Growth Energy is the world’s largest association of biofuel producers, representing 89 biorefineries that produce nearly 9 billion gallons annually of low-carbon renewable fuel and 99 businesses associated with the biofuel production process. Growth Energy respectfully submits these supplemental comments to rebut specific points that other commenters have made concerning the Environmental Protection Agency’s Proposed RFS Small Refinery Exemption Decision (“Proposed Decision”) (Dec. 2021).1
I. EPA’s finding of RIN-value passthrough is consistent with the ability of higher RIN prices to incentivize increased use of renewable fuel
“Congress intended the Renewable Fuel Program to be a ‘market forcing policy’ that would create ‘demand pressure’ to increase consumption of renewable fuel.”2 And as the D.C. Circuit has recognized, the RFS program achieves this market-forcing policy through “higher RIN prices,” which “incentivize precisely the sorts of technology and infrastructure investments
and fuel supply diversification that the RFS program was intended to promote.”3 Relying on a series of rhetorical questions rather than actual analysis, American Fuel & Petrochemical Manufacturers (“AFPM”) contends that this economic structure at the heart of the RFS program is “inconsistent” with EPA’s finding that RIN value is passed through in the supply chain.4
AFPM wonders how blenders could be incentivized to invest in the distribution of higherrenewable-fuel blends if they do not keep the “windfall” of the RIN value, and how refiners
could be incentivized to make such investments if they do not bear the “costs” of acquiring
RINs.5
There is no inconsistency. AFPM’s professed befuddlement reflects an erroneous
understanding of how the RFS program is designed to work. As EPA explains, there are “two
distinct” but related “market phenomena” involving RIN value: (1) blenders reduce the price of
the renewable fuel they sell by the RIN value, a.k.a. “RIN discount,” and (2) refineries pass their
RFS compliance costs through as a premium on the petroleum fuel they produce, a.k.a. “RIN
cost passthrough.”6
These two phenomena work together to promote the use of renewable fuel,
with the RIN discount lowering the price of renewable fuel and the RIN cost passthrough raising
the price of fossil fuel blendstock.7
As the concentration of renewable fuel in a given gallon of
1
EPA-420-D-21-001.
2 American for Clean Energy v. EPA (“ACE”), 864 F.3d 691, 705 (D.C. Cir. 2017).
3 Monroe Energy, LLC v. EPA, 750 F.3d 909, 919 (D.C. Cir. 2014).
4
Comment of American Fuel & Petrochemical Manufacturers (“AFPM Comment”) 13-14 (Feb.
7, 2022), EPA-HQ-OAR-2021-0566-0040.
5 Id.
6
Proposed Decision at 3.
7 Id.
2
transportation fuel increases—with more of the discounted renewable fuel and less of the
premium petroleum fuel—the twin phenomena of RIN discount and RIN cost passthrough enable
retailers to price the gallon further and further below the price of the baseline transportation fuel.
Indeed, empirical data confirms that E15 and E85, both of which have more renewable fuel and
less petroleum fuel than the baseline E10, are generally priced below E10 on a volumetric basis.8
Higher RIN prices enhance the effect of these two phenomena and thus amplify retailers’
ability to price higher-concentration fuels below the baseline fuel. Rising RIN prices increase
the premium for fossil fuel blendstock and increase the discount for renewable fuel.9
Eventually,
with sufficiently high RIN prices, higher-concentration transportation fuels, such as E15 and
E85, can be priced below E10 not only on a volumetric basis but also, critically, on an energyequivalent basis. As EPA has explained, because “[f]uel buyers are extremely sensitive to
prices,” such relative pricing incentivizes consumers to choose transportation fuels with higher
concentrations of renewable fuel, increasing the demand for renewable fuel.10 Finally, the
revenue that could be earned by widely selling such higher-concentration transportation fuels
incentivizes retailers and other market participants to invest in the ability to produce and
distribute more such fuels.11 In short, RIN passthrough is central to the RFS’s ability to promote
increased use of renewable fuel in the nation’s transportation fuel.12
For additional discussion of how sufficiently high RIN prices could catalyze increased
use of renewable fuel through higher-concentration transportation fuels, see Growth Energy
Reset Comment at 69-70.
II. EPA’S INTERPRETATION OF THE STATUTORY STANDARD FOR SRES IS SOUND
Some commentors challenge certain features of EPA’s interpretation of the statutory
standard that a small refinery must meet to obtain an extension of the exemption. Those
challenges are meritless.
First, a coalition of small refinery owners (“Small Refinery Coalition”) asserts that EPA’s
requirement that “any disproportionality … be ‘of sufficient magnitude to warrant the
8 See Stillwater Associates LLC, Comments to EPA on 2020-2022 RFS Rule (“2022 Stillwater
Report”) at 13-14 (Feb. 4, 2022) (Tables 5 & 7), attached as Exhibit 5 to Growth Energy,
Comments on EPA’s Renewable Fuel Standard (RFS) Program: RFS Annual Rules (“Growth
Energy Reset Comment”) (Feb. 4, 2022), EPA-HQ-OAR-2021-0324-0521.
9 See, e.g., Proposed Decision at 10.
10 Id. at 60; see 2022 Stillwater Report at 13-15.
11 Proposed Decision at 60-61.
12 See, e.g., id. at 11, 34-35.
3
exemption’” is “non-statutory.”13 That is incorrect; EPA’s reference to a “sufficient magnitude”
simply reflects the statutory requirement that compliance would cause the refinery “hardship.”14
Second, AFPM and the Small Refinery Coalition claim that EPA’s proposed analysis
improperly focuses on a “single” factor, namely, the “RIN compliance costs,” asking only
whether those costs are “disproportionate,” whereas the statute directs EPA to consider the
Department of Energy’s report and “‘other economic factors.’”15 But the statute “identifies no
particular economic factors or metrics to be considered.”16 Further, EPA “must not blindly adopt
the conclusions” reached by DOE.17 The Proposed Decision complies with these statutory
obligations. EPA has considered, but disagrees with, DOE’s analysis and explains why: that
analysis did not account for subsequent empirical evidence regarding RIN-value passthrough.18
And EPA explains that whatever other economic factors one might wish to consider—including
those that DOE considered—those factors do not support a finding of disproportionate economic
hardship (“DEH”) given the proportionality of RFS obligations and the fact of RIN-value
passthrough.19
Moreover, AFPM and the Small Refinery Coalition err when they assert that “Congress[]
reject[ed] … the 2009 DOE study,” that “Congress directed DOE to reevaluate whether small
refineries experience DEH” in 2011, and that “Congress” required EPA to consider that 2011
DOE study.20 Rather, Congress directed DOE to study DEH by the end of 2008,
21 and DOE did
so when it issued its 2009 report. Only one committee in the Senate rejected the 2009 DOE
report and called for a reevaluation, and did so in a report, not the text of a bill that was
enacted.22 That committee is not “the Senate,” let alone “Congress,” and its non-statutory
13 Comment of coalition of small refinery owners (“Small Refinery Coalition Comment”) at 7
(Feb. 7, 2022), EPA-HQ-OAR-2021-0566-0077.
14 See 42 U.S.C. §7545(o)(9)(B)(i).
15 Small Refinery Coalition Comment at 7; see AFPM Comment at 3-5.
16 Hermes Consol., LLC v. EPA, 787 F.3d 568, 575 (D.C. Cir. 2015).
17 Ergon-W. Virginia, Inc. v. EPA, 896 F.3d 600, 612 (4th Cir. 2018); cf. Lion Oil Co. v. EPA,
792 F.3d 978, 980 (8th Cir. 2015) (upholding Small Refinery Exemption decision where EPA considered DOE
analysis but “then independently analyzed” the claim of DEH); Ergon-W. Virginia, Inc. v. EPA,
980 F.3d 403, 415 (4th Cir. 2020) (upholding Small Refinery Exemption decision where EPA addressed DOE
recommendation and “also independently addressed and defended its decision based on a variety
of other economic factors after explaining why it rejected some of Ergon’s arguments in favor of
its petition”).
18 Proposed Decision at 21-22.
19 Id. at 37-42, 52-62.
20 AFPM Comment at 3, 6; Small Refinery Coalition Comment at 6-7, 11.
21 42 U.S.C. §7545(o)(9)(A)(ii)(I).
22 S. Rep. No. 111-45, at 109 (2009).
4
statements have no legal force.23 Indeed, the House’s conference report recognized the
nonbinding nature of the Senate committee’s statement, remarking only that “[t]he conferees …
expect the Department to undertake the [Senate committee’s] requested economic review.”24
Finally, the Small Refinery Coalition asserts that EPA’s interpretation nullifies the Small Refinery Exemption
program because it means that when the refinery is having a “good year,” it will not experience
hardship, and when it is having a “bad year,” the hardship will be attributed to factors other than
the RFS—and either way, EPA will deny the SRE.25 The Coalition’s argument rests on a
mistaken understanding of both EPA’s interpretation and the purpose of the Small Refinery Exemption program. The
Small Refinery Exemption program does not “merely prohibit[] EPA from kicking small refineries while they are
down,”26 and EPA’s proposed interpretation does not purport to authorize EPA to do that.
Rather, the question properly framed, as EPA recognizes, is whether the refinery’s RFS
compliance would directly cause it DEH, irrespective of whether the refinery is otherwise
suffering economic hardship for reasons that are independent of RFS compliance.27
For additional discussion of how EPA should interpret the statutory standard for
evaluating SRE petitions, see Growth Energy’s Comment on the Proposed Decision (“Growth
Energy Small Refinery Exemption Comment”) at 2-7 (Feb. 7, 2022).28
III. THE PROPOSED SRE DENIAL WOULD NOT ENTAIL IMPERMISSIBLE RETROACTIVE
RULEMAKING
The Small Refinery Coalition and HollyFrontier Corp. argue that “EPA cannot
retroactively apply the Proposed Denial to any of the pending hardship petitions or the 2018
SREs.”29 Its argument is incorrect, for several reasons. Here, Growth Energy addresses only a
few basic errors in the Coalition’s argument.
First, the commenters invoke judicial precedent generally forbidding retroactive
rulemaking,
30 but the Proposed Decision is not a rulemaking; it is an adjudication. “[A]gencies
are authorized to make policy choices through adjudication, and giving a decision retroactive
effect is not necessarily fatal to its validity.”31 Indeed, in adjudication, “retroactivity is not only
23 See, e.g., INS v. Chadha, 462 U.S. 919, 928 (1983) (holding that legislative veto is
unconstitutional).
24 H.R. Rep. No. 111-278, at 126 (2009) (emphasis added).
25 Small Refinery Coalition Comment at 8.
26 Id.
27 Proposed Decision at 7, 16, 23-26, 37-42, 49, 54, 61.
28 EPA-HQ-OAR-2021-0566-0073.
29 Small Refinery Coalition Comment at 38; see also Comment of HollyFrontier Corp. at 2-4
(Feb. 4, 2022), EPA-HQ-OAR-2021-0566-0039.
30 Small Refinery Coalition Comment at 38.
31 NetworkIP, LLC v. FCC, 548 F.3d 116, 123 (D.C. Cir. 2008).
5
permissible but standard.”32 EPA may use adjudication to announce and apply a new standard,
as long as it “undertake[s] a balancing of the effects of retroactive application against the
mischief of producing a result which is contrary to a statutory design or to legal and equitable
principles.”33
Second, whether EPA’s proposal to adopt a new standard for SREs is an instance of
rulemaking or adjudication, it is not impermissibly retroactive. A standard’s retroactivity is
problematic only when it “imposes new sanctions on past conduct”; where the new standard
would “merely upset[] expectations,” … [it is] invalid only if arbitrary and capricious.”34 But
EPA’s proposal to apply a revised SRE standard does neither. The denial of an SRE petition
does not punish the refinery or impose a new obligation about which the refinery lacked notice.
Nor does such a denial upset legitimate settled expectations. Just as obligated parties “ha[ve] no
legally settled expectation that EPA would exercise its waiver authority to reduce [an RFS]
obligation,”35 small-refinery obligated parties have no entitlement to an exemption; they are
legally obligated to comply with the RVOs that EPA sets, and SREs are merely an opportunity
for them to obtain relief from that obligation if EPA determines that they have made the requisite
showing.
Further, small refineries had no basis to rely on EPA’s prior interpretation of the statutory
standard for SREs because that interpretation has been under serious legal cloud at least since
Renewable Fuels Association v. EPA, No. 18-9533 (10th Cir.), was filed on May 29, 2018,
before the pending SRE petitions were submitted. As the D.C. Circuit has repeatedly held, it is
“unreasonable” for regulated parties to “rely” on an agency’s statutory interpretation once they
have been “put on notice” that the interpretation is “in dispute,” whether through administrative
or judicial challenges.36 On top of that, as Growth Energy’s SRE Comment and EPA’s Proposed
Decision explain, EPA’s proposed standard reflects the “most reasonable” and “natural”
interpretation of the statute, and therefore, as the D.C. Circuit has held, the contention that small
refineries did not have “fair notice” of the new standard necessarily fails.37
Plus, even if small refineries could otherwise claim a protected reliance interest in the
SREs or the applicable standard, there would be no bar to EPA’s proposed denial now. The D.C.
Circuit has made clear that the “normal” rules governing “retroactive” rulemaking do not apply
32 Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 221 (1988) (Scalia, J., concurring).
33 Leggett & Platt, Inc. v. NLRB, 988 F.3d 487, 494 (D.C. Cir. 2021) (quotation marks omitted).
34 National Petrochemical & Refiners Ass’n v. EPA (“NPRA”), 630 F.3d 145, 159 (D.C. Cir.
2010).
35 Monroe Energy, 750 F.3d at 920.
36 Verizon Tel. Companies v. FCC, 269 F.3d 1098, 1111 (D.C. Cir. 2001) (citing Pub. Serv. Co.
of Colorado v. FERC, 91 F.3d 1478, 1488-1491 (D.C. Cir. 1996)); see also, e.g., NetworkIP,
LLC v. FCC, 548 F.3d 116, 123 (D.C. Cir. 2008) (declaring it “obvious” that petitioner had “an
unwinnable case under the retroactivity line” of cases because “the correctness of [the
petitioner’s] interpretation was anything but ‘settled’”).
37 NetworkIP, 548 F.3d at 123.
6
when an agency is “correct[ing] its own legal mistakes,” especially when the agency is
“rectify[ing] legal mistakes identified by a federal court.”38 That is the situation now: the Tenth
Circuit identified significant legal errors in EPA’s prior SRE decisions, and the Proposed
Decision would revise the standard to correct those errors.39 It does not matter whether the
Tenth Circuit’s judgment was vacated; the Supreme Court (like the Tenth Circuit on remand)
“expressed no opinion on the merit of those holdings,” and “therefore” those portions of the
Tenth Circuit’s decision “continue to have precedential weight.”40 But even without
precedential force, the Tenth Circuit’s conclusions still provide a sound basis on which EPA
may revise its standard for SREs.
In any event, the Small Refinery Coalition identifies no different actions that it would
have taken to meet EPA’s proposed SRE standard had it known that would be the standard.
Thus, even if small refineries could have a reliance interest in EPA’s prior interpretation of the
SRE statutory provisions, there is no basis to conclude that they in fact relied on that
interpretation to their detriment. The Small Refinery Coalition complains about the timing of its
purchase of RINs, asserting that if EPA had resolved the SRE petitions sooner, the refineries
would have “had the opportunity to purchase RINs from the market at those (lower) prices.”41
That problem (if it was a problem at all) stems from when EPA decided the petitions, not EPA’s
proposal to apply a refined standard to decide them. Moreover, as EPA recognized in the
Proposed Decision, all obligated parties should acquire RINs ratably to ensure compliance unless
and until they receive an exemption; if they do not, that is their own business choice—and
whether the decision to delay their acquisition of RINs proves beneficial or harmful is entirely a
function of whether RIN prices later rise or fall.42 EPA’s proposal thus rationally accounts for
the supposed harmful financial effects of its application of the revised SRE standard. As the
courts have frequently recognized, “[i]t is often the case that a business will undertake a certain
course of conduct based on the current law, and will then find its expectations frustrated when
the law changes,” but “[t]his has never been thought to constitute retroactive lawmaking,” and
“[s]uch expectations, however legitimate, cannot furnish a sufficient basis for identifying
impermissibly retroactive rules.”