a recitation of facts.
If it’s the Supreme Court imprimatur, you as a practitioner—certainly, when you’re dealing with the agency or negotiating with other folks in the private sector, and certainly when you get into court at any level—you’re going to milking that for all it’s worth because it is the high court of the land. And then especially when you get to the question of small refinery exemptions, this is going to decide the ballgame for a lot of them.
I want to note here that there’s another case that this reminds me of, and maybe, some other practitioners in [inaudible 40:20] are reminded of: if we think of then Judge Kavanaugh’s majority opinion in the Mexican case, from August I think it was, or 2017, where over a dissent from Judge Wilkins in the Title VI Clean Air Act stratospheric ozone protection context, then Judge Kavanaugh joined by then Judge Brown—she has since retired—held as a matter of Chevron One, the word replace is something that can only happen once, one time only. Well, this isn’t a Chevron case, or, at least, the Tenth Circuit didn’t view it that way. Although, petitioners are trying to introduce Chevron here at the Supreme Court.
But you similarly have here a court that looks at word “extension,” which the Court acknowledges may have multiple meanings in the dictionary or elsewhere, but then says, “Based on the context here, it’s this one,” and then looks heavily to purpose to confirm it. Just something similar to think about, put that together with the Mexican case in your head and just let it roll around, maybe, some sparks would come out of that for potential future negotiation and advocacy in other administrative law context.
Evelyn Hildebrand: Fantastic. Thank you. We do have another caller in the queue. You have the floor. Go ahead, caller.
Caller 1: Hey, Justin. It’s me again. So one question on something you just mentioned, just do you think that there could be some useful dicta around the RFS program that was purposes, and then also, just to put you on the spot, who’s going to write?
Justin Schwab: Oh, gosh. So on the first question, yes, I think that given that one or more of the – assuming multiple writings—or even if it’s a unanimous writing, although, I think that looks a lot less likely now than it did five hours ago—they’re going to have to explain how we got here. You notice it took me 10-plus minutes just to even get to the facts of the case on the opinion of the Tenth Circuit. They’re going to have to do something similar, and so they’re going to be talking a lot about the structured-design history purpose text of the RFS generally. And so that’s going to be an absolute field day for every practitioner. It would be, I think, malpractice, for anybody who practices in this area, not to start treating this as not the absolute holy writ but as a massively important document for whether it’s dicta, whether it’s a loose by analogy, they’re going to hammer it home not just in the question of exemptions but also when it comes to certainly the core of the program, which is setting the volume and percentage obligations.
It’s worth noting here, the tables are about to run out. The 2022 year, which is supposed to be done by notice-and-comment rulemaking, the volumes are supposed to be set by November 30 of this year, 2021. Because 2022, that’s the final line of the statute. And then after that, you can see EPA is going to be largely on its own. It’s going to have those last year of the tables, but then absent legislation’s going to venture out into new ground.
And so anything the Supreme Court says here is going to be mined by every interested party on all sides of these issues: in administrative comment, in negotiation and advocacy to the agency. Think of even ancillary issues, like what kind of RINs are eligible, and ERINs, and all that stuff. In the same way, if you look at every major SCOTUS case—the ones that end up getting cited 10s of 1,000s of times, like Chevron, or a Miranda, or whatever—it’s not going to be at that level.
But it’s going to be cited – whatever they write will be cited quite a lot. And then, oh, my gosh, in terms of author, if the Chief is a majority, he might keep this one for himself. There’s a possibility Gorsuch could get it. If it’s an affirmance of the Tenth Circuit, I think you could quite well see Justice Kagan getting it. But I’m getting out of comfort zone in terms of very specific predictions here, so maybe, I’ll go with the Chief, and I’ll say if it’s not necessary to say more, then it’s necessary not to say more.
Caller 1: Did you get a sense that they appreciate, what you just said, that this is the only case that’s really gone up and that this program has huge economic implications for the country, so there’s a lot of people watching it. I know that they grant cert, so obviously, they care about the question, but a lot of times, they don’t necessarily pay attention to things like what the practical impact is.
Justin Schwab: It’s a very good point. You’re right, that they certainly often don’t. I would say a little more than – so if it’s a criminal case, if it’s a First Amendment case, then, yes, obviously they’re always very well attuned to what I’ll call the human or the real-world implications of what they’re doing. When it comes to administrative law, we who practice administrative law know that this is ultimately people in reality also, but it does get a little fuzzier sometimes in court, especially, the high court.
I would say, here, given the heavy purpose flavor of a lot of the questioning and a lot of the argument, I think reality was a little more closely upfront, right, than would otherwise sometimes be the case. Justice Sotomayor, I believe, at some point, actually used the phrase and said, “I want to return us to economic reality here, and I want to clearly focus on the policy question at issue is, is Congress’s ultimate intention everybody’s got to come into compliance,” and maybe, they’re making – some tough decisions are going to have to happen, or is it not? So whichever side the questioning was suggesting the justice might be leaning, I think, yes, many, if not all, of them were careful to have a touchstone to, and what’s that actually going to mean in reality?
Evelyn Hildebrand: Great. Thank you.
Caller 1: Thanks. That was helpful.
Evelyn Hildebrand: Oh, I apologize. Go ahead.
Caller 1: No, I was just saying that was a helpful answer.
Justin Schwab: I’m glad you think so.
Evelyn Hildebrand: Great. Wonderful. I apologize for cutting you off there. If you have any final comments that you would like to make, Justin, please feel free to do so as we are approaching the end of the program today.
Justin Schwab: I’d just like to thank folks for tuning in and thinking about this. Again, I commend the transcript and basically the audio of what was a very engaged and lively argument today. And I think this will be a very – the first major – well, [inaudible 46:47] petitioners would disagree. The first major Clean Air Act case has been argued under this administration. Very, very interesting, especially, given the government’s late-minute change in position. Very interesting to see how this one shakes out. Thanks, everybody. I hope you all have a good day.
Evelyn Hildebrand: Thank you. And behalf of The Federalist Society, I want to thank our expert, Mr. Justin Schwab, for the benefit of his valuable time and expertise today, and I want to thank our audience for calling in and participating. We welcome listener feedback by email at email@example.com.
As always, keep an eye on our website and your emails for announcements about upcoming teleforum calls and virtual events. And we do have a teleforum coming up this afternoon, a little bit later this afternoon, at 3:00 PM on the Supreme Court’s oral argument in U.S. v. Palomar-Santiago. That’s at 3:00 PM. Thank you all for joining us today. 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.