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Hermes Consolidated, LLC v. Environmental Protection Agency

United States Court of Appeals, District of Columbia Circuit

June 2, 2015

HERMES CONSOLIDATED, LLC, DOING BUSINESS AS WYOMING REFINING COMPANY, PETITIONER
v.
ENVIRONMENTAL PROTECTION AGENCY, RESPONDENT

Argued: November 12, 2014.

Page 569

[Copyrighted Material Omitted]

Page 570

On Petition for Review of Final Agency Action of the United States Environmental Protection Agency.

Eric D. Miller argued the cause for petitioner. With him on the briefs were LeAnn Johnson Koch and William Pedersen.

Justin D. Heminger, Attorney, U.S. Department of Justice, argued the cause for respondent. With him on the brief was Sam Hirsch, Acting Assistant Attorney General.

Before: GARLAND, Chief Judge, and TATEL and SRINIVASAN, Circuit Judges.

OPINION

Page 571

Srinivasan, Circuit Judge.

The Environmental Protection Agency administers a renewable fuels program under which oil refineries must satisfy annual obligations concerning production of renewable fuels. Petitioner Wyoming Refining Company operates an oil refinery located in Newcastle, Wyoming. WRC is subject to EPA's renewable fuels program, but obtained an exemption through 2012. WRC unsuccessfully petitioned EPA for an extension of its exemption through 2014. The company now seeks review of EPA's denial.

We reject WRC's various challenges other than those identifying two mathematical errors in EPA's independent analysis of WRC's financial data. EPA concedes those errors, and we are unable to conclude that EPA would have reached the same decision absent its mistakes. We therefore vacate EPA's decision and remand

Page 572

to allow the agency to reevaluate WRC's petition using the correct figures.

I.

A.

In 2005, Congress amended the Clean Air Act to encourage increased use of renewable fuels in the United States. As part of that statutory scheme, Congress prescribed target volumes of renewable fuels for use in each year through 2022. In 2015, for example, the statute calls for consumption of 20.5 billion gallons of renewable fuels. 42 U.S.C. § 7545(o)(2)(B)(i)(I). The statute vests EPA with authority to develop a renewable fuels program to secure satisfaction of the annual benchmarks. Id. § 7545(o)(2)(A)(i).

The statute calls for the Energy Information Administration (a component of the Department of Energy) annually to estimate the total amount of transportation fuel expected to be sold in the United States in the upcoming year. Id. § 7545(o)(3)(A). EPA then divides the renewable-fuels benchmark set out in the statute by the overall fuel estimate provided by DOE, yielding a " volume percentage" requirement for the year. For example, if DOE projects the use of 100 billion gallons of fuel in a year for which the statute requires the use of 20 billion gallons of renewable fuels, the " volume percentage" for that year would be 20%. Obligated parties under the regulations--namely, refineries and importers of fuel--must demonstrate that they meet a pro-rata share of the overarching renewable fuels volume obligations based on that " volume percentage." See 40 C.F.R. § 80.1406(a). Under a volume percentage of 20%, for example, an obligated party producing 100,000 gallons of fuel in a year would have a renewable fuels volume obligation of 20,000 gallons.

Obligated parties, however, are not necessarily required to produce and blend renewable fuels themselves. Instead, they demonstrate compliance through a system of Renewable Identification Numbers (RINs). Each gallon of renewable fuel produced for use in the United States generates its own RIN. Id. § 80.1426(a). RINs attach to the physical volume of the renewable fuel, but become " separated" from renewable fuel batches upon blending of the renewable fuel into conventional fuel. Id. § § 80.1426(e), 80.1429(b). After blending, RINs may either be retained by the blending party or sold to other obligated parties. Id. § § 80.1427(a)(6), 80.1451. As a result, parties who purchase an adequate number of RINs can comply with their renewable fuels obligations without producing or blending renewable fuels themselves. Each year, obligated parties must to submit to EPA a list of RINs in fulfillment of their renewable fuels obligations. A RIN is retired upon submission to EPA. See id. § 80.1427(a)(1).

The mechanics of the RIN system mean that obligated parties incapable of blending must rely disproportionately on the RIN market. Because small refineries generally have more limited blending capacity than larger refineries, they often need to acquire a large number of RINs from the market in order to meet their annual obligations. Congress, aware that small refineries would face greater difficulty complying with the renewable fuels requirements, created a three-tiered system of exemptions to afford small refineries a bridge to compliance.

First, the statute granted all small refineries (defined as refineries with crude oil throughput averaging 75,000 barrels or less per day) an exemption from the renewable fuels program through 2011. 42 U.S.C. § 7545(o)(9)(A)(i), (o)(1)(K). That blanket exemption gave small refineries

Page 573

time to develop compliance strategies and increase blending capacity. Second, the statute directed DOE to conduct a study " to determine whether compliance . . . would impose a disproportionate economic hardship on small refineries." Id. § 7545(o)(9)(A)(ii)(I). If DOE determined that any small refinery " would be subject to a disproportionate economic hardship if required to comply with" the renewable fuels program, EPA was required to extend the exemption for that refinery " for a period of not less than 2 additional years." Id. § 7545(o)(9)(A)(ii)(II). Third, the statute enables a small refinery to initiate an inquiry into disproportionate economic hardship at any time by " petition[ing] the [EPA] Administrator for an extension of the exemption . . . for the reason of disproportionate economic hardship." Id. ยง 7545(o)(9)(B)(i). When evaluating a petition for ...


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