The U.S. Supreme Court on Friday issued a long-awaited ruling in a case involving biofuels, siding with refiners in the case. The nation's top court ruled in the HollyFrontier Cheyenne Refining vs. Renewable Fuels Association (RFA) that the Tenth Circuit Court of Appeals ruled in error when it invalidated three small refinery exemptions (SREs) for the 2016 compliance year.
Those SREs allow small refiners to be excused from their obligations under the Renewable Fuel Standard (RFS) if they can show meeting them would cause "disproportionate harm" to their survivability.
The initial RFS included exemptions for these small refiners, those with an output of less than 75,000 barrels per day, through 2011. In the time from 2011 through 2015, typically less than 10 SREs were granted.
The level of SREs applied for and granted exploded during the Trump administration, leading to the suit that eventually reached the Tenth Circuit Court of Appeals and finally the U.S. Supreme Court.
The Tenth Circuit had invalidated the SREs granted for the 2016 compliance year by the Trump administration, ruling that in order for the refiners to be able to get the SREs for that year the had to have them continuously since 2011. Under the law, it said that the SREs could be extended.
But that definition of extended was at the heart of the Tenth Circuit Court ruling.
The refiners affected by the decision opted to elevate the matter to the U.S. Supreme Court. The Biden administration in February announced they were now siding with the Tenth Circuit Court in its decision and that was expected to potentially add to the defense of the RFS in the Supreme Court session that heard the case in April.
But that definition of "extension" was where the Supreme Court said the Tenth Circuit had erred. The majority opinion in the 6-3 case was written by Justice Neil Gorsuch, who argued that even Congress will "extend" a program via legislation even after that program had lapsed. He also likened it to a study not meeting a deadline to turn in a report on a Friday and the teacher then allowing that student to turn the report in on Monday.
The court did note that the term "extension" is not defined in the RFS and that it can mean "an increase in time." The Court said that the Tenth Circuit "erred" when it imposed the definition that the SREs had to have "unbroken continuity." The top court simply stated, "The plain meaning of 'extension' does not require unbroken continuity."
Justice Amy Coney Barrett wrote the dissenting opinion and noted that even while the majority opinion sides with HollyFrontier on the definition of "extension," she noted the refiner "does not dispute that when used to refer to 'an increase in the length of time,' the word 'extension' can -- and commonly does -- refer to something that is prolonged without interruption."
Just as Gorsuch used a real-world example in the majority opinion, Coney Barrett opted to do the same. "Consider a hotel guest who decides to spend a few more days on vacation. That guest likely would ask to 'extend [her] visit,'" Coney Barrett wrote. "Now suppose the same guest returns to the same hotel three years later and, upon arrival, requests to 'extend' her prior stay. The hotel employee would no doubt 'scratch her head.'"
Observers on both sides of this issue believe refiners won in this case. And markets appeared to take the same view. The prices for Renewable Identification Numbers (RINs), the biofuel credits that refiners can purchase to demonstrate compliance with the RFS if they do not blend enough biofuels to gasoline to meet those mandates, fell in the wake of the Court's decision.
That alone could lower the costs for refiners to comply with the law. Recall that the suit also focuses on the "disproportionate" harm that these small refiners would face if they complied with the law. Now those compliance costs will be lower and reports indicated that refiners had backed out of the RIN market in recent weeks as they bet the Supreme Court would side with them.
This, of course, raises questions on whether the reduced RIN prices now mean those refiners would no longer be facing "disproportionate harm" in complying with the law.
And this further muddies the waters over the 50 SREs that are pending for the 2019 and 2020 compliance years, not to mention the 20 that were pending for the 2011-2018 compliance years as refiners sought to hedge their bets and apply for SREs in the prior years just in case the Supreme Court sided against them.
Today, biofuel backers will be offering up their views on the Supreme Court ruling. They clearly will not be pleased.
So we will see. This adds yet another layer onto what has become a controversial policy and one that is a key for agriculture and must be watched closely given the portion of corn and soybean production that goes to making biofuels, Washington Insider believes.