Sinclair Wyo. Ref. Co. v. U.S. Envtl. Prot. Agency
| Decision Date | 15 August 2017 |
| Docket Number | No. 16-9532,16-9532 |
| Citation | 867 F.3d 1211 |
| Parties | SINCLAIR WYOMING REFINING COMPANY, and Sinclair Casper Refining Company, Petitioners, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, Respondent. State of Wyoming, Amicus Curiae. |
| Court | U.S. Court of Appeals — Tenth Circuit |
In an amendment to the Clean Air Act (CAA), Congress directed the EPA to operate a Renewable Fuel Standards Program (the RFS Program) to increase oil refineries' use of renewable fuels. But for small refineries that would suffer a "disproportionate economic hardship" in complying with the RFS Program, the statute required the EPA to grant exemptions on a case-by-case basis.
We conclude the EPA has exceeded its statutory authority under the CAA in interpreting the hardship exemption to require a threat to a refinery's survival as an ongoing operation. That interpretation is outside the range of permissible interpretations of the statute and therefore inconsistent with Congress's statutory mandate. Because we find that the EPA exceeded its statutory authority, we vacate the EPA's decisions and remand to the EPA for further proceedings.
In the Energy Policy Act of 2005, Congress amended the CAA to encourage the use of renewable fuels. The statute's RFS program requires oil refineries to either produce a sufficient proportion of renewable fuels as part of their output or purchase credits generated by other refineries to meet their increased renewable-fuel obligations. See 42 U.S.C. § 7545(o); 40 C.F.R. § 80.1429. But Congress also directed that small refineries may receive a statutory exemption if participation in the program would cause them "disproportionate economic hardship." 42 U.S.C. § 7545(o)(9)(B).
Through the RFS Program, Congress prescribed annual target volumes for renewable fuel sales, which increase each year until reaching a maximum level in 2022.1 Congress charged the EPA with implementing the RFS Program and empowered it with authority to alter the statutory volumes of renewable fuel if the EPA finds that the RFS Program is causing severe economic or environmental harm or there is an inadequate supply of domestic renewable fuels. The EPA must also consult with the Department of Energy (DOE) in exercising this power. See 42 U.S.C. § 7545(o)(7). The statute further requires "obligated parties," including "refineries, blenders, and importers," to comply with the RFS Program. 42 U.S.C. § 7545(o)(3)(B)(ii).
Under the EPA's accompanying regulations, an obligated party must satisfy its Renewable Volume Obligation each year by holding sufficient credits, known as Renewable Identification Numbers (RINs), at the end of each compliance year. A RIN is created when a producer makes a gallon of renewable fuel, blends the renewable fuel with petroleum-based fuel, and sells the resulting product domestically. 40 C.F.R. § 80.1429. An obligated-party can accumulate RINs to meet its RFS Program requirement by: (1) blending renewable fuels into petroleum-based fuel and selling the product domestically; or (2) obtaining RINs through another source, such as the RIN trading system Congress directed the EPA to establish. See 42 U.S.C. § 7545(o)(5). Put simply, the program induces refineries to produce renewable fuel products (e.g., ethanol), and if they cannot, to purchase biofuel-generated credits from refineries that can.
Congress was aware the RFS Program might disproportionately impact small refineries because of the inherent scale advantages of large refineries and therefore created three classes of exemptions to protect these small refineries.
First, the statute exempted all small refineries from the RFS Program until 2011. 42 U.S.C. § 7545(o)(9).
Second, in the meantime, Congress directed DOE to conduct a study "to determine whether compliance [with the RFS Program] ... would impose a disproportionate economic hardship on small refineries" after the program's implementation. 42 U.S.C. § 7545(o)(9)(A)(ii)(I). DOE conducted the study in 2011 and determined that a number of small refineries, including Sinclair's two Wyoming refineries, would suffer "disproportionate economic hardship" if they were required to comply with the RFS Program.2 Accordingly, the EPA extended the blanket exemption for two more years.
Third, after the exemption period expired, Congress provided a process for small refineries to petition the EPA "at any time" for an extension of the initial exemption "for reason of disproportionate economic hardship." 42 U.S.C. § 7545(o)(9)(B)(i). In evaluating these petitions, the EPA must consult with DOE and consider the findings of DOE's study in addition to "other economic factors." 42 U.S.C. § 7545(o)(9)(B)(ii).
This third exemption is at issue in this case.
Sinclair owns and operates two refineries in Wyoming: one located in Sinclair Wyoming, and another in Casper, Wyoming. Both fall within the RFS Program's definition of "small refinery" and were exempt from the RFS requirements until 2011. Those exemptions were extended until 2013 after DOE found Sinclair's Wyoming refineries to be among the 13 of 59 small refineries that would continue to face "disproportionate economic hardship" if required to comply with the RFS Program.
Sinclair then petitioned the EPA to extend their small-refinery exemptions, arguing that both refineries would continue to suffer "disproportionate economic hardship" under the RFS Program. The EPA denied Sinclair's petitions in two separate decisions, finding that both refineries appeared to be profitable enough to pay the cost of the RFS Program. Sinclair filed a timely petition for review with this court. We grant Sinclair's petition for review, vacate the EPA's decisions for both of Sinclair's refineries, and remand for further proceedings consistent with this opinion.
We review Sinclair's petitions under the Administrative Procedure Act (APA). The APA requires courts to consider agency action in conformity with the agency's statutory grant of power, and agency action is unlawful if it is "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right." 5 U.S.C. § 706(2)(C). See generally id. § 706 ().
We review questions of statutory interpretation de novo. EnergySolutions, LLC v. Utah, 625 F.3d 1261, 1271 (10th Cir. 2010).
When a court reviews an agency's legal determination, it generally applies the analysis set out by the Supreme Court in Chevron v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Under Chevron, reviewing courts apply a two-step analysis. Chevron step one asks "whether Congress has directly spoken to the precise question at issue." Id. at 842-43, 104 S.Ct. 2778. If Congress's intent is clear, then both the court and the agency "must give effect to the unambiguously expressed intent of Congress." Id. at 843, 104 S.Ct. 2778. Courts determine Congress's intent by employing the traditional tools of statutory interpretation, beginning — as always — with an examination of the statute's text. See New Mexico v. Dep't of Interior, 854 F.3d 1207, 1223-24 (10th Cir. 2017). But, if Congress has "not directly addressed the precise question at issue" — if "the statute is silent or ambiguous with respect to the specific issue" — the court must determine at Chevron step two "whether the agency's answer is based on a permissible construction of the statute." Chevron, 467 U.S. at 843-44, 104 S.Ct. 2778.
In some circumstances, however, a court never reaches the Chevron analysis. In such cases, we do not need to answer the step one or step two questions. As the Supreme Court explained in United States v. Mead Corp., 533 U.S. 218, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001), the initial step of the Chevron inquiry is actually to determine whether Chevron should apply at all. See Cass R. Sunstein, Chevron Step Zero, 92 Va. L. Rev. 187, 247 (2006) (); see also Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1157 (10th Cir. 2016) (Gorsuch, J concurring) ().3
In Mead, the Court held that Chevron applies only where "it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority." Mead, 533 U.S. at 226-27, 121 S.Ct. 2164. This context-driven determination requires us to examine the method by which the agency exercised its delegated authority. Mead instructs: "It is fair to assume generally that Congress contemplates administrative action with the effect of law when it provides for a relatively formal administrative procedure tending to foster the fairness and deliberation that should underlie a pronouncement of such force." Id. at 229-30. Mead thus created, in effect, a "safe harbor of Chevron deference" for agency interpretations produced via formal agency action — formal rulemaking or adjudication — and those produced via informal notice-and-comment rulemaking. Charles H. Koch, Jr. & Richard Murphy, 3 Admin. L. & Prac. § 10:12 (Feb. 2017 update); see also Richard J. Pierce, Jr., Administrative Law Treatise, § 3.5 (2010) ().
In situations where Chevron does not apply, Mead requires us to examine the persuasiveness of agency action with no thumb on the scale of...
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