Pursuant to the Renewable Fuel Standard (“RFS”), the U.S. Environmental Protection Agency (“U.S. EPA”) issues annual renewable volume obligations (“RVOs”), which set the minimum aggregate volume of renewable fuel that refiners must blend with transportation fuel for the following calendar year.
Refineries producing transportation fuel meet their RVOs by blending the required volume of renewable fuel into gasoline or diesel fuel or by acquiring credits (called renewable identification numbers, or “RINs”). The RFS permits “small” refineries – those producing fewer than 75,000 barrels of fuel per day – to claim an exemption by showing that meeting their RVOs would cause them “disproportionate economic hardship.”
In 2018, renewable fuels groups alleged U.S. EPA had granted an unprecedented number of such exemptions without accounting for RVOs erased by the exemptions (which would have otherwise been met by purchasing renewable fuels or RINs). They claimed the exemptions totaled nearly 2.25 billion gallons of lost renewable fuel demand (which industry groups call “lost volumes”) and had undercut demand for their products by billions of dollars.
The issue came to a head in the June 2021 U.S. Supreme Court matter HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association, 141 S. Ct. 2172, 210 L. Ed. 2d 547 (2021). The central question in HollyFrontier was whether a refinery which had obtained an RVO exemption on the grounds of “disproportionate economic hardship” and then allowed such exemption to lapse (and then met its RVO during the period of lapse), could later claim the same benefit again by seeking to extend that previously lapsed exemption. In the Renewable Fuels Association’s view, the refinery’s ability to meet its RVO while the exemption had been lapsed, was proof that such refinery would not, in fact, suffer any “disproportionate economic hardship” without the exemption.
By a 6-to-3 vote, the U.S. Supreme Court held that a “small refinery can apply for (if not always receive) a hardship extension… ‘at any time,’ even after having previously met its RVO. Justice Breyer joined Chief Justice Roberts and Justices Thomas, Alito, Gorsuch, and Kavanaugh in the majority, while Justices Barrett, Sotomayor, and Kagan dissented.
Although showing favor to refineries, the Court’s narrow decision in HollyFrontier provided adequate leeway for U.S. EPA to limit the number of exemptions granted to small refineries going forward. The Biden administration’s focus on climate change and the growth of renewable energy sources suggests that U.S. EPA may seek to limit such exemptions as were the subject of HollyFrontier and require small refineries to strictly adhere to RFS requirements, including by meeting their respective RVOs. If this happens, RNG developers are likely to see the value of RINs and related environmental attributes and credits increase as parties obligated under the RFS find it increasingly harder to secure RVO exemptions.