On June 25, 2021, the Supreme Court, reversing the Tenth Circuit, held that a small refinery that had previously received an exemption from certain requirements of the renewable fuel standard (“RFS”) program was eligible for an extension of that exemption, even if it had had a lapse in coverage in previous years. See HollyFrontier Cheyenne Refining, LLC, v. Renewable Fuels Association, et al., Slip Op. 20-472 (June 25, 2021). Petitioners, three small fuel refineries, had each applied for a hardship exemption under the RFS program, and the Environmental Protection Agency (“EPA”) had granted each request. Those exemptions were then challenged by a group of renewable fuel producers. The Tenth Circuit ultimately sided with the renewable fuel producers, holding that because each refinery had allowed its previously held exemption to lapse at times in the past, each was no longer eligible to receive an extension of the original exemption. After hearing oral argument in April 2021, the Supreme Court reversed the Tenth Circuit and held that the text of the statute does not require that the exemption be continually held in order to remain valid.

The RFS program requires that domestic refineries blend a certain amount of ethanol and other renewables into the fuels that they produce. See 42 U.S.C. § 7545(o). When refineries create blends meeting certain requirements, they earn credits which can then be used to demonstrate compliance with the program. Refineries are also allowed to sell any excess credits they generate to a different producer in need of additional credits. The statute originally exempted all small refineries (defined as refineries that produce, on average, fewer than 75,000 barrels per day annually) from the requirements of the program; that blanket exemption expired in 2011. See id. § 7545(o)(9)(A)(i). The RFS program then gave EPA the discretion to extend the original exemption for at least two years if the RFS obligations would impose a “disproportionate economic hardship” on a given small refinery. Id. § 7545(o)(9)(A)(ii). Finally, the RFS program provides that a “small refinery may at any time petition the Administrator for an extension of the exemption under subparagraph (A) for the reason of disproportionate economic hardship.” Id. § 7545(o)(9)(B)(i) (emphasis added).

At issue was whether a small refinery could petition for (and receive) an extension of the hardship exemption codified at § 7545(o)(9)(B)(i) when it had allowed its previous exemption to lapse. Put differently, the Supreme Court had to determine whether the word extension “imposed a continuity requirement” on small refineries’ ability to obtain the hardship exemption. See HollyFrontier Cheyenne Refining, LLC, v. Renewable Fuels Association, et al., Slip Op. 20-472 at 6. In writing for the 6-3 majority, Justice Gorsuch noted that because the word “extension” was not defined in the statute, the Court had to analyze the plain meaning of the word as well as the word’s use in the context of the statute. The Court also discussed whether it was Congress’s intent for the small refinery hardship exemption to be available in perpetuity, or whether Congress intended for the exemption to sunset.

The Court found that the plain meaning of the word extension does not require continuity and cited real-world examples in its analysis. The Court wrote: “It is entirely natural—and consistent with ordinary usage—to seek an ‘extension’ of time even after some lapse. Think of the forgetful student who asks for an ‘extension’ for a term paper after the deadline has passed, the tenant who does the same after overstaying his lease, or parties who negotiate an ‘extension’ of a contract after its expiration.” Id. In other words, in the absence of a modifying word like “consecutive” or “successive,” society frequently allows lapsed agreements to be extended. Therefore, the lapse in the Petitioners’ exempt status should not have prevented them from petitioning EPA for an extension of that exemption in later years.

The Court also found that the word extension does not carry a continuity requirement when read in the context of the statute. Noting that subparagraph (B)(i) authorizes small refineries to seek hardship exemptions “at any time,” the Court wrote: “‘At any time’ does not connote a demand for some rigid continuity so much as its opposite—including the possibility that small refineries might apply for exemptions in different years in light of market fluctuations and changing hardship conditions, whether consecutively or otherwise.” Id. at 9.

Finally, in determining whether the statute was designed to sunset the hardship exemption over time, the Court returned to the phrase “at any time.” The Court wrote that if Congress desired the exemption to be sunset, not explicitly saying so (and especially in conjunction with the phrase “at any time”) was an “odd way to achieve it.” Id. at 11. As a result, the Court held that it was much more likely that Congress did not intend to phase out the exemption. After considering all of the above (as well as public policy), the Court held that the text of the statute must control its analysis, and that the text of the statute did not impose a continuity requirement on the extension of the hardship exemption. Accordingly, the Court reversed the Tenth Circuit’s decision to vacate EPA’s grant of the hardship exemption to the three small refineries.

Writing for the dissent, which included Justices Sotomayor and Kagan, Justice Barrett argued that “[t]he statute’s text and structure direct a clear answer: EPA cannot ‘extend’ an exemption that a refinery no longer has,” and that “the Court’s contrary conclusion caters to an outlier meaning of ‘extend’ and clashes with statutory structure.” Id. at 1 (Barrett, J., dissenting). The dissent argued that the Tenth Circuit was “spot on” when it reasoned that the “ordinary definitions of ‘extension,’ along with common sense, dictate that the subject of an extension must be in existence before it can be extended.” Id. (quoting Renewable Fuels Assn. v. EPA, 948 F. 3d 1206, 1245 (2020)).

For its part, EPA said that it is reviewing the opinion: “We understand this decision has implications for our current ongoing Renewable Fuel Standard rulemaking activities and petitions from small refineries currently pending before the agency.” Therefore, the ongoing battle over the small refinery hardship exemption and the RFS program itself is likely to continue for the foreseeable future.