Sinclair Wyo. Ref. Co. v. U.S. Envtl. Prot. Agency

• Decision Date: 30 October 2017
• Docket Number: No. 16-9532,16-9532
• Parties: SINCLAIR WYOMING REFINING COMPANY; 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

887 F.3d 986

SINCLAIR WYOMING REFINING COMPANY; Sinclair Casper Refining Company, Petitioners,

v.UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, Respondent.

State of Wyoming, Amicus Curiae.

No. 16-9532

United States Court of Appeals, Tenth Circuit.

October 30, 2017

Jeffrey R. Holmstead (Brittany M. Pemberton with him on the briefs) Bracewell LLP, Washington, D.C., for Petitioners.

Paul Cirino, Environmental Defense Section, Environment and Natural Resources Division, United States Department of Justice (John C. Cruden, Assistant Attorney General, Jeffrey H. Wood, Acting Assistant Attorney General, and Susan Stahle, Of Counsel, United States Environmental Protection Agency, with him on the briefs) Washington, D.C., for Respondent.

Erik E. Peterson, Senior Assistant Attorney General, Wyoming Office of the Attorney General, Cheyenne, Wyoming, on briefs for Amicus Curiae.

Before TYMKOVICH, Chief Judge, LUCERO, and MORITZ, Circuit Judges.

ORDER

TYMKOVICH, Chief Judge.

This matter comes on for consideration of the Petitioners' Unopposed Motion to Clarify the Court's Opinion . The motion is construed as a petition for rehearing. See Fed. R. App. P. 2 ("On its own or a party's motion, a court of appeals may—to expedite its decision or for other good cause—suspend any provision of these rules in a particular case and order proceedings as it directs ....); 10th Cir. R. 2.1 (The court may suspend any part of these rules in a particular case on its own or on a party's motion."). As so construed, the motion is granted. The Clerk is directed to accordingly amend the opinion issued on August 15, 2017.

This order shall act as a supplement to the mandate issued on October 10, 2017.

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.

I. Background

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).

A. The Renewable Fuel Standards Program

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.

B. Small Refinery Exemptions

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.

C. Sinclair's Petitions for Small Refinery Exemptions

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.

II. Analysis

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 (describing additional agency actions that reviewing courts can hold unlawful and set aside, including arbitrary and capricious rulings).

We review questions of statutory interpretation de novo. EnergySolutions, LLC v. Utah , 625 F.3d 1261, 1271 (10th Cir. 2010).

A. Judicial Review of Agency Action

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) (conceptualizing the inquiry of whether Chevron applies as " Chevron step zero"); see also Gutierrez-Brizuela v. Lynch , 834 F.3d 1142, 1157 (10th Cir. 2016) (Gorsuch, J., concurring) (discussing the step zero inquiry and the confusion created by Mead ).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,...