[00:00:00] Speaker 00: Base number 22-1015 et al. [00:00:04] Speaker 00: Winewood Refining Company LLC and Coffee Hill Resources Refining and Marketing LLC petitioners versus Environmental Protection Agency. [00:00:13] Speaker 00: Mr. Houston for the petitioners. [00:00:15] Speaker 00: Mr. Hughes for the respondent. [00:00:17] Speaker 04: Morning Council. [00:00:18] Speaker 04: Mr. Houston, please proceed when you're ready. [00:00:38] Speaker 05: Okay, please support Michael Houston and Perkins Cooey on behalf of the petitioners. [00:00:43] Speaker 05: EPA admits that it created the extension rule because it admits multiple statutory deadlines that are critically important to the administration of the RFS program. [00:00:55] Speaker 05: Under this court's decision in Americans for Clean Energy, EPA's several statutory violations do not entirely foreclose it from setting the renewable fuel volume up. [00:01:06] Speaker 05: But they do trigger an obligation on EPA to make sure that it reasonably considers and, quote, minimizes, in the words of this court, the harm to the obligated parties. [00:01:17] Speaker 05: But the extension rule makes things worse for the petitioners, not that. [00:01:21] Speaker 05: It does that in three principal ways. [00:01:23] Speaker 05: First, it violates Congress's instruction that there must be at least a minimum of 13 months lead time between when EPA sets an obligation and when the petitioners are required to comply with it. [00:01:36] Speaker 05: Second, EPA compresses multiple quote calendar years worth of obligations in the words of the statute into a matter of just a few months. [00:01:45] Speaker 05: And third, EPA entirely destroys the value of the critical deficit carry forward provision. [00:01:52] Speaker 05: The statute entitles the petitioners for any reason. [00:01:55] Speaker 05: to put off their obligations until another, quote, calendar year. [00:02:00] Speaker 05: But under the extension rule, our clients can only put off and carry forward a deficit for just one more quarter. [00:02:07] Speaker 05: The predictable result of all of this is that the RIN prices have skyrocketed. [00:02:12] Speaker 05: And the extension rule does nothing at all to address that poor harm on petitions. [00:02:18] Speaker 05: I'd be more than happy to answer the court's questions. [00:02:19] Speaker 05: But otherwise, I think it might be instructive to take a moment and explain how we got here. [00:02:24] Speaker 01: Can I just ask, you say that as a result of EPA's rescheduling actions, RIN prices have skyrocketed, but that's a more complicated matter. [00:02:36] Speaker 01: Is it not, you know, to know exactly what the causal agent is of a price rise? [00:02:43] Speaker 05: So, Judge Miller, just because I think the thing that has caused RIN prices to rise is not the extension, it's the late action. [00:02:50] Speaker 05: And I think that the very best evidence of this is actually the GAO report. [00:02:54] Speaker 05: And I really encourage the court to read this, particularly at pages 9 to 13 and 24 to 25. [00:03:01] Speaker 05: It explains in detail precisely why EPA's own officials told the GAO in the course of that report that they understood that when they were very late, [00:03:12] Speaker 05: and then acted that had a quote substantial impact on ring prices but the EPA knows that this happens and it's just really a matter of simple economics when EPA comes in for the first time ever. [00:03:25] Speaker 05: requires a number of small refineries to comply with the RFS program by denying hardship and it says you're going to have to meet multiple years worth of obligations over just the next 14 months. [00:03:36] Speaker 05: EPA is spiking demand for rins and it's doing so in a situation where the supply of those rins is already fixed because remember we're talking about [00:03:46] Speaker 05: Blending that has already occurred in prior years. [00:03:48] Speaker 05: We're talking about all the ribs that have ever been, you know, that is possible to generate for 2019, 2021, 22. [00:03:55] Speaker 05: They've been generated. [00:03:56] Speaker 05: It's a fixed supply. [00:03:58] Speaker 05: And yet EPA's action, by being so late, they have created this massive demand. [00:04:02] Speaker 05: They forced the petitioners to go out to the market. [00:04:05] Speaker 02: I don't understand why that has anything to do with the role that you're challenging. [00:04:12] Speaker 02: You talk about compliance, but the rule you're dealing with is when you have to file a report on compliance in a previous year. [00:04:23] Speaker 02: with respect to a previous year, right? [00:04:26] Speaker 05: Well, when do we have to actually comply, Judge Randolph? [00:04:29] Speaker 05: I mean, there's a reporting obligation, too, but the extension rule is setting the deadline by which we have to actually comply with the statute. [00:04:35] Speaker 05: When we have to turn in rents. [00:04:36] Speaker 02: It's when you have to file the report. [00:04:38] Speaker 02: It used to be March 31st of the following year, right? [00:04:43] Speaker 02: Yes. [00:04:43] Speaker 02: Now you have two other options, the date on when the quarterly report is, et cetera, et cetera. [00:04:50] Speaker 02: Suppose you win here. [00:04:52] Speaker 02: That means if you haven't filed your reports yet, you're not in compliance. [00:05:01] Speaker 02: It reverts back to the previous rule. [00:05:04] Speaker 02: This gives you an extension for filing reports. [00:05:08] Speaker 02: That's all it does. [00:05:09] Speaker 02: It doesn't change whether EPA followed the 12-month rule or 13- or 14-month rule or any of that. [00:05:17] Speaker 02: It just deals with when you have to file a report. [00:05:21] Speaker 05: Respectfully, Your Honor, I don't think that's quite right. [00:05:23] Speaker 05: We're talking here about years that have already gone by. [00:05:27] Speaker 05: The deadlines or that the statute would have enacted for our clients to demonstrate compliance with the RFS obligation. [00:05:34] Speaker 05: Those have already passed. [00:05:36] Speaker 05: Exactly. [00:05:37] Speaker 05: But that is EPA's fault. [00:05:41] Speaker 05: They are the ones who declined to put out the volumes on time, to deny the hardship petitions on time. [00:05:46] Speaker 05: We obviously couldn't comply, but we didn't know what our compliance was. [00:05:49] Speaker 01: And they're acknowledging that, and they're trying to mitigate. [00:05:52] Speaker 05: They say that they are, Your Honor, but I think our core submission is that they are not doing so. [00:05:57] Speaker 05: And they're not doing so in really three reasons. [00:06:00] Speaker 05: I think if the court looks at the Americans for clean energy decision, which is the last time that we were here. [00:06:05] Speaker 05: And by the way, I think it's just worth emphasizing, this is the fourth time that refineries have come to this court to talk about EPA needing to get back on track because it had missed statutory deadline. [00:06:17] Speaker 05: So this is not a situation where, as my friend from the APA says, agency resources are limited and sometimes something slips through the cracks. [00:06:25] Speaker 05: We're talking about an agency that over several years has been laid over and over and over again. [00:06:30] Speaker 02: Yeah, I want to go back to a question. [00:06:32] Speaker 02: I mean, you answered a question that I asked. [00:06:34] Speaker 02: Maybe I misheard you. [00:06:35] Speaker 02: You said this rule does more than simply give a deadline for when the reports are due, right? [00:06:42] Speaker 02: Yes. [00:06:42] Speaker 02: Well, here's the title to the rule. [00:06:45] Speaker 02: It's annual compliance reports, report submission deadlines. [00:06:50] Speaker 02: The submission deadlines for annual and quarterly reports shall be as follows. [00:06:54] Speaker 02: That's the rule, right? [00:06:56] Speaker 02: Yes. [00:06:56] Speaker 02: Doesn't say anything about anything else except when you have to file the report. [00:06:59] Speaker 05: The report is a proof that we have complied, Your Honor, that we have turned in rents. [00:07:04] Speaker 05: That's what the extension rule is all about. [00:07:07] Speaker 05: We have to [00:07:08] Speaker 05: And then we have to file a report that proves that we turn them in. [00:07:11] Speaker 05: So the operative, what the extension rule does, the real meat of it, is it sets the deadline by which we need to have the RINs in hand. [00:07:19] Speaker 05: But again, the statute sets the deadline by which we need to have the RINs [00:07:25] Speaker 05: for a particular compliance year. [00:07:27] Speaker 05: Each year we have a renewable volume obligation and there's a deadline by which we have to turn them in. [00:07:32] Speaker 05: Now EPA has missed all of those deadlines, so the extension rule is resetting them. [00:07:37] Speaker 05: But it's violating the statute in two ways when it's doing that. [00:07:41] Speaker 02: Isn't this a mitigation measure in the terms of what the ACE court required? [00:07:49] Speaker 02: It's a mitigation [00:07:50] Speaker 02: measure because EPA has missed the deadlines and it's giving you more time to file your yearly annual compliance [00:08:00] Speaker 05: Because, Your Honor, it is not mitigating any of our core harms. [00:08:03] Speaker 05: And so if the court looks, as I'm sure the court will at the Americans for Clean Energy decision, you will see that there were three principal reasons that this court concluded in case the EPA had mitigated the parties harm. [00:08:16] Speaker 05: First, it had ensured that they had a reasonable path to compliance. [00:08:20] Speaker 05: Second, it had ensured that there were enough rins out there in the market that petitioners could go out and acquire them. [00:08:25] Speaker 05: And third, [00:08:26] Speaker 05: EPA had made sure that parties would be able to take advantage of the deficit carry forward provision. [00:08:32] Speaker 05: That's the mitigation that this court described at pages 722 and 723 of the ACE opinion. [00:08:38] Speaker 05: But none of those things are available to us. [00:08:40] Speaker 05: We asked, in the course of the extension rule, for a remedy, for a type of remediation that would make it possible for us to comply. [00:08:47] Speaker 05: But EPA rejected our request. [00:08:48] Speaker 05: We cannot, we do not have a reasonable, responsible path for compliance. [00:08:53] Speaker 04: But can I ask, so put aside the carry forward for a second? [00:08:56] Speaker 04: Um, because I think at the asset you mentioned 3 things the carry forward was the 3rd and then there were the other 2 which had to do with the time periods. [00:09:03] Speaker 04: It's a 13 months in the 12 months. [00:09:04] Speaker 04: I think it's what you're referring to. [00:09:06] Speaker 04: That's right. [00:09:06] Speaker 04: And with with respect to ace. [00:09:10] Speaker 04: Isn't it the case that also with the rule that was reviewed in ace. [00:09:14] Speaker 04: You could have, there could have also been made the same argument about the 13 months and the 12 months. [00:09:19] Speaker 05: So for some of the, for some of the deadlines, right? [00:09:22] Speaker 05: There were of course a number of deadlines that were reset in ACE. [00:09:25] Speaker 04: But at least for some of them that the same argument could have been made. [00:09:28] Speaker 05: The same argument could have been made, Your Honor, but I want to stress it wasn't. [00:09:32] Speaker 04: Right. [00:09:33] Speaker 04: I take that point. [00:09:33] Speaker 04: And so you could say that, well, ACE would have come out differently as to those years if that argument had been made. [00:09:39] Speaker 04: But I'm just trying to establish the predicate. [00:09:41] Speaker 04: that in fact, what was upheld in ace was something as that couldn't have been upheld under the argument that you're pressing today. [00:09:52] Speaker 05: I think that's right. [00:09:53] Speaker 05: But I don't think that's that's that surprising. [00:09:55] Speaker 05: I mean, the court cannot be faulted for not engaging with that arguments that the parties before. [00:09:59] Speaker 04: But I just want I just want to establish the point that that you and I think analytically all that makes sense. [00:10:04] Speaker 04: But the practical result is that [00:10:07] Speaker 04: Under your argument today, ACE was wrongly resolved, not decided based on arguments that were presented, but the rule in ACE shouldn't have been allowed to be sustained. [00:10:17] Speaker 05: I think that it would express the point just slightly differently. [00:10:21] Speaker 05: I think that the rule that EPA put forward in ACE was unlawful for reasons that were not presented to the court in ACE. [00:10:28] Speaker 05: And thus, I don't think [00:10:29] Speaker 05: What I think is emphatically clear is that ACE does not stand for the proposition that our statutory arguments are wrong because the arguments weren't made to the court. [00:10:39] Speaker 05: So the court doesn't typically weigh in on questions that aren't precedent presented to it for good and substantial reasons. [00:10:45] Speaker 05: And so when a party, when no party made this argument, [00:10:47] Speaker 05: to the ace court ace doesn't foreclose the argument just because there was a problem it's akin to a sort of drive-by ruling that i mean ace did talk about the time periods for compliance yes but they but but they were critically different your honor in case what the court said was important was that epia had given the petitioners 15 months to obtain compliance and in many cases even more than that for again there were four deadlines and eights and each one had a different time period but [00:11:14] Speaker 05: When the court looked at this, it said, we think 15 months is more than enough time for you to go forward. [00:11:19] Speaker 05: And maybe they were right about that. [00:11:21] Speaker 05: But the statutory minimum is 13 months. [00:11:24] Speaker 05: And that is, I think, the one provision of this statute that is just expressly clear. [00:11:28] Speaker 05: Well, there's no provision that says 13 months. [00:11:30] Speaker 05: Well, I agree that there is no provision that says 13 months. [00:11:36] Speaker 05: There is a deadline by which EPA has to set the volume, and it's November 30. [00:11:40] Speaker 05: and then we have the following calendar year. [00:11:43] Speaker 05: I think if you just put those two provisions together, there's no way to say that we don't, we're not required to have at least a minimum of 13 months. [00:11:50] Speaker 04: If you get to the, I mean, you think it's inconceivable that there could be a compliance deadline during the compliance year. [00:11:59] Speaker 05: I'm sorry. [00:12:00] Speaker 04: So it's 13 months. [00:12:01] Speaker 04: If you say you start with November and you get to the very end of the year. [00:12:05] Speaker 04: Yes. [00:12:06] Speaker 04: Is it not? [00:12:07] Speaker 04: It would be flatly inconsistent with the statute if EPA had a compliance deadline that was during the course of the year. [00:12:13] Speaker 05: Absolutely, Your Honor, for two reasons that I think are clear from the text of the statute itself. [00:12:16] Speaker 05: First, 75-4502A1 talks about the fact that the way that you calculate our obligation has to be, unquote, an annual average basis [00:12:27] Speaker 05: And second, of course, we have to demonstrate compliance over the calendar year. [00:12:31] Speaker 05: So taking your honor's hypothetical, if EPA had promulgated the volumes in November, but then said you're going to have to demonstrate compliance in July, we can't comply with that mandate in July. [00:12:41] Speaker 05: We're not going to be able to demonstrate that we conducted the appropriate amount of blending on an average annual basis. [00:12:47] Speaker 01: Why not? [00:12:48] Speaker 01: Why couldn't you have? [00:12:50] Speaker 01: One might think in the old days that a regulated party here would be [00:12:57] Speaker 01: putting RINs in their account as they import or refine [00:13:05] Speaker 01: the fuels. [00:13:06] Speaker 01: And if they're doing that as they go along, then they're not going to be subjected to ebbs and flows in the spikes and valleys in the rent prices. [00:13:15] Speaker 01: So maybe people don't do that anymore because they have leeway. [00:13:18] Speaker 01: And as you say, the compliance filing is not just a filing. [00:13:21] Speaker 01: It's actually some action coming or has come to me and some action coming into compliance. [00:13:26] Speaker 01: But let's say EPA thinks that that's [00:13:28] Speaker 01: problematic for some of the reasons that you point out about the spikes in the RIN market. [00:13:31] Speaker 01: And it decides like the IRS does with respect to taxes, let's have quarterly filings and yeah, we'll chew it up at the end. [00:13:38] Speaker 01: Anything in the statute that prevents that? [00:13:40] Speaker 05: Yes, absolutely, Your Honor. [00:13:41] Speaker 05: Two things, I think. [00:13:42] Speaker 05: The first, again, is that we have to demonstrate compliance on an average annual basis. [00:13:48] Speaker 05: And then the second thing is the deficit carry forward provision. [00:13:51] Speaker 05: The EPA has some flexibility [00:13:54] Speaker 05: It has discretion to push out deadlines beyond what they were required, but it can supersede the minimum amount that it's guaranteed. [00:14:02] Speaker 01: And so I guess I'm not sure why that's responsive to my hypothetical because you could have the average annual and just have that worked out when you true up at the end. [00:14:13] Speaker 05: Yeah, I guess that's conceivably possible your honor, but there would still have to be that. [00:14:18] Speaker 05: I still think that that means we're talking about for deadlines sort of over the course of the year and really just like in the tax context, you kind of you have one tax bill for the entire year. [00:14:27] Speaker 05: You might have to pay as you go that bill. [00:14:30] Speaker 05: But that's something very different from what EPA is saying. [00:14:32] Speaker 05: This is like saying, EPA is saying, you have to pay four years of your taxes on day one, and then three months later, and then three months later. [00:14:39] Speaker 05: That's a really different thing. [00:14:40] Speaker 01: Well, if you get an extension until October, and then you pay your next taxes on time, you have to pay your taxes within four months of one another, six months at least. [00:14:49] Speaker 05: Yes, I agree with that, Your Honor. [00:14:50] Speaker 05: But you have the minimum amount of lead time that the tax code and hypothetical guarantees you. [00:14:55] Speaker 05: And what they can't do is drop down below [00:14:58] Speaker 05: the 13 months of requirement. [00:15:00] Speaker 05: And then I think the other, but the other point that really drives this home is the deficit carry for provision. [00:15:05] Speaker 05: The statute says that when we have any reason why we can't comply, we want to wait, it said to take us for our business, whatever, you don't have to give a justification for using deficit carry. [00:15:16] Speaker 05: When the petitioners take advantage of a deficit carry for it, it's entitled to carry a deficit for an entire quote calendar year. [00:15:23] Speaker 05: I don't think the EPA has any discretion to take away that calendar year's worth of extra flexibility. [00:15:29] Speaker 05: And that's a critical piece of the bargain that Congress put into the statute. [00:15:33] Speaker 05: It imposed a very serious obligation on the petition. [00:15:36] Speaker 01: Would the EPA say you can carry over for more than a calendar year, or is that just statutory limited? [00:15:40] Speaker 05: The statute says you can carry over for a calendar year. [00:15:44] Speaker 05: calendar year. [00:15:45] Speaker 05: I mean, I think honestly, Your Honor, that EPA probably could give us more than a calendar year if it had to do that. [00:15:51] Speaker 05: Um, if it, you know, if it found reason, I think that the court can, the agency can extend deadlines beyond statutory minimums, but it can't drop below statutory minimums. [00:16:00] Speaker 04: Did EPA not do that here with the, there's not the action that's directly under review, but I thought there's an alternate and [00:16:08] Speaker 04: Did they not allow an additional carry forward period? [00:16:11] Speaker 05: There is an alternative. [00:16:12] Speaker 05: A different rule, Your Honor, is exactly right. [00:16:14] Speaker 05: We've challenged that rule too. [00:16:15] Speaker 05: I mean, I'd be happy to explain why we think that rule has very serious problems. [00:16:20] Speaker 04: But just on this question of extension, I thought that that's actually what happened. [00:16:23] Speaker 05: They have they have reported to extend some of the other deadlines even further. [00:16:29] Speaker 05: If I might just say one sentence about what's really the fundamental defect in that rule, it's based on the assumption that that extra time and that taking advantage of other RIN vintages will make it possible for petitioners to buy RIN at a reasonable price. [00:16:43] Speaker 05: But it's just empirically false. [00:16:44] Speaker 05: The court can go and see that all of the RIN vintages cost essentially the same. [00:16:49] Speaker 05: In other words, the RINs that were generated in 2019 cost about as much as the RINs for 2020 and 2021 and 2022. [00:16:55] Speaker 05: But just changing what years worth of RINs we buy doesn't help. [00:17:00] Speaker 05: It's the price that is the problem. [00:17:02] Speaker 05: And it's the price that is really the thing that EPA has made no serious attempt to address in the extension rule. [00:17:08] Speaker 05: The price is our biggest harm. [00:17:10] Speaker 05: EPA has to minimize that harm, but they haven't addressed anything about price in the extension rule. [00:17:16] Speaker 01: I guess, why isn't that the obligated party's fault in not, you know, doing the dollar cost averaging approach to RIN accumulation? [00:17:28] Speaker 05: I'm really glad that you asked, Your Honor, and I really just take one moment and sort of explain exactly why. [00:17:32] Speaker 05: I understand the instinct behind that question. [00:17:35] Speaker 05: The GAO report really helpfully explains why there was no responsible path for compliance. [00:17:42] Speaker 05: This is dealt with at pages 24 and 25 of the GAO report. [00:17:45] Speaker 05: They studied this precise issue. [00:17:47] Speaker 05: Kern Oil is one of the petitioners in this case. [00:17:50] Speaker 05: Kern Oil tried to do that. [00:17:51] Speaker 05: They said, OK, we're going to take what you might call a conservative approach. [00:17:55] Speaker 05: We're going to acquire RINs all along, sort of on the expectation that one day we might be required to comply. [00:18:01] Speaker 05: And if we get hardship relief, OK, great. [00:18:03] Speaker 05: But Kern Oil, by virtue of that business decision and EPA's mismanagement of the program, suffered massive business losses. [00:18:11] Speaker 05: And the reason was that Kern was acquiring these RINs all along, but then suddenly EPA, long after the statutory deadline, granted hardship relief. [00:18:21] Speaker 05: And it granted hardship relief to a whole bunch of other parties as well. [00:18:24] Speaker 05: And then it refunded their RINs. [00:18:26] Speaker 05: EPA said, here are your RINs, Matt. [00:18:27] Speaker 05: Those RINs are worthless. [00:18:29] Speaker 05: And it was tens of millions of dollars incurred in losses that are incurred. [00:18:34] Speaker 05: This was the subject of litigation in the Ninth Circuit. [00:18:36] Speaker 05: That's discussed in our reply brief. [00:18:39] Speaker 05: The Ninth Circuit found that EPA had violated the law in that instance because they had inflicted tens of millions of dollars in harm on Colonel Webb, and they put forward a remedy. [00:18:49] Speaker 05: that was designed to make current oil whole. [00:18:51] Speaker 05: And that, I think, additionally speaks to my friend from the EPA's point that there's no remedy here. [00:18:57] Speaker 05: I think we've proposed a number of different remedies. [00:19:00] Speaker 05: We were talking about a situation for years that have already gone by. [00:19:03] Speaker 05: All of the blending that can be done for 2020 is already done. [00:19:07] Speaker 05: There's no benefit to the environment that could come from the extension rule. [00:19:10] Speaker 05: What we're now talking about is who's going to pay. [00:19:13] Speaker 05: And I think that current oil puts forward one way that the court could design a remedy to address that, which would essentially require EPA to give a credit between [00:19:22] Speaker 05: the ring price on the date that they should have acted, and the ring price today. [00:19:26] Speaker 05: Or, oh, go ahead, finish. [00:19:27] Speaker 05: Or, the last thing, the alternative remedy is, I think, and the best remedy is the one that actually EPA put forward for 2018, the alternative compliance demonstration approach. [00:19:36] Speaker 05: EPA said, it's just too far gone. [00:19:38] Speaker 05: The situation in 2018 is so messed up that we can't un-rangle the knot. [00:19:45] Speaker 05: And so we're gonna have an alternative approach. [00:19:47] Speaker 05: That's all EPA needs to do to get back on track. [00:19:50] Speaker 01: The alternative approach meaning you owe nothing. [00:19:52] Speaker 05: They did not require compliance demonstration by requiring risk. [00:19:56] Speaker 05: That's essentially correct. [00:19:58] Speaker 05: Now, I'm not saying that EPA has to do that. [00:20:00] Speaker 05: I'm not saying that's the only remedy that EPA can come up with. [00:20:03] Speaker 05: What I am saying, though, is that EPA exercised its discretion and found that in a situation very much like this one, years gone by, the market is [00:20:12] Speaker 05: not at all working the way that it was supposed to as EPA acknowledges, the right thing to do is sort of stop, take a pause, press the reset button, and get back on track going forward. [00:20:24] Speaker 04: I'm sorry. [00:20:25] Speaker 04: The question I had was you mentioned a couple of times that we're talking about time periods that have already passed, so all the transactions were already undertaken and expectations have congealed and all that. [00:20:33] Speaker 00: Yes. [00:20:34] Speaker 04: As I understand it, EPA took account of that by basing its decisions [00:20:42] Speaker 04: backward-looking decisions on the actual state of the market. [00:20:46] Speaker 04: So two points back there. [00:20:48] Speaker 05: First, that's in a different rule that we have also challenged. [00:20:53] Speaker 05: That's not part of the extension rule. [00:20:55] Speaker 05: EPA, and I think that's part of the challenge that, you know, in all candor, we are trying to comply with here. [00:21:00] Speaker 05: EPA is putting four, three, and four different rules designed to address this problem. [00:21:03] Speaker 05: We, of course, can file a petition for review only for one rule at a time. [00:21:08] Speaker 05: But I want to engage with the point directly. [00:21:10] Speaker 05: EPA says, okay, that was our mitigation strategy. [00:21:12] Speaker 05: We reduce the volumes for this given year. [00:21:15] Speaker 05: They reduce them by about 15%, but it costs 10 times more today to buy RINs than the date that it would have if EPA had been on time with the 2020 volumes. [00:21:26] Speaker 05: So I think that when EPA has said, well, the price has gone up 10 fold, we're gonna give you a 15% haircut. [00:21:33] Speaker 05: I mean, the math on that obviously shows that we are much, much worse [00:21:37] Speaker 05: And I think it's important to give the court a sense of the scope of the obligation. [00:21:43] Speaker 05: We're just one of the petitioners in this case. [00:21:45] Speaker 05: We're talking about obligations of $150 million for one compliance year. [00:21:51] Speaker 05: And then three months later, you need $175 million. [00:21:54] Speaker 05: Three months after that, $183 million. [00:21:57] Speaker 05: So these are massive costs. [00:21:59] Speaker 05: This is our largest expense besides crude oil. [00:22:02] Speaker 05: It costs more to demonstrate compliance with RFS than labor for the petitioners. [00:22:07] Speaker 05: So these are extraordinarily imposing obligations. [00:22:10] Speaker 05: And when you're talking about an obligation, again, the scope of which went up tenfold in price because EPA was so late and missing statutory deadlines, the fact that they shaved 15% off the obligation is really just not going to address our fundamental harm. [00:22:24] Speaker 04: Can I get back to a question that Judge Randolph asked? [00:22:27] Speaker 04: So the question had to do with what would be the upshot if hypothetically you were to prevail in your challenge? [00:22:34] Speaker 04: So if you were to prevail in your challenge, [00:22:37] Speaker 04: The extension rule, if you get vacated, would get vacated. [00:22:41] Speaker 04: Yes. [00:22:41] Speaker 04: And then does that set you back to a situation in which the compliance deadline then is the one by kind of by the upshot of your argument would be the statutory date, November 30th date, which has already passed. [00:22:55] Speaker 04: So are you worse off? [00:22:57] Speaker 05: No, no, no. [00:22:58] Speaker 05: If the court vacates the extension rule, EPA is going to need a new deadline. [00:23:03] Speaker 05: It's going to have to reset the deadlines again. [00:23:05] Speaker 05: But it's going to have to do so in a way that actually addresses and minimizes the harm that we're facing. [00:23:11] Speaker 05: So it's going to have to put, I mean, as you say, Your Honor, the statutory deadline for compliance has already passed. [00:23:17] Speaker 05: So the extension rule purports to put a new deadline in. [00:23:21] Speaker 05: We think that's unlawful. [00:23:22] Speaker 05: If the court agrees with us, EPA will have to set yet another deadline in the future. [00:23:26] Speaker 05: When EPA sets that deadline, and when it takes account of what is going to be required on that deadline, it's going to have to address the price. [00:23:35] Speaker 05: That's the critical point, because that's our harm. [00:23:37] Speaker 05: And so under Americans for Clean Energy, EPA has to responsibly study the actual harm to the petitioners and address that harm. [00:23:45] Speaker 05: That's what the extension rule doesn't do. [00:23:48] Speaker 05: And that's what I think would be the key, the massive benefit to the petitioners of ruling from this part, the vacated extension rule. [00:23:56] Speaker 04: My colleagues don't have additional questions for you at this time. [00:24:00] Speaker 04: Thank you, Mr. Houston. [00:24:00] Speaker 04: We'll give you a little time for rebuttal. [00:24:03] Speaker 04: Mr. Hughes. [00:24:19] Speaker 06: Good morning and may it please the court. [00:24:21] Speaker 06: Jeffrey Hughes from the Department of Justice on behalf of EPA. [00:24:24] Speaker 06: With me at council table is Meredith Miller. [00:24:27] Speaker 06: I'd like to highlight four reasons why, in issuing the extension rule, EPA reasonably exercised its authority to set compliance deadlines. [00:24:35] Speaker 06: First, the text of section 754502A3 directs EPA to issue regulations that contain compliance provisions to ensure that the requirements of this paragraph, that's section 754502, are met. [00:24:50] Speaker 06: All right, future registrant of Austin, I think you mentioned the statutory compliance deadline. [00:24:55] Speaker 06: But in fact, the statute does not set the compliance deadline. [00:24:59] Speaker 06: That is set by a regulation. [00:25:03] Speaker 06: This provision, section 7545-0283, does not provide for annual compliance deadlines or any other particular interval. [00:25:12] Speaker 06: Second, in A's, this court held that EPA reasonably issued delayed volume requirements because it, among other things, determined that [00:25:23] Speaker 06: Obligated parties had sufficient time to acquire RINs to comply with the standards where EPA granted compliance deadline extensions similar to those issued here. [00:25:34] Speaker 06: Third, here, EPA determined that the intervals provided before the extension rule allowed obligated parties sufficient time to acquire RINs without overheating them. [00:25:44] Speaker 06: Fourth, this schedule will allow EPA to get back on the track set [00:25:49] Speaker 06: With respect to the text of the statute, the refineries argument for inflexible compliance deadlines press on a misinterpretation. [00:25:57] Speaker 06: The provision directing EPA to set compliance deadlines does not require annual compliance deadlines at all. [00:26:03] Speaker 06: EPA could require, as she says, Srinivasan and Judge Piller mentioned, quarterly compliance deadlines. [00:26:10] Speaker 06: Alternatively, two of the petitioners here argued in their comment on the proposed extension rule that EPA should require compliance for 2019 to 2022 [00:26:19] Speaker 06: at one time. [00:26:20] Speaker 06: That's a J 16 to 17. [00:26:22] Speaker 06: I would also note that three of the compliance deadlines here, 2019, 2020, 2022, fall more than 13 months after the standards were promulgated, though the 2022 standards were subsequent. [00:26:38] Speaker 04: Next. [00:26:39] Speaker 04: I don't quite follow that point. [00:26:42] Speaker 06: Yes, so the 2019, the annual rule was [00:26:47] Speaker 06: I was signed on June 3rd of last year. [00:26:49] Speaker 06: And the 2019 and 2020 rules were initially promulgated in 2018 and 2019. [00:26:59] Speaker 06: And so since those days, well more than 13 months have elapsed between the issuance of the rule and the compliance deadline. [00:27:08] Speaker 06: Now, the 2020 rule was essentially modified downward in June. [00:27:11] Speaker 06: So less than 13 months has elapsed between the issuance of that rule and the compliance [00:27:17] Speaker 06: to 2022. [00:27:19] Speaker 06: Again, the rule was signed June 3rd of 2022, and the compliance deadline is, as we expect, will be September 1st, 2023. [00:27:31] Speaker 04: So maybe I'm missing something, but if the other side's argument is not 13 months and neither lesser nor greater, but is just a minimum of 13 months, [00:27:44] Speaker 04: and greater is fine, then what does that do to the point that you just made? [00:27:48] Speaker 06: Your Honor, as I understand their argument, there must be at least 13 months between the issuance of the rule and the compliance deadline. [00:27:56] Speaker 06: And so for 2019-2020 as initially promulgated and 2022, they have more than 13 months. [00:28:05] Speaker 06: And so you can set that, so that can be set aside for those [00:28:11] Speaker 06: what can be set aside. [00:28:12] Speaker 06: The question of whether they've received the 13 months between the assurance of the rule. [00:28:16] Speaker 01: Is that what they're arguing? [00:28:16] Speaker 01: Are they arguing that? [00:28:18] Speaker 01: Well, they also are arguing that there has to be a [00:28:24] Speaker 01: an interval between separate compliance deadlines or they're not? [00:28:29] Speaker 06: They are also arguing that there needs to be one year between compliance deadlines as well. [00:28:33] Speaker 06: I would just point out that again, there's nothing in the statute that speaks to the amount of time that must elapse between compliance deadlines. [00:28:42] Speaker 06: I think we pointed out in a brief EPA. [00:28:45] Speaker 02: When you say compliance deadline, what do you mean? [00:28:48] Speaker 06: the deadline by which the obligated party needs to submit its compliance report showing that it's not compliance. [00:28:55] Speaker 02: It's just a report of what happened. [00:28:57] Speaker 02: Is that during an act? [00:28:59] Speaker 02: Is the year a calendar year or can it can the one year annual be other than account? [00:29:11] Speaker 06: Sorry, is the question that [00:29:15] Speaker 06: are compliance years and annual years. [00:29:17] Speaker 06: Compliance reports have to be filed annually. [00:29:21] Speaker 06: There's no requirement that compliance reports in the statute be filed annually. [00:29:26] Speaker 06: By regulation, EPA has said in such that compliance reports are typically filed annually. [00:29:34] Speaker 02: If you can simplify this for me. [00:29:37] Speaker 02: When EPA sets requirements and so that the small refiners have to comply and then mix their fuel with 10% renewables or whatever, does EPA always do that before the calendar year in which compliance is required? [00:30:01] Speaker 02: Uh, your honor, in this case, it has not, uh, or so how can if you if you set the I don't know what this has to do with it, the extension rule. [00:30:11] Speaker 02: But if you set the requirement for 2022, uh, in July, then how on heaven's name can a small refiner comply with that when they don't even know what the rule is until halfway through the year? [00:30:28] Speaker 06: Your honor, [00:30:30] Speaker 06: There are two reasons, at least. [00:30:33] Speaker 06: First is EPA has suggested to, or has told the obligated parties that they should be randomly acquiring RINs throughout the year in order to make sure they can comply. [00:30:47] Speaker 06: So as they're producing fuel, as they're selling fuel, they should be acquiring RINs to make sure that they can comply with their obligation when the time is due. [00:30:57] Speaker 02: Uh, and also can you talk louder? [00:30:59] Speaker 02: I'm missing a lot. [00:31:00] Speaker 06: My apologies, your honor. [00:31:01] Speaker 06: Um, the EPA instructs the obligated parties to acquire rinse as they're purchasing or importing, uh, nonrenewable fuel such that they'll have sufficient rins when the time when the compliance date. [00:31:16] Speaker 06: In addition, as this court has funded out in Monroe, Monroe Energy case through the years at issue here, uh, the obligated parties have a, um, have noticed what the volumes are going to be because they're laid out in the statute. [00:31:37] Speaker 02: Now, that's another word that's kind of thrown around here. [00:31:40] Speaker 02: There's, there's a volume for the entire United States about the [00:31:45] Speaker 02: the amount of fuel that will be used in a year. [00:31:48] Speaker 02: When you say volume, that's not what you're talking about. [00:31:51] Speaker 06: I'm talking about what the statute provides is the amount in section 75402B provides the volumes of renewable fuel to be introduced into the transportation sector of the United States. [00:32:11] Speaker 02: Which you then convert to a percentage? [00:32:15] Speaker 06: You know, once that is once the any waivers or adjustments are made that is and the. [00:32:25] Speaker 06: there's a the amount of fuel used for the year is projected that is then converted into percentage which. [00:32:32] Speaker 06: obligated parties can use to determine what their obligation is. [00:32:36] Speaker 01: I thought that the response was, I mean, you don't know how many RINs to set aside or purchase or have available until you know the percentage of the renewables that this annual standard requires you to mix in. [00:32:55] Speaker 01: And so you have [00:32:58] Speaker 01: blenders blending on old standards if the new standards never been promulgated. [00:33:02] Speaker 01: And I thought the way EPA responded to that when it was late in setting the standards was that it set the standards based on what was actually done. [00:33:11] Speaker 01: So it's like the following rather than the leading indicator. [00:33:16] Speaker 06: That's correct, Judge Hillard, for the years 2020 and 2020. [00:33:20] Speaker 01: And that's, I mean, I can't imagine how it could be. [00:33:24] Speaker 01: Otherwise, I guess, if it's during the year, you could tweak it upwards and just say, like, catch up to the regulated parties. [00:33:32] Speaker 01: But if the standard's not set until after the year is entirely over, there's only that one choice, no? [00:33:39] Speaker 06: I think EPA could take into account if it wanted the written carryover bank in determining, but it hasn't. [00:33:47] Speaker 06: Here, for 2020 and 2021, the years have passed. [00:33:51] Speaker 06: The volumes are set at volumes actually used. [00:33:54] Speaker 06: which ensures sufficient rinse or compliance by all obligated parties. [00:33:58] Speaker 01: And the volumes actually used would then be the volumes that are being blended based on the prior year's percentage? [00:34:05] Speaker 01: Is that how it happens in practice? [00:34:07] Speaker 06: Your Honor, I'm not entirely sure exactly how it's calculated. [00:34:11] Speaker 06: My understanding is that it's the amount of renewable fuel actually introduced into it. [00:34:16] Speaker 06: But somebody's introducing. [00:34:18] Speaker 06: Yes. [00:34:19] Speaker 01: And they're having to blend for every gallon sold, like we buy at the pump. [00:34:22] Speaker 04: Correct. [00:34:23] Speaker 04: That's my understanding. [00:34:24] Speaker 04: But why did you limit your answer to Judge Pillar to 2020 and 2021? [00:34:29] Speaker 04: Is there a year for which EPA didn't base it on actual experience? [00:34:35] Speaker 06: In 2020, it wasn't a completely retrospective rule. [00:34:40] Speaker 06: It was signed on June 3rd, and so it has forward-looking components to it. [00:34:48] Speaker 04: But then for anything that's retrospective? [00:34:50] Speaker 06: Yes, I want to reiterate that for 2020, it was initially promulgated prospectively, but looking back, given the disruptions to the transportation fuel market, given COVID-19, that amount was reduced, the amount to actually use. [00:35:05] Speaker 06: And then 2021, the year passed by the time the annual bill came out, and that was set at the actual use. [00:35:13] Speaker 01: But isn't the other part of the answer to why it isn't always set [00:35:16] Speaker 01: to the amount actually used is because if it's set prospectively, as I believe it was for the 2019 year, it determines how much is actually used. [00:35:24] Speaker 06: That's correct. [00:35:25] Speaker 01: And it can push. [00:35:26] Speaker 01: I mean, this is all a supply push rather than demand pull program. [00:35:31] Speaker 01: And so they're saying, you're required to use these higher portions, and therefore, that's going to be the compliance amount. [00:35:39] Speaker 06: That's exactly right, Your Honor. [00:35:41] Speaker 06: When it's prospective, there's a market forcing [00:35:44] Speaker 06: elements to it that is driven by increasing volume set in the statute in O2B. [00:35:53] Speaker 06: And for this reason, and this is one of the reasons that I think the refineries argument that the price caused by EPA delay in issuing the annual rules is not correct. [00:36:09] Speaker 06: As the volumes increase, the price of the renewable fuels goes up. [00:36:15] Speaker 06: or the reprice of the rain goes up, excuse me. [00:36:20] Speaker 01: Going back to the... What would you point to, your opposing counsel pointed to the GIRA report, what would you point to counter? [00:36:30] Speaker 01: I thought you just said the price spike was not caused by the scheduling. [00:36:34] Speaker 06: There's no evidence in the record with respect to what causes the price spike, Your Honor. [00:36:41] Speaker 06: this. [00:36:43] Speaker 06: The jail report certainly isn't in the record. [00:36:46] Speaker 06: Um, and in our response to comments, we simply pointed out that, uh, that there is an extremely complicated issue, and there's no, they provided no evidence that it was, in fact, any. [00:37:03] Speaker 04: Which that means you think the jail report is wrong? [00:37:06] Speaker 06: Your honor, I think I just think the GAO report is post-decisional. [00:37:10] Speaker 06: It is addressing something different from the issues here, and it is not in the record and should not be. [00:37:18] Speaker 04: And just to explain to me, why is it addressing something different on this issue? [00:37:22] Speaker 06: Your honor, the GAO report is directed to the administration of the Small Refinery Exemption Program, which is not at issue in this rulemaking. [00:37:35] Speaker 04: But isn't that what precipitated all of this is the small refinery exemption that was, I thought all the whole reason for the delay here is because of the admins or at least large part of the reason. [00:37:46] Speaker 06: No part of the reason for the delay was, um, uh, this more binary extension program, but in the sense that, um, there were cases pending in the, [00:37:57] Speaker 06: Ten Circuit and then the Supreme Court that would have an effect on the small refinery exemption program and the way EPA viewed it. [00:38:08] Speaker 06: But also another cause for the delay was that for the first time for the years 2020 through 2022, EPA used its reset authority to set the volumes. [00:38:19] Speaker 06: And that is a lengthy process that requires EPA to consult with the [00:38:24] Speaker 06: secretaries of agriculture and secretaries of energy, and to consider statutory factors in order to set volumes. [00:38:31] Speaker 01: In other words, this was a transition period from the statutorily set volumes to EPA set volumes. [00:38:38] Speaker 01: And so this was a growing pains in the beginning of that transition. [00:38:41] Speaker 06: But no, there is a transition after 2022 where, [00:38:53] Speaker 06: And it addresses the same statutory factors, but there's also a provision that says that if EPA reduces the volumes according to its waiver authority by certain percentages over a certain period of time, it then will reset the volume for future years for which there are statutory volumes, once it considers certain factors. [00:39:17] Speaker 01: So it's the same thing. [00:39:17] Speaker 01: So it chose to reduce the volumes and then it had to do a bunch of recalculations? [00:39:20] Speaker 01: Exactly. [00:39:21] Speaker 04: Where is that in the, I had trouble figuring out in any of the materials for us, why there was the delay. [00:39:28] Speaker 04: And there was the small refinery exemption, stuff which was mentioned in the regulatory materials. [00:39:31] Speaker 04: Where is, maybe I just glossed over. [00:39:33] Speaker 04: Where is it about the reset authority? [00:39:35] Speaker 06: I believe it's in the preamble, your honor. [00:39:40] Speaker 06: In one of the first pages it explains, it's the smaller refinery exemption and then also resetting the volumes in light, particularly [00:39:51] Speaker 06: reduce use of fuel in the code during COVID-19. [00:39:57] Speaker 06: See, I'm running out of time. [00:40:02] Speaker 02: If a refiner does not meet the whatever the maximum or minimum amount of renewable fuel that has to be added to the regular fuel, it doesn't meet it for the year. [00:40:20] Speaker 02: uh, before files the compliance report and adjust by buying up R. I. N. S. That even and it buys them even outside of the the compliance year. [00:40:37] Speaker 06: But yes, your honor, the in obligated party can purchase rims to ensure that it complies with the [00:40:46] Speaker 02: So it can retroactively comply with the requirements? [00:40:53] Speaker 06: That's correct, Your Honor. [00:40:54] Speaker 06: It can purchase RINs that are of the vintages that are usable with respect to that compliance deadline. [00:41:02] Speaker 06: So for 2020, that would be 2019 RINs and 2020 RINs. [00:41:07] Speaker 06: And it can purchase those RINs today after the compliance deadline. [00:41:10] Speaker 02: I have two other questions that are just for my edification. [00:41:14] Speaker 02: Are the requirements for the percentage of renewable fuel dependent on the season of the year? [00:41:24] Speaker 02: There are. [00:41:25] Speaker 06: I don't believe so. [00:41:29] Speaker 02: Is there a maximum amount of renewable fuel beyond which an internal combustion engine will not operate? [00:41:41] Speaker 06: Certainly there are. [00:41:44] Speaker 06: There are certain vehicles where the fuel, if the percentage of ethanol is above 10%, they avoid the warranty. [00:41:54] Speaker 02: I'm not just talking about vehicles. [00:41:57] Speaker 02: I'm talking about lawnmowers, power blowers. [00:42:00] Speaker 02: Yes, so certain cycle engines for cycle engine. [00:42:04] Speaker 06: I think there are certainly certain vehicles, combustion engines that can't use certain types of renewable fuel. [00:42:14] Speaker 06: But other types of engines can use, for instance, instead of E10 that has 10% ethanol, E85 that has 85% ethanol. [00:42:26] Speaker 04: Thank you. [00:42:26] Speaker 04: Can I just ask you to address briefly the argument about the carry forward provision that the way that the EPA, um, fashion things in the, in the extension rule counters that carry forward guarantee. [00:42:39] Speaker 06: Yes, your honor. [00:42:40] Speaker 06: Um, you know, Mr. Houston referred to the fact that ACE relied in part on the carry forward provision, um, in determining the EPA reasonably use its authority to issue late standards. [00:42:54] Speaker 06: And I would point out that the, uh, [00:42:57] Speaker 06: the intervals between the compliance deadlines at ACE were virtually identical to those here. [00:43:03] Speaker 06: Four months at ACE here, four months and then five months. [00:43:07] Speaker 06: And so the obligated parties still have time, I still have the opportunity here to carry forward a deficit and they can use different rent ventures in order to comply with that, with the carry forward deficit. [00:43:23] Speaker 06: So if they carry forward from 2020 to 2021, [00:43:26] Speaker 06: That means that whereas they used to only be able to use 2019 and 2020 RINs to comply with that, they can now use 2020 and 2020 RINs. [00:43:37] Speaker 04: And they can do that because of what? [00:43:39] Speaker 06: Because of the carry forward provision. [00:43:41] Speaker 06: And so when they carry forward, the RIN vintages are, the compliance here determines what the RIN vintages they can use. [00:43:50] Speaker 06: And so if they carry forward, it gives them more flexibility [00:43:56] Speaker 01: There is a time at which the rims, it's only a one-year carryover. [00:44:03] Speaker 01: Correct. [00:44:03] Speaker 01: So if you have, as here, a bunch of deadlines that have been delayed and then bunched together, you're going to have, instead of, let's say you have four years of deadlines for compliance filings occurring in one year. [00:44:24] Speaker 01: The RINs carry over is only going to be the preceding actual calendar year, not the year preceding the compliance period, right? [00:44:36] Speaker 01: I mean, if all is going perfectly, you have the exact number of RINs that everybody needs for compliance. [00:44:42] Speaker 01: Because the whole point is, the only reason there's a market is because blenders are [00:44:48] Speaker 01: generating the rents and the people who have to show compliance are the importers and the refiners and so they have to buy them from the lenders, right? [00:44:57] Speaker 01: And presumably there would be a perfect number available and the price would be stable if [00:45:03] Speaker 01: everything worked as the statute envisioned. [00:45:05] Speaker 01: But if you have a carryover possibility, but then those RINs expire, RINs could have been created in a year that all of those RINs died before anybody needs to use them for compliance, if it was two years ago, three years ago, four years ago, as opposed to just last year. [00:45:22] Speaker 01: Is that part of what you understand to be the case, their complaint? [00:45:25] Speaker 01: And if so, what's your response to that? [00:45:28] Speaker 06: I don't understand petitioners to be arguing that [00:45:32] Speaker 06: rins that were generated in 2018 and could be used for compliance in 2019 now cannot be on the September 1st, 2022 deadline for compliance there. [00:45:44] Speaker 01: Can they be used or not? [00:45:47] Speaker 06: I believe so, Your Honor, but I can't. [00:45:49] Speaker 01: Because I thought he was saying that when there was a remedial moment when EPA gave back everybody's rins, but they were useless because they were too old. [00:45:57] Speaker 06: Well, in that situation, Your Honor, [00:46:01] Speaker 06: the compliance deadline had come and passed, in the particular instance where he's talking about. [00:46:07] Speaker 06: And so what Mr. Houston? [00:46:08] Speaker 01: So getting back the rins that you've saved up, it's sort of like the person who was careful in the face of the exotic mortgages and managed to stay afloat doesn't get relief. [00:46:22] Speaker 01: And the person who was reckless gets relief. [00:46:25] Speaker 01: I mean, I think they're sort of saying that there are disincentives to being conservative in your [00:46:30] Speaker 01: banking of rents, because if you get relief at the end of the day, you've paid for something that's useless. [00:46:37] Speaker 01: And so I guess that seems to me a big part of the equities of their case, and I'm not entirely sure what EPA's response to it is. [00:46:45] Speaker 06: Your Honor, I think that it's not applicable here, where small refineries have known since December of 2021 that EPA intended to [00:47:00] Speaker 06: deny the small refinery petitions, and they've had since that time to the acquirement rent in order to comply. [00:47:09] Speaker 01: Could they comply well before the deadline? [00:47:12] Speaker 01: Even though EPA is pushing the deadlines forward, could they just? [00:47:19] Speaker 06: Yes, they have the option to, so. [00:47:23] Speaker 01: And you don't, so if they're still having to comply in, [00:47:29] Speaker 01: March of this year, they're still having to file for the 2021 compliance period, right? [00:47:41] Speaker 01: The RINs that were accumulated in the 2021 year and can be carried forward to 2022. [00:47:51] Speaker 06: That's correct, Your Honor. [00:47:52] Speaker 01: But they can't be carried forward to 2023? [00:47:57] Speaker 06: Your honor, so the way that the carry forward provision works is if, assuming that a obligated party is up to date on its obligations, it can carry forward 2021 obligations forward to 2022, at which point it needs to retire both of those obligations. [00:48:15] Speaker 01: You're right. [00:48:15] Speaker 01: I'm confusing two different things. [00:48:17] Speaker 01: One is that the RINs, you can borrow, you can use RINs from the prior year, you can bank your RINs, and the other is that you can postpone your obligation. [00:48:24] Speaker 06: That's correct. [00:48:24] Speaker 01: So can you bank RINs from 2020 and use them to pay in March 31st of 2023? [00:48:30] Speaker 01: I'm guessing no. [00:48:33] Speaker 06: RINs from 2020 to comply with the 2021 deadline in? [00:48:37] Speaker 01: To apply the 2023 deadline that is now the compliance deadline [00:48:42] Speaker 01: after the extension rule because the compliance deadline has been moved forward to, the publication of the final standard was moved forward to July, 2022. [00:48:55] Speaker 01: You didn't even know what the standard was. [00:48:57] Speaker 01: Maybe you could have complied in July, but you're allowed till March. [00:49:01] Speaker 01: And I'm just wondering whether part of the market spikes are because the carry forward of your RINs [00:49:11] Speaker 01: is no longer functional because of the passage of time. [00:49:14] Speaker 06: My understanding, Your Honor, is that the March 31st deadline for 2021 can be complied with using 2020 or 2020. [00:49:22] Speaker 01: The March deadline is now, it's the compliance deadline for 2021 is now March 2023. [00:49:30] Speaker 01: Correct. [00:49:31] Speaker 01: Okay. [00:49:31] Speaker 01: And you're saying you can use 2020. [00:49:34] Speaker 01: And 2021. [00:49:35] Speaker 04: 2021 is my understanding. [00:49:38] Speaker 04: because it's the 2021 compliance here. [00:49:41] Speaker 04: But if it's, I mean, if it's a compliance here, if it's a 2022 compliance here, then you can't use the. [00:49:50] Speaker 06: Then you can use the 2021 or the 2022. [00:49:53] Speaker 04: But not the 2021. [00:49:54] Speaker 04: Exactly, Your Honor. [00:49:57] Speaker 01: That's helpful. [00:49:58] Speaker 04: Thank you, Council. [00:50:00] Speaker 04: Mr. Houston, we'll give you three minutes for rebuttal. [00:50:09] Speaker 05: Thank you, Your Honor. [00:50:10] Speaker 05: Several points. [00:50:10] Speaker 05: Judge Randolph, this is not just about a compliance report. [00:50:14] Speaker 05: We are required to go out and buy something that costs $150 million. [00:50:20] Speaker 05: That is what the extension rule is imposing on us. [00:50:22] Speaker 05: And then we have to go out three months later and buy something else that costs $175 million. [00:50:28] Speaker 05: My clients cannot generate rins. [00:50:30] Speaker 05: They do not blend. [00:50:31] Speaker 05: In many cases, in some cases, at least, it's because the product that they ship goes through a pipeline that won't accept blended fuel. [00:50:38] Speaker 05: That's why Congress created a program where we have no choice but to go out and buy these rins from the parties that generate them. [00:50:45] Speaker 05: It's a massive obligation. [00:50:47] Speaker 05: On the text, my friend from the EPA refers to the text. [00:50:49] Speaker 05: I want to direct the court to 75-45-05-D. [00:50:54] Speaker 02: But why does that depend on when you have to file your request? [00:50:58] Speaker 02: whether you have to go out and buy them or not. [00:51:01] Speaker 05: The hardship denials is the thing that in trigger requires us to buy them at all. [00:51:07] Speaker 05: But EPA was very late. [00:51:09] Speaker 05: It repeatedly missed 90 percent of its statutory deadlines to adjudicate those hardship petitions, which are the thing that determined whether we have any obligation in the first place. [00:51:17] Speaker 05: Plus, as your honor was pointing out in the call with my friend from the EPA, we're talking about EPA putting out a rule in 2022, determining what my clients needed to have done in 2021, in 2020. [00:51:30] Speaker 05: It's very much a retroactive application. [00:51:32] Speaker 02: So before you file the report, you can bring yourself, which would show, if you just did nothing and just filed what percentage of renewable fuels you put into the mix, you would not [00:51:47] Speaker 02: reach the 10%? [00:51:48] Speaker 05: Not remotely, Your Honor. [00:51:49] Speaker 05: We would be in violation of the statute. [00:51:51] Speaker 02: We would be subjected to very severe penalties. [00:51:54] Speaker 02: And so you think retroactively you can bring yourself into compliance? [00:51:59] Speaker 02: That's what EPA demands of us, Your Honor. [00:52:01] Speaker 02: They demand that you... And that is by buying these IRDs? [00:52:04] Speaker 02: Correct. [00:52:05] Speaker 05: That's correct, Your Honor. [00:52:06] Speaker 02: That's exactly right. [00:52:06] Speaker 02: But there's a fixed supply... And then your argument is the more time you have to enter that market, [00:52:13] Speaker 02: the cheaper the R.I.N.' [00:52:16] Speaker 02: 's are going to be? [00:52:17] Speaker 02: Absolutely. [00:52:18] Speaker 05: This is what the GAO found. [00:52:19] Speaker 05: The amount of time that EPA acts, whether it acts and when, has a very significant increase on the price. [00:52:26] Speaker 05: So if we vacate the rule, it gives you less time. [00:52:32] Speaker 05: No, Your Honor. [00:52:33] Speaker 05: If you vacate the rule, EPA is going to have to go back and do it again. [00:52:38] Speaker 05: And they're going to have to do one of two things. [00:52:40] Speaker 05: They're either going to have to put in a new extension rule that reasonably mitigates our harm, or they're going to have to adopt something like the alternative compliance demonstration approach, or they're going to have to do something like the remedy in kernel oil by giving us a credit. [00:52:52] Speaker 02: The rule is an amendment to a requirement [00:52:57] Speaker 02: that originally was you have to file a report by March 31st of the next year. [00:53:03] Speaker 02: So if you vacate the amendment, then all that's left is a requirement that you have to file by March 31st of the following year. [00:53:13] Speaker 02: And which means you're out of compliance. [00:53:16] Speaker 05: I'm sorry. [00:53:17] Speaker 05: I'm sorry. [00:53:17] Speaker 05: It's not quite right. [00:53:19] Speaker 05: It's March 31st for years that have gone by without the extension rule. [00:53:23] Speaker 05: We would have just the statutory deadlines. [00:53:25] Speaker 05: And those are years in the past. [00:53:27] Speaker 05: EPA cannot obviously hold us liable for having not implied when at the time that those deadlines [00:53:33] Speaker 05: Were it in effect, EPA didn't have the volumes out. [00:53:36] Speaker 05: It didn't have the hardship petitions adjudicated. [00:53:38] Speaker 05: I mean, I think that's common ground between the parties here. [00:53:40] Speaker 05: And so what that means is, if the court vacates the extension rule and issues instructions to EPA to carefully study the harm, the real harm that we're experiencing, that's going to mean that EPA is going to put a new deadline in place. [00:53:53] Speaker 02: Then we get the authority to do that. [00:53:56] Speaker 05: I think that the court would vacate the rule, and then it should find that what made the rule unlawful was a failure to reasonably consider our harm. [00:54:05] Speaker 05: That would provide, I think, the guidance that EPA needs to know that it needs to be more attentive to these statutory deadlines going forward, and it needs to take seriously the harm to petitioners. [00:54:15] Speaker 05: I think current oil is a really good example. [00:54:17] Speaker 05: My friend from the EPA said just buy rateably all the time. [00:54:21] Speaker 05: Current oil did it and they suffered tens of millions of dollars of losses as described in our brief. [00:54:26] Speaker 05: I just want to return, if I may, for one second to the text. [00:54:28] Speaker 05: 754505D says, if for any reason [00:54:32] Speaker 05: petitioners wants to carry a deficit forward it's entitled to do so during the following calendar year but the extension rules lane tax says we get to carry forward a deficit only for three months and then we're required to comply it's a plain violation I think of Congress's instruction [00:54:49] Speaker 05: The last point I want to hear is just about the GAO report, which is critically important to deciding this case. [00:54:55] Speaker 05: It's absolutely relevant. [00:54:56] Speaker 05: The GAO analyzed the very same question that this court is going to consider. [00:55:00] Speaker 05: Did EPA act lawfully? [00:55:02] Speaker 05: The GAO studied its process. [00:55:05] Speaker 05: Is that part of the administrative record? [00:55:06] Speaker 05: It's not, but I don't, respectfully, that doesn't matter. [00:55:09] Speaker 05: Because I'm not asking the court to consider it for that purpose. [00:55:13] Speaker 05: My point is, EPA put out a rule. [00:55:15] Speaker 05: And in the rule, it made assumptions, and it put forward an analysis. [00:55:19] Speaker 05: We're saying that that assumptions and analysis violated the Administrative Procedure Act. [00:55:24] Speaker 05: The GAO studied that very question, and it agreed with us. [00:55:27] Speaker 05: It said EPA ran a faulty process, and it made assumptions that have been proven false. [00:55:33] Speaker 01: That is... When you talk about the amount of money that [00:55:38] Speaker 01: that the regulated parties have to pay, presumably in a functioning market, they've charged consumers along the way for what they expect to be that cost. [00:55:53] Speaker 01: So if that is not required by UPA, then [00:55:57] Speaker 01: Don't the regulated parties get an enormous windfall, same scale of what you pointed to? [00:56:02] Speaker 05: No, no, not at all. [00:56:04] Speaker 05: My clients, three of the petitioners in this case, have stay applications pending in the Fifth Circuit and the Eleventh Circuit. [00:56:11] Speaker 05: One of them has gotten a stay. [00:56:13] Speaker 05: They have shown that they face imminent irreparable harm. [00:56:16] Speaker 05: If the extinction rule stands and EPA is allowed to impose these kinds of costs on us, the damage to my clients is catastrophic. [00:56:25] Speaker 05: So it's not about, we're not the ones that are reaping a windfall. [00:56:28] Speaker 01: We are trying to comply, but you get- I'm just saying in a functioning market, the assumption in putting the compliance obligation on importers and refiners as opposed to, let's say, lenders is that in a functioning market, the cost, it doesn't matter where you put that obligation because you'll charge commensurate [00:56:54] Speaker 01: prices for your product, and you'll be able to buy the requisite rents to cover those prices. [00:57:00] Speaker 01: So presumably, in planning and in setting those prices, that has been taken into account. [00:57:06] Speaker 01: But then now, if there's relief, maybe the prices are way higher than was planned for, but some increment presumably was collected with the expectation that one of the costs of this business [00:57:20] Speaker 01: is the RIN cost. [00:57:23] Speaker 01: And I'm just saying that the dollar amounts sound large, but it's going to something for which you're collecting money. [00:57:33] Speaker 05: Totally understand, Your Honor. [00:57:34] Speaker 05: The premise of Your Honor's question began with in a functioning market. [00:57:39] Speaker 05: This RIN market is not functioning remotely like Congress. [00:57:43] Speaker 01: I understand that. [00:57:44] Speaker 01: I understand that position. [00:57:45] Speaker 01: Are you saying that none of your clients have, in fact, [00:57:49] Speaker 01: garnered prices that reflect the compliance prospect? [00:57:53] Speaker 05: Yes, I think that's absolutely right. [00:57:54] Speaker 05: The idea that we are able to pass on these costs to our customers is just not borne out by reality. [00:58:01] Speaker 05: Again, we're talking about a tenfold increase in the price going back [00:58:06] Speaker 05: just a couple of years. [00:58:07] Speaker 05: So it's like saying the charge that a pump charges for gasoline, we all expect that to fluctuate. [00:58:15] Speaker 05: But the gas company can't start charging 10 times increase and expect there to be no impact on the bottom line. [00:58:22] Speaker 05: That's what EPA is doing to us. [00:58:23] Speaker 05: And again, the reason why that's happening is precisely because the market is not functioning. [00:58:28] Speaker 05: And you don't have to take my word for it. [00:58:31] Speaker 05: EPA has admitted this. [00:58:32] Speaker 05: They have acknowledged in the alternative compliance demonstration approach [00:58:35] Speaker 05: And in the extension rule, that there are only a very small number of parties that hold a super majority of the relevant rents. [00:58:43] Speaker 05: So, again, remember that, you know, the supply for twenty, twenty one, twenty, twenty two, it's fixed. [00:58:47] Speaker 05: No more can be generated. [00:58:48] Speaker 05: There's a finite number of them. [00:58:50] Speaker 05: And a super majority of them, small number, we're talking about 10, 11 parties, they hold 75% of the rents. [00:58:56] Speaker 05: And now EPA, in the extension role, is telling petitioners that they have to go to those companies that hold them and buy. [00:59:02] Speaker 05: The predictable result, as I think any high school level economics student would tell you, is that those companies holding them are going to charge massive premiums for them. [00:59:11] Speaker 05: And that's exactly what's happening in this market. [00:59:14] Speaker 05: So none of this is disputed. [00:59:16] Speaker 05: EPA acknowledges that the RIN market is not functioning. [00:59:19] Speaker 05: It is not liquid. [00:59:20] Speaker 05: But the real problem with the extension was they're not addressing that. [00:59:25] Speaker 05: That's the fundamental problem in this market right now. [00:59:28] Speaker 05: And that's the fundamental reason why the harms are so high. [00:59:31] Speaker 05: Instead, what we get is the extension rule. [00:59:34] Speaker 05: And EPA says, well, we'll just give you a few more months to comply. [00:59:38] Speaker 01: And the drop in to zero of the number of small refinery exemptions granted in 2019, is that [00:59:44] Speaker 01: only frontier result or what why why why did the number of exemptions. [00:59:51] Speaker 05: Granted go to zero or because they haven't been decided yet because EPA fundamentally change the approach by which they were considering those petitions it's not a result of only frontier on the contrary [01:00:04] Speaker 05: I'll be fun to your whole EPA to not be so strict in essence, but it's also not because it hasn't happened yet. [01:00:12] Speaker 01: They just haven't. [01:00:13] Speaker 05: Oh, that's correct. [01:00:14] Speaker 05: The EPA has put out a blanket. [01:00:16] Speaker 05: It has said we're denying all the ones that are pending. [01:00:18] Speaker 05: And we never intend to grant hardship relief again. [01:00:21] Speaker 05: And we think that's a flagrant statutory violation in Kendor. [01:00:24] Speaker 05: It's a problem for another day. [01:00:25] Speaker 05: It's another decision that EPA has put out that we have very aggressively challenged. [01:00:31] Speaker 05: And I'm confident that it is unlawful. [01:00:34] Speaker 05: But it is a part of the story, as I think Chief Judge Srinivasan mentioned, because it's one of the suite of actions that was late. [01:00:43] Speaker 05: The EPA then needs to try to make up [01:00:45] Speaker 05: The extension rule is their purported attempt to make up for it, to meet the standard that this court imposed in Americans for clean energy. [01:00:52] Speaker 04: Can I just ask one last question, which is, you said in the face of this massive market misallocation, and there's, rents are held by a small number of companies and they're gonna spike the prices, all the extension rules gives us is a few more months. [01:01:09] Speaker 04: But isn't all you're asking for a few more months beyond that? [01:01:12] Speaker 04: No, no, I'm sorry. [01:01:14] Speaker 05: No, we're asking for sort of, I think I would say, an entirely new regime. [01:01:19] Speaker 05: We're asking for EPA in the future, in future years, to follow the statutory deadlines. [01:01:24] Speaker 05: put out the volumes when they're required to, and give us the statutory minimum 13 months of lead time. [01:01:29] Speaker 05: That will address, that will entirely address the problem in the future, and it will allow EPA to get back on track. [01:01:34] Speaker 05: Then we have a question. [01:01:35] Speaker 05: Okay, we have a couple of years- From backward-looking ones. [01:01:38] Speaker 05: Correct, a couple of past years where things, where EPA got really off track. [01:01:43] Speaker 05: The question is, what to do about it? [01:01:44] Speaker 05: Well, again, I think EPA already had a solution in the alternative compliance demonstration approach. [01:01:50] Speaker 05: If the court, if that's not satisfactory to the agency or the court, [01:01:53] Speaker 05: Court could adopt the same approach as the Ninth Circuit in Kern Oil, and EPA could give us a credit for the difference between when they were late and when... But that's not a 12-month, 13-month issue. [01:02:04] Speaker 04: It's not. [01:02:05] Speaker 04: Okay. [01:02:05] Speaker 04: I just wanted to understand that. [01:02:06] Speaker 05: I think at that level, Your Honor, we're talking about the... We know EPA violated the law. [01:02:11] Speaker 05: They made a mistake. [01:02:12] Speaker 05: And the question is, what do we do that? [01:02:14] Speaker 04: So we can, when you're talking about the remedy for that has nothing to do with the 12 months, 13 months as a vehicle for getting it. [01:02:19] Speaker 04: That's right. [01:02:20] Speaker 04: That's right. [01:02:21] Speaker 05: That's about a statutory violation that happened in the past. [01:02:23] Speaker 02: The question is, what are you filed a petition for rulemaking with EPA making the arguments you're making? [01:02:29] Speaker 02: Absolutely. [01:02:30] Speaker 05: You're on all of the points that we're making about the fact that the ring market has happened. [01:02:36] Speaker 05: Oh, I'm sorry. [01:02:36] Speaker 05: Maybe I didn't understand your honest question. [01:02:38] Speaker 05: We submitted comments at this moment. [01:02:40] Speaker 02: The GAO report came out in November. [01:02:43] Speaker 02: Yes, correct, Karen. [01:02:44] Speaker 02: Of this, or second. [01:02:45] Speaker 02: 2022. [01:02:47] Speaker 02: Right, that's new. [01:02:49] Speaker 02: And my question is, you come up with all these hardships that are, which I don't have no way of knowing one way or the other. [01:02:58] Speaker 02: But have you filed a petition for rulemaking with EPA bringing these matters [01:03:04] Speaker 02: the EPA's attention and asking for a rule of this sort. [01:03:10] Speaker 02: You'd have to deal with a heck of a lot more than the extension. [01:03:15] Speaker 05: I understand that point, Your Honor. [01:03:17] Speaker 05: When the GAO report came out in November, it said to EPA, they obviously sent it to EPA and told them, go back and study this thing more. [01:03:26] Speaker 05: Look harder at this problem. [01:03:27] Speaker 05: That was the GAO's recommendation to the agency. [01:03:30] Speaker 05: The agency did that. [01:03:31] Speaker 05: It put out then in December, a new finding that confirmed that we're right, that EPA's assumption built into the extension rule about the ability of petitioners to pass on their rent costs was wrong, that that was empirically flawed. [01:03:45] Speaker 05: December report, you didn't mention that. [01:03:48] Speaker 05: It came out after our reply brief, Your Honor, had it even been, but I think all that that just shows is that the extension rule, which was put out back in February of 2022, was based on a series of assumptions [01:04:00] Speaker 05: and an analysis by EPA. [01:04:02] Speaker 05: We argued in our comments and we've argued to the court that those assumptions and that analysis was faulty. [01:04:08] Speaker 05: The GAO has, that's the fundamental question I think this court is going to decide in this case. [01:04:13] Speaker 05: The GAO looked at it and says we were right. [01:04:16] Speaker 04: Thank you counsel. [01:04:17] Speaker 04: Thank you to both counsel. [01:04:18] Speaker 04: We'll take this case under submission.