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Case number 22-1073 et al.

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Sinclair Volumine Refining Company LLC and Sinclair Casper Refining Company LLC petitioners versus Environmental Protection Agency and case number 22-1074 et al.

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Sinclair Volumine Refining Company LLC petitioner versus Environmental Protection Agency.

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Good morning.

[00:00:33] Speaker 03:
I'll be addressing the arguments that are common to all of the petitioners in these cases, and then I want to be sure to save a few minutes and talk about the eligibility issue that affects only Company A. My colleague Mr. Delacroix will address Refinery B. In 2021, the Supreme Court rejected EPA's argument that Congress intended to sunset

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the RFS hardship exemption for small refineries, just like the petitioners, that are critical to domestic energy security and that are pillars of their communities.

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But just a few months after EPA lost in Holly Frontier, it set out in the denial decisions to eliminate the hardship exemption itself.

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First, by ignoring the statutory deadline to decide these petitions, and then by denying every single one of them.

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EPA did so based on the staggering conclusion

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that the costs of RFS compliance for the smallest refineries in the country are exactly the same as on some of the largest vertically integrated oil companies in the world.

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The Fifth Circuit recently explained why that conclusion is, quote, so implausible that it cannot be ascribed to a difference in view or agency expertise.

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It directly contradicts EPA's prior findings and rests on premises that the record proves to be false.

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EPA disregarded the statutory text by looking only to the costs of compliance and refusing to consider refineries' individual economic circumstances.

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And EPA's decision is unlawfully retroactive.

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These refineries justifiably relied on EPA's consistently adopted framework for adjudicating hardship petitions.

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EPA was not permitted to entirely jettison that framework and adopt a wholly different one years after the compliance years were over when the refineries could do nothing about it.

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The Fifth Circuit got all these issues right, and this Court should rule likewise.

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The Court should vacate the denial decisions and remand with instructions to the agency to either grant the hardship petitions or adopt the EPA's alternative compliance approach.

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I welcome the Court's questions.

[00:02:38] Speaker 09:
Speaking of the Fifth Circuit, there's no venue dispute left in this case, right?

[00:02:42] Speaker 03:
That's correct, Your Honor.

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I don't think there's ever been a venue dispute in this Court.

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I think the parties agree about that.

[00:02:49] Speaker 09:
Just to sort of understand the scope of your position, you appear to concede that the RIN pass-through principle does hold on average across the industry, but as I take it, your primary complaint is that even if it does occur on average, it doesn't apply equally to each of the small refinery petitioners for various reasons.

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I think what EPA said, Your Honor, the logic of their position is that they believe they have observed data that supports RIN pass-through on average across the entire industry.

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If the court looks at the studies, the only two studies that EPA has ever relied on to justify this, the Burkholder study and then the point of obligation decision in 2017,

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you will see.

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And the court will also see in Alon, the case that the EPA relies on so heavily, the conclusion in the record there was about general observations of pass-through, that it occurs on average.

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But you don't need to dispute, and I don't take you to be disputing, that their studies show

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As you say, at most, price spreads reflect changes in the calculated RIN obligation on average.

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RIN costs were fully passed through on average.

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And then you argue, and I'm looking at page 67 of your brief, none of the study's EPA sites look specifically at small refineries.

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They say nothing about individual refineries.

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So even if the industry as a whole is working these through, passing these through,

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Your point is that the allocation or the distribution among smaller refineries, there's no guarantee.

[00:04:24] Speaker 03:
Yes, that's exactly right.

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And that is, I think, the whole point of Congress's hardship exemption.

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Congress recognized that although it went and adopted the RFS program, that it wanted a balance.

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The RFS is focused on domestic energy security, but if the RFS obligation becomes so acute that it drives small refineries, which have different structural considerations, then the goals of domestic energy

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security will be frustrated.

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And I think it's worth thinking about exactly what those structural disadvantages are.

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The biggest one is that small refineries, unlike their vertically integrated competitors, do not have the opportunity on a large part to blend renewable fuel.

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They are captive to the RIN market.

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They have to go out and buy the RINs from the large companies that sell them.

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And as the record reflects, those companies make enormous profits doing so.

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You can see this at JA 13, 468, and 469.

[00:05:20] Speaker 09:
Let me ask you.

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And I know you dispute this, but if EPA were correct that the RFS program imposes zero compliance costs, then a small refinery could not experience disproportionate economic hardship that is caused by the RFS program.

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So I think if there were no, if it were actually true that every refinery has no cost burden from the RFS, then yes, I think in that extraordinary circumstance.

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But that is exactly the conclusion that EPA, that the Fifth Circuit said is so utterly implausible.

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It just is contrary to common sense.

[00:06:02] Speaker 09:
It's contrary to common sense.

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Great, so if we, and I'm trying to understand the role of the statutory interpretation in this case.

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Because I'm not sure how we reach the statutory interpretation issue.

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So if we agreed with you that under the statute, a small refinery may be eligible for an exemption, even if its compliance costs are proportionate.

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And if we conclude that because of written pass-through,

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no refinery has experienced any compliance costs, then the statutory interpretation doesn't even matter.

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Does it?

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Respectfully, Your Honor, I disagree with that, because I think it's important to bear in mind that EPA's conclusion, their own argument, is that that pass-through phenomenon holds true only if small refineries buy rins rateably.

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That is a cornerstone of their- But if we think that

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EPA is wrong about rateability, the feasibility of buying rateably, then that makes the denial action arbitrary and capricious no matter how we understand causation under this statute.

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That's exactly right, Your Honor.

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Yes.

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So in that respect, they are independent grounds for vacating the denial actions.

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They are linked in the sense that EPA says,

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Our view of causation in interpreting the statute is based on the conclusion that RFS compliance costs alone are the only thing we're willing to consider, and more specifically, RFS compliance costs when RINs are bought rateably.

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But I don't see how that drives a statutory interpretation.

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In fact, it seems to obviate the need for a statutory interpretation.

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You don't need to decide whether it's

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a cause, a but for cause, a proximate cause, if there's nothing that's causing anything.

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If there's no harm at all, then the question of how do we understand

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causation under the statute is just not, it's not material to the resolution of the case.

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So, I mean, with respect, Your Honor, I don't think I quite agree with that.

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I certainly agree that if the court rejects the pass-through hypothesis, if the court rejects the premises that underlie it, namely, rateable RIN purchases and the fact that

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all parties can pay the same amount for RINs, which I do want to talk about.

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That's sufficient to vacate the denial actions.

[00:08:30] Speaker 09:
But there is an even if... In fact, let me just stop you there.

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We wouldn't even have to reject pass-through.

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We would just have to reject the rateability.

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That is exactly right, Your Honor.

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That is absolutely sufficient.

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The only point that I'm trying to make is that because EPA is saying there is no hardship if a small refinery buys RINs rateably,

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That is tantamount to an agency interpretation, a statutory interpretation, that refineries are obligated to buy RINs rateably.

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And that requirement appears nowhere in the statute.

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Indeed, I think the statutory text contradicts it because of the deficit carry-forward provision, the provision in the statute that says,

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a refinery can be fully compliant with the RFS if it does nothing in year one and then carries forward its obligation into year two.

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There's no way.

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Why does that have to be, I appreciate your point about the deficits.

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Bracketing that for a moment, I'm not sure that I follow why if EPA had rock solid evidence that rateability was feasible and was the way to go, why would it have to be a statutory

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interpretation that it were requiring that why couldn't it just be reasonable regulatory method of avoiding gamesmanship or shirking or you know

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actions that would cause untoward fluctuations in the rent market.

[00:10:00] Speaker 03:
Well, because I don't think the EPA cannot add words to the statute that aren't there.

[00:10:05] Speaker 09:
No, but it can implement the statute.

[00:10:06] Speaker 03:
Of course.

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It gives regulatory authority to come up with reasonable rules.

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Reasonable rules, but it can't contradict the specific provisions of flexibility that Congress provides.

[00:10:17] Speaker 09:
But I said if we were going to bracket that.

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It doesn't need to be a statutory interpretation

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argument but it does need to be non-arbitrary.

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It needs to be non-arbitrary

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it needs to be consistent with the other provisions of the statute.

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I think, respectfully, the deficit carry forward provision, I don't mean to fight the courts.

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It's important.

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It's important, and I think it's the provision that most cleanly explains why EPA's newfound insistence that small refineries buy RINs rateably, even if it were possible, which it's not, as EPA acknowledges, is inconsistent with the statutory text.

[00:10:52] Speaker 14:
I mean, it may be true that if we find the EPA's action unreasonable,

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that that would be a sufficient grounds for vacating, but isn't its reasonableness analysis sort of inextricably connected with its statutory interpretation?

[00:11:07] Speaker 03:
Yes, I think that is a fair characterization of EPA's own opinion and it's because they say that

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It's because the way that they interpret the statute is to focus on causation and they say we are going to look only to the costs of RFS compliance.

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We're going to ignore all of the other individual economic circumstances of a refinery that have always driven the consideration of the hardship exemption.

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Now EPA says we're interested in one thing and one thing only.

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What are your costs of RINs bought rateably?

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That's their interpretation of the statute and that's the sense that because that syncs up with their

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economic conclusion that RIN cost pass-through is achieved only when RINs are bought rateably.

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I think it does lead to that conclusion and it's important for the court to look at the evidence that we purport.

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I think I'd like to spend a minute on that if I might because

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Because rateable RIN purchasing is such a cornerstone of EPA's analysis, as they explained, here's what EPA said about rateable RIN purchasing in 2019.

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Requiring immediate RIN retirement is, quote, infeasible because, quote, it would be virtually impossible for the market to meet such tight demand for RINs by obligated parties.

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The reason is because RINs are unevenly generated throughout the year.

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Take one example, diesel fuel, much harder to blend biodiesel in the winter.

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So refineries across the country don't.

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They blend more diesel fuel in the summertime, in the months when it's warmer.

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That means that the production of the rins that correspond to that fuel isn't consistent across the year.

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There's more available at different times.

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That's exactly why EPA said it would be in feasible, impossible actually was their word, for parties to be obligated to buy rins at the same time.

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And they have said not one word in the denial actions or their brief about why that's wrong.

[00:12:54] Speaker 09:
I think they have a footnote, but we'll get to that.

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So you suggest in your brief that buying RINs rateably means contemporaneously with the sale of fuel.

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But EPA at times appears to mean something more flexible, saying that the refinery that purchases

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will purchase rateably if it purchases on a systemic, regular basis the number of RINs needed to satisfy their obligations.

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So I wonder whether your objections, like the infeasibility of actual daily retirement of RINs go away if we assume that regular RIN purchases

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doesn't mean strictly contemporaneous, but more something that's just along the way.

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So if I can make two points about that, Your Honor.

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The first is that EPA's conclusion is that every single refinery in the country, no matter its circumstances,

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will always experience perfect pass through.

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And in order for them to make such a bold conclusion, I think they have to be awfully precise about what they're talking about.

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And the only way that even as a matter of their own economic theory, that could make sense is if the time that RINs are purchased is very close in proximity.

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The same day or?

[00:14:19] Speaker 09:
Is that right?

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I mean, think about sort of investing on a kind of dollar cost averaging basis.

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You can absolutely reliably

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hit the market if you have an investing strategy that, you know, sometimes you'll be a little high, sometimes you'll be a little low, but if you do regular, regular, regular, it doesn't have to be every day.

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And so if that's what EPA really means, do you have a slam dunk argument against it?

[00:14:48] Speaker 03:
Yes, absolutely we do.

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And that's because the fundamental reasons why small refineries are not able to buy rinsed rateably doesn't turn on whether we're buying them

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you know, the same day or a few days later.

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There are a couple of important facts to bear in mind about why small refineries, why EPA said it was impossible for RINs to be bought rateably.

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One is the point I just mentioned a few minutes ago, their own conclusion that RINs are unevenly generated throughout the year.

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Another critical one, EPA didn't even tell us the volumes.

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They were late repeatedly, as we explained in our brief at page 13.

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They haven't even told the market how many RINs a small refinery is going to be obligated to buy.

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I don't know how a small refinery could be expected to buy on the same day or within a few days if EPA hasn't even told them the number that it's going to need.

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The third point, there are no sellers for these small lots.

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Keep in mind, these are small refineries.

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Rins are many times sold in by the million, by the multiple hundred thousand.

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We have refinery petitioners in this case that process 5,000 barrels per day.

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Cross Oil is a good example of this.

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at page JA9832, they explain they have attempted, they have contacted RIN sellers to attempt to buy RINs.

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No one will sell them to Cross in the small lots that it would need them.

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And that problem is not gonna go away.

[00:16:05] Speaker 09:
Who has the burden on that point?

[00:16:08] Speaker 09:
You argue that EPA didn't support its finding that small refineries can do rateable purchasing.

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EPA says you can, you just have to contract.

[00:16:22] Speaker 09:
You know, it seems like contracts are, that's a flexible business tool, and if there are many refineries that want this, I'm not sure I understand why contracts to meet that need would be necessarily unavailable.

[00:16:39] Speaker 03:
Because the con, the con, RINs are bought and sold on a one-to-one basis.

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They're not like stocks.

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You can't just call your broker and, you know, transact in RINs.

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You have to call

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another one-to-one entity that will sell you the rins.

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And again, those transactions are typically done.

[00:16:55] Speaker 09:
So there's no centralized market?

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There is not a centralized market.

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There are indices, but there's no place to go.

[00:16:59] Speaker 03:
Correct.

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That's exactly right.

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That's precisely right.

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And that's an important way that these smaller refineries are disadvantaged.

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If you are cross-oil and you're buying, you want to buy 5,000 rins per day,

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and you call up somebody who is in position to sell them, and you say, I'd like to buy 5,000, they say, we only sell them by the million.

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No thanks.

[00:17:17] Speaker 09:
That's literally what happened.

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But there are brokers, and the point that your assertion is that brokers won't touch that?

[00:17:24] Speaker 03:
That's right.

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EPA has not even attempted to show that that's a real thing.

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Their only response to this in the denial decisions.

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And this is, again, a key part of why the Fifth Circuit vacated this agency action.

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I think to your question about the burden, it absolutely has to be EPA that has the burden on this point, because we commented on it.

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They said, a cornerstone of our analysis is rateable RIN purchases.

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We submitted comments and said, that is literally impossible for us to buy RINs rateably, as you yourself have acknowledged.

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They responded and said, well, yeah, we understand that you're small, but you can go out and enter a transaction with a broker.

[00:17:58] Speaker 03:
They have not actually shown, as the Fifth Circuit explained,

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that there are such people in the market, that such services exist.

[00:18:04] Speaker 09:
But do you know it's not, there aren't?

[00:18:06] Speaker 09:
I mean they responded and your position is that's not feasible.

[00:18:12] Speaker 09:
Is there anything we can look at in the record to know that that's not feasible?

[00:18:15] Speaker 11:
Yes, I think we- I'm sorry, didn't the agency said it was not feasible and then they changed their position?

[00:18:21] Speaker 11:
So is it not the agency's burden to explain a change in position?

[00:18:24] Speaker 03:
That is exactly right, Judge Pan.

[00:18:25] Speaker 09:
I think my it was much more specific, whether there are brokers who would handle the small size.

[00:18:31] Speaker 03:
I want to direct the court's attention to JA 3896 and 9832.

[00:18:36] Speaker 03:
Those are the comments from Placid and Cross, two of the refineries here.

[00:18:40] Speaker 03:
They submitted to the EPA comments that said,

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Placid said, quote, there is no trading house that will offer RINs that matches our small daily production.

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Cross Refining said, we are only able to buy RINs one to three times per year despite the inquiries we've made of multiple brokers.

[00:18:57] Speaker 03:
EPA has no response to this point except to dream up hypothetical contracts that they haven't actually shown exist.

[00:19:04] Speaker 03:
I do not think that is remotely sufficient to justify the change in position.

[00:19:08] Speaker 09:
And what you're saying is not the support for the stay, but

[00:19:13] Speaker 09:
Because some of the, I know CROSS filed something that was about we can't do this, but it was about getting everything without a stay.

[00:19:22] Speaker 09:
That's not what you're saying.

[00:19:23] Speaker 03:
No, that's right.

[00:19:24] Speaker 03:
Yes.

[00:19:24] Speaker 03:
That is what you're saying?

[00:19:25] Speaker 03:
No, I'm sorry.

[00:19:26] Speaker 03:
I believe what I'm talking about are CROSS's comments on the proposed denial action that we submitted to the agency.

[00:19:33] Speaker 03:
I do want to make sure and take a few more.

[00:19:36] Speaker 14:
I have another question about this.

[00:19:39] Speaker 14:
How should we view the Alon case from 2019, right?

[00:19:42] Speaker 14:
I mean, obviously it was in a different context, but this court held that EPA's, you know, a pass-through theory in a different context was reasonable.

[00:19:52] Speaker 14:
How would you distinguish that case?

[00:19:53] Speaker 14:
I mean, should that be persuasive to this panel?

[00:19:55] Speaker 03:
I think two points about Alon, Your Honor.

[00:19:57] Speaker 03:
The first is that the only thing that EPA was arguing in that case, the only thing that the court concluded was that it was reasonable for the agency to take the position

[00:20:08] Speaker 03:
that pass through occurs, quote, generally and on average across the entire refining industry.

[00:20:15] Speaker 03:
The court specifically at page 649 and 650 of its decision mentioned the fact that the petitioners in Olan had objected to the economic analysis in those studies, but the court said those claims are not brought before us, and so the court specifically did not address them.

[00:20:31] Speaker 03:
It's also not about small refineries at all.

[00:20:34] Speaker 03:
It's not about the outliers in the market

[00:20:37] Speaker 03:
that are the very purpose of the hardship exemption to protect.

[00:20:43] Speaker 14:
the relationship between the reasonableness of the EPA's theory.

[00:20:47] Speaker 14:
I mean, if the EPA were correct, if we assume that their pass-through theory works and the RINS can be purchased rateably, does that mean that their statutory interpretation is correct?

[00:21:00] Speaker 03:
No, it doesn't.

[00:21:01] Speaker 14:
Because in a way, they've said there are no other economic factors, right?

[00:21:05] Speaker 14:
We're basically just left with compliance costs.

[00:21:07] Speaker 14:
So if they're

[00:21:08] Speaker 14:
Correct is a factual matter that there is this pass through and rateable purchase.

[00:21:14] Speaker 14:
Does that validate the statutory interpretation?

[00:21:16] Speaker 03:
No, for two reasons, in part because of the reason that we discussed earlier, because that conclusion is premised on a new demand

[00:21:25] Speaker 03:
on refineries to purchase RINs rateably, even though EPA hasn't actually shown that that's possible, even though they haven't explained their change of position.

[00:21:33] Speaker 03:
So I think that's... I know you obviously don't agree with that, but I'm saying if that were true factually... So even then, I think, because even in that circumstance, you would be demanding that refineries comply with the RFS in one particular way.

[00:21:49] Speaker 03:
when the statute doesn't require them to do that, and another provision of the statute tells the deficit carry forward provision tells them that they're not required to do that.

[00:21:56] Speaker 03:
And then the last, I think, actual independent statutory violation is that EPA, even in that situation, even if you assume perfect pass-through, EPA acknowledges that the result of that is going to be demand depression.

[00:22:08] Speaker 03:
You're going to depress the demand for fuel.

[00:22:10] Speaker 03:
We put in comments that observed I think the sort of common sense point that a significant drop in the demand for fuel is going to disproportionately impact smaller refineries more than their larger competitors.

[00:22:24] Speaker 03:
EPA refuses to consider that.

[00:22:26] Speaker 03:
It says we will not take that into account.

[00:22:29] Speaker 03:
I don't think the statute allows them to simply ignore that conclusion even if they were right about pass-through.

[00:22:36] Speaker 09:
You appear to concede in your brief, I know the word concede makes an experienced advocate quake, but I think you acknowledge in your brief that EPA is empowered to disregard the cost of purchasing RINs non-radably if the timing of the purchase reflects, doesn't reflect good faith reasonable efforts to comply with the RFS, and that's a quote from your brief at page 53.

[00:23:05] Speaker 09:
So if there's some unreasonable action on the part of a small refinery, at least in theory, you say that is something that EPA can take into account.

[00:23:20] Speaker 09:
Can you think of an example or just explain to me what would be unreasonable within the meaning of that comment in your brief?

[00:23:30] Speaker 03:
I'm not sure that I can exactly, Your Honor, but there's a mention in the denial decisions about

[00:23:39] Speaker 03:
refineries engaged in gamesmanship.

[00:23:41] Speaker 03:
I think the record just utterly, entirely refutes that.

[00:23:44] Speaker 03:
I mean, for one thing, the idea that every single small refinery before you that's been denied is engaged in systemic gamesmanship is, I think, just ludicrous, and I don't think even EPA attempts to defend that.

[00:23:55] Speaker 03:
I think if the agency in a different case were to say, we've looked at something about your individual circumstances, the individual way in which you timed the market or something, and that is the basis for a denial of a hardship exemption, you did something in bad faith, that seems to me to be a much more, you know, worlds away from what we have here.

[00:24:17] Speaker 09:
I mean, we at least have one data point on that in our Hermes decision, right, where we denied the hardship exemption

[00:24:24] Speaker 09:
basically said that the refinery wasn't proceeding as if it wasn't gonna get the exemption and it wasn't proceeding, it was giving out a big dividend when it could have been buying rent.

[00:24:35] Speaker 03:
So, again, I think that's very, very different than what we have here.

[00:24:38] Speaker 03:
I do think, though, it's very important to say that the fact that a refinery that has consistently received hardship relief does not buy rents is not remotely

[00:24:50] Speaker 03:
gamesmanship or a bad business choice in the sort of derisive way that EPA describes it in its brief.

[00:24:56] Speaker 03:
Think about if you are running a business you're like hunt refining company in every single year of the hardship exemption program you have received the exemption.

[00:25:05] Speaker 03:
And EPA has over and over and over again applied the DOE scoring matrix as the way of determining whether you're going to qualify for hardship relief.

[00:25:16] Speaker 03:
And you know the factors that EPA considers as part of that matrix are either staying the same or getting worse.

[00:25:22] Speaker 03:
I think the idea of saying we're actually nevertheless going to go out and buy

[00:25:26] Speaker 03:
tens or hundreds of millions of dollars in rins, it's just sort of crazy.

[00:25:31] Speaker 03:
It might be a breach of fiduciary duty.

[00:25:33] Speaker 09:
And even if you did it... Although we suggested something to the contrary in Hermes where we said just because you had got the...

[00:25:41] Speaker 09:
Exemption in the past doesn't mean you shouldn't be proceeding as if you're not going to get it the next time.

[00:25:47] Speaker 03:
But Hermes did not have this feature of what of what this record does and it demonstrates that companies that attempted that strategy faced enormous business risks because there are petitioners before you.

[00:26:00] Speaker 03:
Who did that?

[00:26:01] Speaker 03:
One company lost two and a half million dollars.

[00:26:03] Speaker 03:
Crotts Springs lost 12 million.

[00:26:05] Speaker 03:
That's at J.A.

[00:26:05] Speaker 03:
4857.

[00:26:06] Speaker 03:
Kern Oil lost tens of millions and had to sue to get it back.

[00:26:10] Speaker 03:
Winnewood lost more than 10 million, which they're going to tell you about later today in the next case.

[00:26:15] Speaker 03:
These are all refineries that attempted what you might call the ultra conservative strategy.

[00:26:20] Speaker 03:
OK, we believe we're entitled to a hardship exemption, but let's just plan like we're not going to get one.

[00:26:24] Speaker 03:
They went out and bought rents.

[00:26:26] Speaker 03:
Then what happened?

[00:26:27] Speaker 03:
EPA was late.

[00:26:28] Speaker 03:
in adjudicating their hardship petitions, and when EPA then granted them the rins that those companies spent tens of millions of dollars to buy in some instances are worthless or significantly devalued.

[00:26:39] Speaker 09:
So the reliance is the reliance on an assumption that you would receive an exemption under if EPA continued to apply the DOE 2011 matrix the way it had in the past?

[00:26:53] Speaker 03:
I think that is factually accurate, but I would put it slightly differently, Your Honor.

[00:26:57] Speaker 03:
The refineries were entitled to know the rules of the game.

[00:27:02] Speaker 03:
And when EPA has said over hundreds of times

[00:27:05] Speaker 03:
This is the adjudica story standard.

[00:27:07] Speaker 03:
These are the factors that we will consider.

[00:27:10] Speaker 03:
EPA was not permitted years after the fact to say we're jettisoning that framework entirely and we have a new one that nobody's ever heard of before and that comes with a new obligation to buy RINs rateably.

[00:27:25] Speaker 03:
Not withstanding the fact that they previously told us we were not required to buy RINs rateably and that it would be impossible to do so.

[00:27:33] Speaker 11:
With the conservative approach that you just outlined, which is retiring RINS in the event that you don't get your exemption, would that work if EPA actually decided the applications within 90 days like they're supposed to?

[00:27:46] Speaker 03:
If EPA had adjudicated these hardship petitions within 90 days, it would have granted them because at the time it was still relying on the DOE scoring matrix.

[00:27:54] Speaker 11:
But my hypothetical is what if

[00:27:55] Speaker 11:
If they just did it within 90 days, would that have been more feasible for your clients?

[00:28:01] Speaker 03:
It would not have ameliorated the injury because in many cases, even if they decide within 90 days, they're gonna be making those decisions either all at once in a batch and that sends a signal to the market, or it's happening right before the compliance period is up, the RINs are significantly devalued.

[00:28:18] Speaker 03:
The point I'm trying to make is that there was no way to just sort of play it safe

[00:28:23] Speaker 03:
and be assured that we're going to be okay, and if we get the exemption, great.

[00:28:26] Speaker 03:
It doesn't work that way.

[00:28:28] Speaker 03:
The refineries that tried that strategy in multiple instances lost tens of millions of dollars, sometimes because EPA was late, but sometimes because it just came close to the deadline.

[00:28:36] Speaker 11:
Can you speak to the fact that what we're talking about now is sort of a RIN market from the past, from 2018, 2017, 2016,

[00:28:45] Speaker 11:
And I'm interested in what would happen if you did not prevail in this case?

[00:28:50] Speaker 11:
How would your clients be able to get RINs because they can't be generated again?

[00:28:56] Speaker 11:
And what would happen?

[00:28:57] Speaker 11:
And I guess there were some representations that some of your clients might go out of business because of this.

[00:29:03] Speaker 03:
Yes, some of them will.

[00:29:04] Speaker 03:
Some of them will.

[00:29:04] Speaker 03:
It is an existential issue for some of these refineries.

[00:29:07] Speaker 03:
The refineries that, of course, I'm up here representing are in different situations.

[00:29:11] Speaker 03:
They're not all similarly situated.

[00:29:12] Speaker 03:
Some of them retired.

[00:29:13] Speaker 03:
Some of them were not able to retire.

[00:29:15] Speaker 03:
So what exactly that would have to look like, I think, is going to be different.

[00:29:19] Speaker 03:
Across the petitioners before you what I think I can say is that the impact will certainly for some of them be Devastating and that's described best in our applications to this court for a stay pending this case I mean those are confidential, but we have put in declarations explaining why This would be almost certainly the end of the line for some of these companies seems like a different showing that's saying if you don't

[00:29:44] Speaker 09:
grant us a stay, then boom, our compliance obligations, we're facing them today.

[00:29:52] Speaker 09:
Whereas there's alternative compliance granted here.

[00:29:56] Speaker 03:
But only, Your Honor, for years 2016 to 2018.

[00:30:01] Speaker 09:
But there's flexibility for

[00:30:04] Speaker 09:
19 to 21 as well.

[00:30:06] Speaker 03:
Only with regard to the timing, Your Honor.

[00:30:09] Speaker 03:
Right.

[00:30:09] Speaker 09:
Well, so that's why I'm saying that the stay showing is not really equivalent.

[00:30:14] Speaker 11:
Sorry, can I get an answer to my question about what would happen if you had to buy the RINs from the past?

[00:30:20] Speaker 03:
In the case of refinery petitioners that were not able to retire because they couldn't do it, honestly, I'm not exactly sure.

[00:30:29] Speaker 03:
It's going to have to be a conversation we would have to have with EPA.

[00:30:33] Speaker 03:
Because you're absolutely right, it is obviously impossible as we sit here in April of 2024 to acquire RINs.

[00:30:39] Speaker 03:
Let's set aside the ACDA years, 2016 to 2018.

[00:30:42] Speaker 03:
It's not possible for us to go out and get RINs for 2019.

[00:30:46] Speaker 03:
Now there's, you know, EPA says, well we have,

[00:30:49] Speaker 03:
the alternative compliance demonstration approach.

[00:30:52] Speaker 03:
We have the alternative RIN retirement schedule.

[00:30:54] Speaker 03:
They're tinkering around the margins, but there's no way around the reality that what that would mean is the court and EPA saying to some of our clients, you owe multiple hundreds of millions of dollars.

[00:31:06] Speaker 03:
And there's just no way that some of these small refineries, which operate with low margins, are gonna be able to survive that kind of imposition.

[00:31:14] Speaker 09:
That's the concept.

[00:31:14] Speaker 09:
So what is the relief that the small refineries are seeking on the

[00:31:19] Speaker 09:
retroactivity claims, an amendment to the alternative compliance actions, a new alternative compliance action covering 2019 to 2021?

[00:31:30] Speaker 03:
I think that would resolve the harm for the refineries that I represent that are before you, Your Honor.

[00:31:36] Speaker 03:
Yes, an extension

[00:31:37] Speaker 03:
of EPA's own recognition that at a certain point, too much time has passed.

[00:31:43] Speaker 03:
You can't unring the bell.

[00:31:44] Speaker 03:
You can't unscramble the egg years and years later.

[00:31:46] Speaker 03:
That was their conclusion with respect to the alternative compliance demonstration approach.

[00:31:50] Speaker 03:
I think it was exactly right for that year.

[00:31:53] Speaker 03:
But the same thing holds true for these years, too, that we're talking about, generally mostly 19 to 21.

[00:31:58] Speaker 03:
And their refusal to grant us that relief in the face of their own indisputably, illegally late action

[00:32:06] Speaker 09:
Is it self-arbitrary?

[00:32:19] Speaker 09:
your primary recourse to bring an APA claim for action unreasonably withheld under 7061?

[00:32:29] Speaker 03:
Some of the refineries have done exactly that, Your Honor, and there are actions pending in federal district courts along those lines as we speak.

[00:32:37] Speaker 09:
Anything happened in any of them?

[00:32:39] Speaker 09:
And is that a new phenomenon that hasn't been done in the past?

[00:32:43] Speaker 03:
It has been done.

[00:32:44] Speaker 03:
I can tell the court because I've litigated some of those cases that, for example, with respect to the 2022 compliance year, we had to do just that.

[00:32:52] Speaker 03:
Multiple refineries had to sue EPA and say, please follow the law and grant us these hardship exemptions, which, when you refuse to grant them, makes it really, really difficult for us to run our business, much less to buy rings rateably.

[00:33:04] Speaker 03:
EPA, after some litigation had gone on, agreed to a date when they would commit to putting out those decisions and they were able to be dismissed.

[00:33:12] Speaker 03:
Yes, that's the sort of thing that we have to have.

[00:33:15] Speaker 03:
It's not, I will say, it's not easy and EPA resists those actions.

[00:33:18] Speaker 03:
They do not, you know, sort of just universally acquiesce to putting out these decisions.

[00:33:25] Speaker 03:
And I think what that reinforces, Judge Pillard, is you're absolutely right.

[00:33:28] Speaker 03:
This has happened again and again and again.

[00:33:30] Speaker 03:
The GIO report describes just how often EPA has been late.

[00:33:34] Speaker 03:
They're going to continue to be late.

[00:33:36] Speaker 03:
unless the court shows them that there are consequences for that.

[00:33:40] Speaker 14:
What exactly is supposed to happen?

[00:33:41] Speaker 14:
What ideally would you propose?

[00:33:43] Speaker 14:
So of course, when there's a change administration, the EPA can take a different approach to how it implements the RFS program, as long as it's consistent with the statute.

[00:33:56] Speaker 14:
And I'm very sympathetic to your idea that these small refineries and all refineries need some predictability.

[00:34:02] Speaker 14:
But there's also, there have been intervening judicial decisions

[00:34:05] Speaker 14:
There's been a change in administration.

[00:34:07] Speaker 14:
How is, you know, what would be the lawful way for the EPA to impose or to change its approach to RFS compliance?

[00:34:16] Speaker 14:
Do they have to do rulemaking?

[00:34:18] Speaker 14:
You know, what exactly?

[00:34:20] Speaker 14:
Because obviously, like,

[00:34:22] Speaker 14:
You know, the whole system contemplates change and political accountability.

[00:34:25] Speaker 14:
So what do we do with that?

[00:34:27] Speaker 03:
Sure.

[00:34:28] Speaker 03:
I think if the agency wants to have a new framework, I don't mean to call it a rule, but they want the, their new interpretation is all

[00:34:38] Speaker 03:
That is not their position.

[00:34:44] Speaker 14:
Their position is that it is possible for small refineries.

[00:34:48] Speaker 14:
And again, we may disagree with that assumption, but they're not saying they must purchase.

[00:34:52] Speaker 03:
But they're saying if they don't,

[00:34:54] Speaker 03:
they will not be eligible for a hardship exception.

[00:34:58] Speaker 03:
They will refuse, in their words, to consider the costs of RINs bought non-ratably because they call that, quote, a business choice.

[00:35:06] Speaker 03:
So they're saying you have only one legitimate business choice.

[00:35:09] Speaker 03:
You must go out and buy RINs ratably.

[00:35:12] Speaker 03:
I think if that's going to be the new policy that is adopted, at the very minimum, they must give

[00:35:20] Speaker 03:
Commenters an opportunity to comment on that for us to explain why we think that's inconsistent with the statute for us to reinforce further our evidence that it's impossible for us to do it and Assuming that they could do that in a lawful way.

[00:35:33] Speaker 03:
They have to apply it prospectively They can't invent a new requirement of readable Rin purchasing in December of 2021 which is they did

[00:35:42] Speaker 03:
and say we are gonna be held liable for failing to meet that standard back in the 2019 compliance year.

[00:35:49] Speaker 03:
That is just fundamentally unfair action.

[00:35:52] Speaker 11:
Would it work for your clients or would it be an appropriate way to handle this if we agree that the statute does require the economic hardship to be caused by rent compliance but saying

[00:36:10] Speaker 11:
purchasing non-ratable RINs would be a cost of compliance so that you could still apply for an exemption?

[00:36:16] Speaker 11:
Would that address your concern?

[00:36:18] Speaker 03:
No, it would not, Your Honor, for a couple of reasons.

[00:36:20] Speaker 03:
I mean, the first thing is EPA has not substantiated the core premises of their pass-through conclusion, one of which is ratable RIN purchases.

[00:36:29] Speaker 03:
But another one that we haven't talked about yet is EPA's conclusion that all parties pay the same amount for RINs.

[00:36:36] Speaker 03:
EPA did not attempt to substantiate that conclusion, even though they alone possessed the data that would enable them to evaluate it.

[00:36:46] Speaker 09:
Oh, I think they did.

[00:36:47] Speaker 09:
I mean, they said this is a nationwide market.

[00:36:50] Speaker 09:
There have been all these claims that, oh, we're local.

[00:36:53] Speaker 09:
We can't send blended fuel through pipelines.

[00:36:57] Speaker 09:
And EPA says, no, no.

[00:36:59] Speaker 09:
There is a national market, and everybody

[00:37:03] Speaker 09:
I mean, that doesn't account for changes over time, but on a particular day?

[00:37:09] Speaker 09:
I think they've established that there is a price and that everybody pays it.

[00:37:13] Speaker 03:
So I have to emphatically disagree with that, Your Honor, because I think it's a factual question.

[00:37:19] Speaker 03:
Do small refineries pay the same amount to buy and sell RINs as the largest competitors?

[00:37:26] Speaker 03:
EPA says, yes, they do.

[00:37:28] Speaker 03:
And our pass-through hypothesis holds true only if that fact is true.

[00:37:32] Speaker 03:
But EPA did not actually evaluate whether that's true.

[00:37:36] Speaker 03:
Just saying there is a market.

[00:37:38] Speaker 03:
doesn't address the factual reality of what prices were paid for these rins.

[00:37:43] Speaker 03:
They have the data.

[00:37:44] Speaker 09:
But then, I mean, I know it's not on the record, but they then in December went back and addressed the data and came up with results that are consistent with the evidence in the record.

[00:37:57] Speaker 03:
Respectfully, I don't think that's right, Your Honor.

[00:37:59] Speaker 03:
In fact, I think it's the opposite.

[00:38:01] Speaker 03:
when the GAO said you didn't, first of all, commentators, so you don't, I'm not asking the court to rely on the GAO report, commentators said you have RIN transaction data that will prove whether it's true that small refineries and large refineries pay the same for RINs.

[00:38:17] Speaker 03:
Please evaluate it.

[00:38:18] Speaker 03:
Please show us whether that is in fact true.

[00:38:20] Speaker 03:
EPA refused to do that.

[00:38:22] Speaker 03:
I think that is when the arbitrary and capricious violation was complete.

[00:38:25] Speaker 03:
But then after that,

[00:38:26] Speaker 03:
The GAO said, we've studied that data, and we think it's wrong.

[00:38:29] Speaker 03:
EPA reacted with the new RIN price analysis that your honor mentioned.

[00:38:32] Speaker 03:
But the RIN price analysis's conclusion was that small refineries pay sometimes up to 7.5% more to buy RINs.

[00:38:42] Speaker 03:
And that adds up, because we're talking about tens of millions, sometimes hundreds of millions of RINs.

[00:38:46] Speaker 09:
That is not how I read the conclusion, but we can, I take your position, and your page site for that?

[00:38:53] Speaker 03:
For the, I'm sorry.

[00:38:54] Speaker 03:
7.5.

[00:38:54] Speaker 03:
Sure, I refer the court to JA 3479.

[00:38:59] Speaker 11:
Could I complete what I was asking you before?

[00:39:02] Speaker 11:
Which was, it seems to me that if non-ratable RINs can be the basis for an economic hardship exemption, why can't your clients then say,

[00:39:17] Speaker 11:
If we are to buy RINs now, we're talking about past RINs, and the prices are going to be through the roof, or they don't exist, et cetera.

[00:39:25] Speaker 11:
Here's what I found.

[00:39:27] Speaker 11:
Sorry.

[00:39:27] Speaker 11:
It's a cost of compliance.

[00:39:30] Speaker 11:
It just seems to me that this would be a way for the agency's statutory interpretation to be correct, but you could still make hardship petitions based on the need for you to purchase non-rateable RINs.

[00:39:42] Speaker 03:
I think Your Honor is describing a vision of the hardship exemption that EPA does not agree with.

[00:39:47] Speaker 03:
I don't know.

[00:39:47] Speaker 11:
I'm asking you, would that work for you if we were to interpret it as that it has to be

[00:39:54] Speaker 11:
the caused by RIN compliance, but RIN compliance is not limited to rateable RINs.

[00:39:58] Speaker 11:
It can be non-rateable.

[00:39:59] Speaker 03:
So I think that would go a long way towards- That's my question.

[00:40:02] Speaker 03:
Yes, it would go a long way.

[00:40:03] Speaker 03:
I think the only thing I would add to it is that I do think that the statute requires EPA to take account of other economic circumstances that are affecting the small refinery.

[00:40:14] Speaker 11:
I think that is inherent- I understand that, but my question to you is if we agree with their statutory interpretation, but interpret

[00:40:21] Speaker 11:
costs of compliance to include not just rateable rents, but non-rateable rents, would that be a way to sort of...

[00:40:27] Speaker 11:
address this situation in a way that would be more palatable to your clients?

[00:40:30] Speaker 03:
It would be more palatable.

[00:40:32] Speaker 03:
It would go a long way, respectfully.

[00:40:34] Speaker 03:
I don't think that it would solve the problem.

[00:40:36] Speaker 03:
I don't think that that would still be a lawful interpretation if what we mean by that is the agency is going to refuse to consider individualized economic factors, the things that have always grounded.

[00:40:50] Speaker 11:
I know that that's your first choice, but if we were to agree with the statutory interpretation but not with the way they apply it,

[00:40:57] Speaker 03:
In terms of whether they define cost of compliance that would go a long way towards it would go a long way I would still think that it would be it certainly be necessary to vacate the denial decisions and again I mean I don't want to fight the court too hard on this except I do think it's important to say if a refinery experiences a tornado

[00:41:17] Speaker 03:
then that is an individual economic circumstance affecting the refinery that I think is quite obviously maybe going to make the cost of RFS compliance disproportionately hardship that refinery in that year.

[00:41:32] Speaker 03:
I think that's just inherent in the nature of a standard adopted by Congress that says look at

[00:41:36] Speaker 03:
the refinery's disproportionate economic hardship in view of all of its economic circumstances.

[00:41:42] Speaker 03:
And EPA is expressed refusal in the denial decisions to consider that kind of circumstance.

[00:41:48] Speaker 03:
I don't think there's any way to reconcile that with the statute.

[00:41:51] Speaker 09:
So just circling back on EPA's response to the GAO study, this page use site is referring to modeling assumptions and saying when EPA used the modeling assumptions that GAO used, which it thought and explained why it thought were faulty, there was then small refineries paid from 5.3% to 7.5% more.

[00:42:16] Speaker 09:
But then it goes on in great detail and explains its own modeling assumptions.

[00:42:21] Speaker 09:
And it says, you know, we find 1.1% and they end up saying they think that is trivial.

[00:42:29] Speaker 09:
So I don't think that the, and I think that is consistent with the data that they relied on.

[00:42:37] Speaker 09:
And they also, I thought plausibly explained that the actual data from the small refineries is not easy to standardize.

[00:42:41] Speaker 09:
They did end up going through cleaning it out and coming up with this response.

[00:42:45] Speaker 09:
But if this response,

[00:42:47] Speaker 09:
is confirmatory of the data that they did rely on, then I don't see the problem.

[00:42:57] Speaker 09:
I mean, we have to defer to agencies' technical analyses.

[00:43:02] Speaker 03:
Yes, Your Honor, but the agency has the obligation to analyze the issue in a proper way.

[00:43:13] Speaker 03:
a post-hoc decision, right, that they threw out in response to the GAO, but, and moreover, I think even if we just, even if we take EPA's sort of view of the world, the fact that they're talking about different modeling assumptions reflects the uncertainty.

[00:43:25] Speaker 03:
I read that to say, we think it could be 1.1%, it could be as high as 7.5%, it depends on what assumptions you put in.

[00:43:32] Speaker 03:
But even if it's only 1.1%, we're talking about, again, tens or hundreds of millions of dollars of RINs.

[00:43:38] Speaker 03:
It adds up enormously.

[00:43:40] Speaker 03:
So if small refineries have to pay

[00:43:42] Speaker 03:
And I don't think this is supported by the record, but even if it were true that small refineries only have to pay 1.1% more, that's going to add up and it's going to make them disadvantaged relative to their largest vertically integrated competitors.

[00:43:57] Speaker 03:
The companies that are selling them those rins add a profit.

[00:44:01] Speaker 03:
They make enormous profits doing so.

[00:44:04] Speaker 03:
And that's why refinery, what you have seen is

[00:44:08] Speaker 03:
refineries across the industry do everything they can to expand their blending capability because everybody understands it is much, much better to control your own blending and not be subject to the RIN market.

[00:44:23] Speaker 03:
One last point about this.

[00:44:24] Speaker 03:
RIN prices have spiked dramatically in the last few years.

[00:44:28] Speaker 03:
This is described in our brief.

[00:44:29] Speaker 03:
It's undisputed.

[00:44:30] Speaker 03:
They've gone up tenfold.

[00:44:32] Speaker 03:
No one could seriously contend that the cost to blend ethanol into gasoline has gone up tenfold in the same time.

[00:44:40] Speaker 03:
And that just shows you that it is much better to have the capability of blending than it is to be captive to the RIN market.

[00:44:49] Speaker 09:
I just have one question about Company A and that's why Company A is not time barred from challenging the 2007-2010 regulations under which the refinery was obligated to comply with the RFS program before 2010.

[00:45:09] Speaker 09:
And it seems to me that the previous owner had every incentive to challenge those regulations when promulgated, the regulations that say you have to submit a letter or something saying that you're a smaller fine, because it was subject to and actually submitted compliance.

[00:45:28] Speaker 03:
Your Honor.

[00:45:29] Speaker 03:
The company doesn't need to challenge the regulations because the regulations are not the problem with the regulations.

[00:45:36] Speaker 09:
Well, they may be if I mean, an EPA analysis, but that is entirely new.

[00:45:42] Speaker 03:
That conclusion.

[00:45:43] Speaker 03:
So we are here.

[00:45:44] Speaker 03:
Your Honor is referring to the regulations about the original

[00:45:47] Speaker 03:
statutory exemption, we are of course petitioning for the ongoing future exemption.

[00:45:53] Speaker 03:
The denial decisions at issue here are the first time EPA has ever taken the position that a refinery will be permanently barred from seeking the hardship exemption if it did not receive

[00:46:07] Speaker 03:
the original exemption.

[00:46:09] Speaker 03:
That's new.

[00:46:09] Speaker 09:
And that is an extension analysis that the Supreme Court embraced in Holly frontier.

[00:46:19] Speaker 03:
I don't think so exactly, your honor.

[00:46:20] Speaker 03:
But the point is that is EPA.

[00:46:23] Speaker 03:
First of all, EPA is totally changing its mind.

[00:46:26] Speaker 03:
EPA told us exactly the opposite in 2018.

[00:46:28] Speaker 03:
It said,

[00:46:29] Speaker 03:
You are eligible.

[00:46:31] Speaker 03:
This company is eligible to get a hardship exemption.

[00:46:34] Speaker 03:
Now EPA is saying, we've changed our mind.

[00:46:36] Speaker 03:
You're no longer eligible.

[00:46:37] Speaker 03:
But they want to apply that new conclusion retroactively.

[00:46:41] Speaker 03:
But even, and you're right that they invoke Holly Frontier for it.

[00:46:46] Speaker 03:
But Holly Frontier doesn't help EPA here because this refinery did receive the original exemption.

[00:46:55] Speaker 03:
It received it under the terms of the statute.

[00:46:58] Speaker 11:
The statute says it didn't receive it.

[00:47:00] Speaker 11:
It was eligible to receive it.

[00:47:01] Speaker 03:
But the statutes, I think the statutory text says the refineries output shall be exempt.

[00:47:08] Speaker 03:
from the requirements of the RFS.

[00:47:11] Speaker 03:
Nobody needed to go and do anything in order to get that exemption.

[00:47:15] Speaker 03:
This refinery was not a new entrant.

[00:47:17] Speaker 09:
But they didn't.

[00:47:18] Speaker 09:
They submitted RINs in a compliance demonstration, understanding that without having sought it pursuant to the verification letter requirement of the 2007 rules, that they weren't eligible for an exemption that they didn't seek.

[00:47:35] Speaker 03:
No, Your Honor, they didn't, they retired, but they didn't have to.

[00:47:39] Speaker 03:
They were exempt.

[00:47:40] Speaker 09:
They did that voluntarily.

[00:47:42] Speaker 03:
I think, yes, they retired voluntarily.

[00:47:43] Speaker 03:
It was owned by a different company.

[00:47:44] Speaker 09:
Believing that they were exempt.

[00:47:46] Speaker 03:
Yes.

[00:47:46] Speaker 03:
All the time.

[00:47:47] Speaker 03:
Believing that they were exempt.

[00:47:48] Speaker 03:
But you're talking about a situation when rins were priced at a marginal fraction of what they were today.

[00:47:54] Speaker 03:
The refinery was owned by a different company.

[00:47:56] Speaker 03:
It's a very different circumstance.

[00:47:57] Speaker 03:
And again, what was, even back then, nobody would have had a reason to challenge that because that, what was lacking at the time

[00:48:04] Speaker 03:
was this conclusion that not getting the original exemption would forever preclude you.

[00:48:10] Speaker 03:
And if EPA is going to adopt that new rule, they have to adopt it prospectively.

[00:48:15] Speaker 03:
They can't sandbag us years after it's over.

[00:48:18] Speaker 03:
The last thing to say about Refinery A is that the other pillar of their conclusion

[00:48:27] Speaker 03:
is that you can aggregate the output of this refinery with another facility a mile and a half down the road.

[00:48:33] Speaker 03:
I think that's just fundamentally inconsistent with the statute and its definition of facility and also it relies on the processing of a different kind of component.

[00:48:41] Speaker 03:
They're relying on the processing of vacuum gas oil.

[00:48:44] Speaker 03:
even though the statute specifically says what makes a refinery small is the processing of, quote, crude oil.

[00:48:50] Speaker 09:
Great.

[00:48:50] Speaker 03:
Thank you.

[00:48:50] Speaker 09:
All right.

[00:48:51] Speaker 09:
Well, we've kept you for a long time.

[00:48:54] Speaker 09:
That tends to indicate that we've found your answers to our questions helpful.

[00:48:58] Speaker 09:
You have reserved some time for a bottle, which we will allow you to take.

[00:49:03] Speaker 09:
And now we'll hear from Mr. Delacroix.

[00:49:06] Speaker 09:
Thank you, Your Honor.

[00:49:07] Speaker 09:
Thank you.

[00:49:12] Speaker 15:
Good morning, Your Honors.

[00:49:13] Speaker 15:
I'm Mark Delaquille from the Baker and Hostetler law firm arguing on behalf of Company B and I'm here to address only EPA's determination that Company B is ineligible to petition for hardship relief.

[00:49:29] Speaker 15:
Before I get to

[00:49:30] Speaker 15:
the statute, I want to describe a little bit about Company B. It's one of the very smallest refineries in the United States with a crude oil throughput in the relevant time period under 5,500 barrels per day.

[00:49:46] Speaker 15:
If it was an order of magnitude larger, it would still be a small refinery under the statute.

[00:49:52] Speaker 15:
And Company B has been around for nearly 100 years.

[00:49:57] Speaker 15:
So this isn't a new market entrant.

[00:49:59] Speaker 15:
This is an existing refinery.

[00:50:03] Speaker 15:
In my view, the only question the court really needs to address for Company B is whether the plain language of the Clean Air Act grants the automatic exemption to Company B at the inception of the RFS program.

[00:50:20] Speaker 15:
Under EPA's own logic, if Company B received the initial exemption, it should be eligible to petition for extensions of that exemption on an ongoing basis.

[00:50:34] Speaker 15:
And so I think it makes sense to look at the act.

[00:50:36] Speaker 15:
And if you want to follow along, this is, I'm going to be reading from page eight in the addendum to EPA's brief.

[00:50:45] Speaker 15:
And what it says in section 211-09A little i is that the requirements of paragraph two shall not apply to small refineries until calendar year 2011.

[00:51:04] Speaker 15:
That's the statute.

[00:51:06] Speaker 15:
I don't think there's any way to read that statute as not granting the exemption to Company B through calendar year 2011.

[00:51:19] Speaker 15:
The only criteria is whether it's a small refinery.

[00:51:23] Speaker 15:
And we can look at the statutory criteria for small refinery as well.

[00:51:28] Speaker 15:
pages two and three of the addendum to EPA's brief, section 2101K, and it says the term small refinery means a refinery for which the average aggregate daily crude throughput for a calendar year, as determined by dividing the aggregate number of days in the calendar year by the number of days in the calendar year, does not exceed 75,000 barrels.

[00:51:57] Speaker 15:
Company B was unquestionably a small refinery under the statute, and as a result, under section 21109A1, the requirements of the RFS program shall not apply to it.

[00:52:12] Speaker 09:
I don't take you to be challenging the regulations.

[00:52:16] Speaker 15:
I'm not challenging the regulations.

[00:52:18] Speaker 11:
And I know EPA's... So, didn't EPA ask the refineries to submit a letter to receive this exemption, and your client did not?

[00:52:26] Speaker 15:
It asked refineries to submit a letter, but it never conditioned eligibility for the exemption on submission of a letter.

[00:52:34] Speaker 15:
Congress granted the exemption.

[00:52:36] Speaker 15:
EPA would not have had authority to do that, and that's not what the regulations say.

[00:52:41] Speaker 15:
But the regulations, and we can look at that aspect of the regulations, they are on page 21 of the addendum to EPA's brief.

[00:52:53] Speaker 15:
It says a refiner owning a small refinery must submit a verification letter to EPA containing certain criteria.

[00:53:02] Speaker 15:
But it doesn't say that if you don't do that, the consequence is that you don't receive the exemption.

[00:53:10] Speaker 15:
There could potentially be another consequence, but once Congress has granted the exemption under the plain language of the statute,

[00:53:18] Speaker 15:
It's not something that EPA can give or take based on submission of paperwork.

[00:53:23] Speaker 14:
Well, surely EPA can impose reasonable regulations for how it administers the program to verify that a refinery meets the statutory criteria.

[00:53:33] Speaker 15:
Absolutely.

[00:53:34] Speaker 15:
And if the absence of a verification letter was in the circumstance where there was some question about whether the refinery was eligible, perhaps that could have some legal consequence.

[00:53:45] Speaker 15:
but where the refinery is unquestionably, no one is arguing that Company B is anywhere close to the statutory threshold for not being a small refinery any longer.

[00:53:57] Speaker 15:
I don't think EPA has authority to do that, but I also want to address the broader question of Section 307B jurisdiction stripping and whether or not Company B ought to have been challenging the regulation.

[00:54:13] Speaker 15:
EPA granted Company B the exemption for year 2018 before ultimately reversing its decision.

[00:54:23] Speaker 15:
The first time EPA had ever applied its regulations in this manner for Company B was in the context of the adjudicatory orders before the court today.

[00:54:38] Speaker 15:
That's the first time Company B was in a position

[00:54:42] Speaker 15:
to challenge this application of EPA's regulations as being contrary to the statute.

[00:54:50] Speaker 08:
Why not back in after 2007?

[00:54:54] Speaker 15:
Because first, the regulations do not clearly disqualify such that Company B would have been on notice.

[00:55:02] Speaker 09:
Remember, EPA.

[00:55:03] Speaker 09:
That's a big risk in light of under the regulation 80.1141C.

[00:55:12] Speaker 09:
It says if EPA finds a refiner provided false or inaccurate information regarding a refinery's crude throughput, the exemption will be void.

[00:55:21] Speaker 09:
And it seems to be not a large interpretive step to say that if EPA finds a refiner provided no information regarding its throughput, the exemption will be void.

[00:55:33] Speaker 09:
So if you're being prudent at the time,

[00:55:35] Speaker 15:
Well, regardless of the level of prudency, I think the prudence, well, let me say that a different way.

[00:55:43] Speaker 15:
The prudency of refinery not interpreting the regulations the way you are is shown by the fact that EPA, in fact,

[00:55:52] Speaker 15:
Did not interpret the regulations the way that you're interpreting them in the context of the 2018 exemption for company B And so that and was that before Holly frontier that was before Holly frontier And after Holly frontier in the first time that EPA applied these regulations in the way that you're saying

[00:56:19] Speaker 15:
Company B brought its challenge in the context of the order where the regulations were being applied.

[00:56:25] Speaker 15:
I want to raise another aspect of subsection C, Judge Pollard, that you just mentioned.

[00:56:32] Speaker 15:
It talks about providing false or inaccurate information.

[00:56:36] Speaker 15:
I think that gets back to my answer to Judge Rao's question a few minutes ago.

[00:56:41] Speaker 15:
There may well be appropriate consequences if you have the refinery providing false crew throughput information.

[00:56:49] Speaker 15:
to losing the automatic exemption.

[00:56:51] Speaker 15:
But I think that's a very different situation than where you have a refinery that no one argues didn't meet the statutory criteria.

[00:57:02] Speaker 15:
And as we noted in our reply brief, the reason that we didn't submit the letter is because we were not at the time processing transportation fuel.

[00:57:11] Speaker 15:
But that doesn't mean that the decision by Congress

[00:57:18] Speaker 15:
in section 211-O of 1-9-A that the requirements of paragraph 2 shall not apply to small refineries has no implications for us.

[00:57:34] Speaker 15:
I'd like to briefly also address the arbitrary and capricious argument that we raised.

[00:57:44] Speaker 15:
EPA's justification for why it made sense.

[00:57:49] Speaker 15:
to interpret its regulations as to Company B in this manner was that Company B was in the same position as a new entrant to the market and could make all the same decisions that investment group looking at investing in a green field refinery would do before putting up a facility and complying with the program, and that's just not the case.

[00:58:15] Speaker 15:
This byproduct was something that the market evaporated for precipitously.

[00:58:20] Speaker 15:
You can't just dump crude oil byproducts in the back 40.

[00:58:24] Speaker 15:
You've got to treat them and deal with them appropriately.

[00:58:28] Speaker 15:
And beginning the production of diesel was the only way to do that.

[00:58:32] Speaker 15:
So.

[00:58:35] Speaker 09:
All right.

[00:58:35] Speaker 09:
Thank you very much.

[00:58:51] Speaker 09:
So Mr. Hughes, it would be helpful if you would explain to us how you and Mr. Harrison are dividing the subject matter of your presentation.

[00:59:01] Speaker 06:
Of course, Your Honor.

[00:59:01] Speaker 06:
I will be addressing points two and three from our brief, retroactivity and statutory interpretation, and Mr. Harrison will be addressing our remaining arguments, including the ratable and purchase arguments.

[00:59:13] Speaker 06:
Arguments four and five.

[00:59:14] Speaker 09:
Ah, it's ratable, not rateable.

[00:59:17] Speaker 06:
I hope so.

[00:59:19] Speaker 09:
All right, you may proceed when you're ready.

[00:59:22] Speaker 06:
EPA's decision to deny the refinery exemption petitions was prospective, because it addressed pending applications, or it was least permissibly retroactive, because there was no well-established approach for petitioners to rely on, and they do not point to any evidence of reliance.

[00:59:41] Speaker 06:
Moreover, EPA's interpretation of what is required to demonstrate disproportionate economic hardship harmonizes EPA's statutory interpretation and its analysis of the ring market, specifically ring cost pass-through and ring discount.

[00:59:58] Speaker 06:
Turning first to retroactivity.

[01:00:00] Speaker 14:
Mr. Hughes, can we, if we can start with the statutory argument.

[01:00:05] Speaker 14:
You know, so EPA essentially equates disproportionate economic hardship with

[01:00:10] Speaker 14:
compliance costs.

[01:00:12] Speaker 06:
I disagree with that, Your Honor.

[01:00:15] Speaker 06:
Disreport, everyone agrees that the hardship must be caused by compliance with the RFS program.

[01:00:22] Speaker 06:
The way EPA has implemented that requirement is by requiring a small refinery to demonstrate that it is paying disproportionate compliance costs.

[01:00:32] Speaker 06:
This dates back to the 2011 DOE study.

[01:00:35] Speaker 06:
And it's important to look back at that study to understand the origin, which is an assumption underlying that study was that large integrated refiners could generate rents for free by blending and that small refineries needed to purchase rents would thereby be paying disproportionate amounts for those rents.

[01:00:55] Speaker 06:
And so it is only by paying disproportionate compliance costs that a refinery, in fact, could have hardship caused.

[01:01:03] Speaker 14:
But they've taken out this.

[01:01:05] Speaker 14:
I mean, most of what would be disproportionate is taken out by the EPA's assumption that RINs can be purchased ratably, and that there's a RIN pass-through, right?

[01:01:15] Speaker 14:
So I mean, what's disproportionate beyond that?

[01:01:19] Speaker 06:
So certainly, your honor, the EPA's analysis of the market and of RIN pass-through and RIN discount is what is driving the way EPA is implementing the statute here.

[01:01:28] Speaker 06:
And so, you know, EPA has to implement its requirement that RFS compliance be a cause of

[01:01:36] Speaker 06:
hardship, and the way it does that is by requiring a demonstration that in fact they are not able to pass through their costs.

[01:01:42] Speaker 06:
And if they do that, then it needs to be of a sufficient magnitude to warrant the exemption.

[01:01:47] Speaker 06:
And so the compliance costs, the disproportion of compliance costs is really just a way to isolate whether or not there is any causation at all.

[01:01:55] Speaker 06:
EPA has determined that there isn't because of ring cost pass-through and ring discount.

[01:01:59] Speaker 11:
And so how can they ever prove that under your theory?

[01:02:03] Speaker 11:
Can you give me an example of how that could be done?

[01:02:05] Speaker 06:
I think Mr. Harrison is going to address the specifics of ring-cost pass-through and discount, but they would need to demonstrate that they are paying

[01:02:13] Speaker 11:
that they are not able to pass on their ring costs, potentially by contracts or evidence of sales, and then show- I just don't understand how that would work because a gas price isn't broken down into the ring component and the rest, and there are all kinds of different reasons why gas prices move.

[01:02:32] Speaker 06:
That's true, Your Honor, but it's my understanding that you can look at RIN prices for the day.

[01:02:36] Speaker 06:
So, for instance, when EPA was demonstrating that RIN cost pass-through in fact exists, it would look at the cost of RINs, the cost of an obligated fuel, and the cost of an unobligated fuel that day.

[01:02:48] Speaker 06:
So a jet fuel or an exported fuel and a fuel for the transportation market.

[01:02:53] Speaker 06:
And so you can see that the delta between the... It could triangulate.

[01:02:56] Speaker 06:
Yeah, you could see that the difference between the obligated and the unobligated fuel was the RIN cost.

[01:03:02] Speaker 11:
If I could ask you about this, it seems to me that a key part of your theory is that everybody agrees that it has to be a cost of compliance in order to qualify for economic hardship.

[01:03:20] Speaker 11:
But a key part of your theory is that only rateable RINs, I'm sorry, I'm gonna say rateable instead of ratable, rateable RINs can be counted.

[01:03:30] Speaker 11:
And you say that using non-rateable RINs is a business decision.

[01:03:34] Speaker 11:
But that does not strike me as obvious because it just seems to be a timing issue.

[01:03:39] Speaker 11:
It's still a cost of compliance, it's just at a different time.

[01:03:42] Speaker 06:
So Mr. Harrison is going to address that issue, but I can quickly explain.

[01:03:47] Speaker 06:
So the RIN discount applies regardless of whether, whenever the RINs are purchased because the value of the RIN is recovered at the time the small refinery purchases or sells the gallon of fuel.

[01:04:00] Speaker 06:
To the extent the RIN price changes over some period of time, it could go up, it could go down, the amount recovered may be more than at the time of the sale of fuel, or it could be less.

[01:04:12] Speaker 06:
And so RIN discount always applies.

[01:04:16] Speaker 06:
The question about a business decision is, to the extent that, for instance, a small refinery gambles on receiving an exemption,

[01:04:24] Speaker 06:
and waits until there's a denial in order to purchase its RINs, it may be, again, that the RIN price has gone up in that time.

[01:04:32] Speaker 06:
But that is a business decision.

[01:04:33] Speaker 11:
It's still a cost of compliance, though.

[01:04:35] Speaker 11:
They still have to buy RINs.

[01:04:37] Speaker 11:
So let me give you an analogy.

[01:04:40] Speaker 11:
If I go on a business trip and the travel is reimbursable, only the travel expenses are reimbursable.

[01:04:47] Speaker 11:
And I choose to take a flight that's better for my schedule, but that costs more.

[01:04:54] Speaker 11:
it's still reimbursable.

[01:04:56] Speaker 11:
It's more expensive, but it's not like a business decision that I've chosen this different flight.

[01:05:03] Speaker 11:
It's still a travel expense.

[01:05:06] Speaker 11:
And buying RINs is still a cost of compliance, whether I buy them rateably or not.

[01:05:10] Speaker 11:
I have to buy the RINs to comply with the RFS program.

[01:05:14] Speaker 06:
And so again, my colleague Mr. Harrison is better positioned, I think, to answer these questions.

[01:05:20] Speaker 06:
But I think the question is, you know,

[01:05:24] Speaker 06:
You know, EPA wants to prevent gamesmanship of RIN purchases.

[01:05:29] Speaker 06:
And so that's what this elevated analysis is.

[01:05:32] Speaker 11:
You call it gamesmanship, but there are business reasons why people time their RINs.

[01:05:36] Speaker 11:
It's not gamesmanship to try to run your business in a way that you don't go out of business because you're buying RINs.

[01:05:42] Speaker 06:
That's true, Your Honor.

[01:05:44] Speaker 06:
But I think, you know, Judge Pillard said earlier that, explained correctly, that EPA's position is not that

[01:05:50] Speaker 06:
the refineries have to purchase RINs the moment they sell a gallon of fuel, but regular purchasing.

[01:05:59] Speaker 06:
And so to the extent that EPA tells these refineries they should plan for compliance and they should not plan on an exemption.

[01:06:07] Speaker 06:
And so to the extent that they are indeed planning on an exemption and then the denial causes the cost of fuel, the cost of the RIN to rise, that

[01:06:17] Speaker 06:
Is games and shipping.

[01:06:18] Speaker 11:
So what if they're not able to buy wins rateably if we agree with that.

[01:06:21] Speaker 11:
What does that do to your construct.

[01:06:25] Speaker 11:
I think I'd like to leave that.

[01:06:26] Speaker 11:
Yeah.

[01:06:27] Speaker 14:
I mean, when I asked you a question about the statute, you said, well, our economic theory really governs our statutory interpretation.

[01:06:34] Speaker 14:
And when we ask about the economic theory, you say that's for the

[01:06:38] Speaker 14:
You know, that's for my colleague.

[01:06:39] Speaker 14:
So, I mean, obviously these questions are related and EPA has said they are related, that the reasonableness of the economic theory drives the statutory interpretation.

[01:06:48] Speaker 06:
Absolutely, Your Honor.

[01:06:49] Speaker 06:
That's correct.

[01:06:49] Speaker 06:
And so I think... So... Yes, and so what...

[01:06:54] Speaker 06:
My statutory interpretation point is that EPA and the refineries agree that RFS compliance must be the cause, and EPA implements that.

[01:07:05] Speaker 14:
Let's focus on the statute then, if you don't want to talk about the economic theory.

[01:07:09] Speaker 14:
I mean, after the initial period of the exemption, EPA has to look at the DOE study and other economic factors.

[01:07:19] Speaker 14:
And I'm wondering how your theory of who gets the exemption, you know, I mean, doesn't that just read out other economic factors?

[01:07:26] Speaker 14:
I mean, it focuses purely on this very narrow understanding of compliance costs, it seems to me.

[01:07:33] Speaker 14:
And any other economic factors such as, you know, EPA delaying in setting the amount of renewable fuel or in, you know, adjudicating exemption petitions, all of these factors, plus the rent market in general,

[01:07:46] Speaker 14:
We don't think about any of those things in granting an exemption.

[01:07:49] Speaker 14:
But Congress provided for other economic factors.

[01:07:52] Speaker 14:
So how does EPA's statutory interpretation account for that?

[01:07:56] Speaker 06:
Absolutely, Your Honor.

[01:07:57] Speaker 06:
So with respect to other economic factors in particular, EPA does look at other economic factors, including all the materials that petitioners submit, the RIN market data, transactions, and all material relevant to whether they are paying disproportionate costs of compliance.

[01:08:18] Speaker 06:
And I think that what's important to disentangle here.

[01:08:21] Speaker 14:
What are you doing with that information?

[01:08:23] Speaker 14:
Because you've said that there are no, basically, disproportionate

[01:08:26] Speaker 14:
costs because of your economic theory that there's RIN passed through and RINs can be purchased rateably.

[01:08:33] Speaker 06:
Well, petitioners are free to try to show in their particular circumstances that the economic theory does not apply to them and that, in fact, it doesn't apply to them to such an extent.

[01:08:45] Speaker 14:
But you sort of defined it in a way that it's almost impossible for them to prove that.

[01:08:49] Speaker 14:
I mean, how are they supposed to show that?

[01:08:51] Speaker 14:
Like, if they've made a decision not to purchase rateably, you say that that doesn't matter.

[01:08:56] Speaker 14:
EPA says that that doesn't matter.

[01:08:57] Speaker 06:
I think what we're saying is that to the extent that there is an attempt to purchase rents long after the time, purchase rents close to the compliance deadline and the price of rents has gone up.

[01:09:14] Speaker 06:
That is a business decision.

[01:09:16] Speaker 06:
But I think what they can show or what they can attempt to show is that during the time they were selling the fuel, they weren't recovering the cost of the RINs.

[01:09:25] Speaker 06:
They weren't recovering the cost of the RINs to such an extent that it would impose a disproportionate economic hardship on them.

[01:09:31] Speaker 09:
Let me try to ask you a question isolated to the statutory reading.

[01:09:35] Speaker 09:
If you put aside the RIN pass-through principle, just as a matter of pure statutory interpretation,

[01:09:42] Speaker 09:
Is it your position that a small refinery that is facing proportionate compliance costs cannot experience disproportionate economic hardship?

[01:09:56] Speaker 09:
And to make sure I understand the question, it's because the... So let's say there's a compliance cost per gallon of fuel that's a dollar per gallon.

[01:10:11] Speaker 09:
and everybody, large, small, all the refineries pay the same cost.

[01:10:17] Speaker 09:
Is it your position that your statutory reading means that even though a small refinery might find it harder, just like a flat tax hits poor people?

[01:10:29] Speaker 09:
This example in your friend's brief, flat tax hits poor people harder than wealthy people.

[01:10:36] Speaker 09:
That could be seen as hardship, or it could be seen as, hey,

[01:10:41] Speaker 09:
it's their fault for being poor, you know, the other circumstances that contribute to their poverty, and therefore not a problem.

[01:10:49] Speaker 09:
Which is it from EPA's perspective?

[01:10:51] Speaker 06:
So from EPA's perspective, I think, we're equivalent to the premise, which is that the small refineries or the larger refineries are paying compliance costs.

[01:11:02] Speaker 09:
Any costs, I understand.

[01:11:03] Speaker 09:
That's why I'm trying to isolate this and just to get it.

[01:11:08] Speaker 09:
Right, so if there were compliance costs that were proportionate,

[01:11:13] Speaker 09:
There are different ways to read it.

[01:11:15] Speaker 09:
I take you sometimes to be saying that the compliance costs have to be disproportionate.

[01:11:19] Speaker 09:
But I'm not sure how that's supported by the statute.

[01:11:21] Speaker 09:
If the compliance costs are proportionate, the hardship is what's supposed to be disproportionate.

[01:11:25] Speaker 09:
So wouldn't it be at least conceivable?

[01:11:28] Speaker 09:
And I know this is not the world in which EPA's denial actions are operating.

[01:11:33] Speaker 09:
But to isolate the statutory question, it's conceivable that the proportionate economic costs could be disproportionately difficult.

[01:11:42] Speaker 09:
for a smaller refinery to bear and that were that situation before EPA, it would either consider those as disproportionate economic costs or say no, everything that the small refinery brings to the table is irrelevant because it isn't caused by the RFS.

[01:12:03] Speaker 06:
One quick point at the outset, which is that the disproportionate compliance cost point is merely a way for EPA to determine whether there's any causation at all.

[01:12:12] Speaker 06:
I understand that you are, we're operating in a different world, so proportionate compliance costs

[01:12:20] Speaker 06:
I think that it could be true that if there was a $1 cost per gallon, it could affect a smaller refinery more than a larger refinery.

[01:12:32] Speaker 06:
I think what Disproportionate is getting at, which comes from the 2011 DOE study, is the difference between an assumption that larger refineries can generate rents for free versus- Well, putting that aside, and assuming the

[01:12:49] Speaker 09:
what is it, the RIN markup or the discount.

[01:12:54] Speaker 09:
I'm putting aside all of that and perhaps assuming the rateability assumption is flawed or something, but in a situation, and you said the disproportionate compliance cost requirement is getting a causation, but I don't follow that.

[01:13:11] Speaker 09:
If one had proportionate compliance costs and one were a small refinery

[01:13:18] Speaker 09:
operating at the edge, then it could be dual causation that you could get by without the compliance costs, but the compliance costs would be a cause.

[01:13:30] Speaker 09:
They wouldn't be the sole cause.

[01:13:32] Speaker 09:
they would be a cause of a disproportionate economic hardship.

[01:13:35] Speaker 09:
But I take your position to be no, that the EPA is saying that it has to be the sole cause, and therefore it has to be that the compliance cost itself is disproportionate.

[01:13:48] Speaker 09:
Is that correct in terms of a statutory reading?

[01:13:51] Speaker 06:
So I don't think it's quite correct, Your Honor, and I think the

[01:13:54] Speaker 06:
I think you're asking a question about, okay, if every refinery pays the same amount per volume, but, and it's an actual cost and not the actual, you know, not RIN cost passed through and RIN discount don't apply, then could it be disproportionate?

[01:14:11] Speaker 06:
And I think it's possible, I don't think the EPA has looked at it that way because the RIN market analysis is really driving at the point.

[01:14:19] Speaker 09:
Okay, so that, go ahead, finish it.

[01:14:22] Speaker 06:
As you can see,

[01:14:23] Speaker 06:
to, to put a finer point on the disproportionate compliance costs is driving causation.

[01:14:29] Speaker 06:
The question is, is, is smaller finers, the assumption underlying the 2011 DOE study was that smaller finers are paying disproportionate compliance costs because they pay rent, they buy rents, they can't pass that cost on, and larger fineries are generating rents for free because they're blending.

[01:14:44] Speaker 09:
That was one of the assumptions.

[01:14:46] Speaker 09:
It seems like there was a whole mishmash of assumptions

[01:14:49] Speaker 09:
what could cause hardship.

[01:14:51] Speaker 06:
I think that was a key assumption in terms of how DOE was evaluating.

[01:14:59] Speaker 09:
Let me just follow up one question.

[01:15:00] Speaker 09:
Your reaction to my question confirms something that I was discussing with Mr. Houston, which is it seems like this question of whether compliance costs have to be a cause or the sole cause, it actually isn't really presented in this case.

[01:15:18] Speaker 09:
because as you've sort of acknowledged, it doesn't matter to this denial action.

[01:15:26] Speaker 09:
The core of the denial action is actually that the compliance costs are zero, and therefore, if you're wrong about that, you're wrong, you lose, and if you're right about that, again, it doesn't matter how we read the statute.

[01:15:42] Speaker 06:
I think that's correct, Your Honor, because if,

[01:15:45] Speaker 06:
If we are incorrect about our analysis of the ring market and the way it applies, as, again, my colleague will address, then I think that would be a ground for a reverse, for a vacater.

[01:15:58] Speaker 06:
And I think that to the extent that we are correct, then there is no hardship whatsoever from compliance.

[01:16:07] Speaker 11:
Go ahead.

[01:16:08] Speaker 11:
But if you're wrong in your economic assumptions, would you change your statutory interpretation?

[01:16:14] Speaker 06:
I think we would have to see how that, in what way it was determined we were wrong.

[01:16:18] Speaker 06:
I mean, it is, our economic analysis is really driving the way that the statutory interpretation is implemented.

[01:16:29] Speaker 14:
So I mean, is there, what is the basis for the statutory interpretation if the economic theory is held by this court to be unreasonable?

[01:16:37] Speaker 06:
I'm sorry.

[01:16:38] Speaker 14:
I mean, could you at all, I mean, you know, to Judge Pan's question, same question as mine, how would you even support the statutory reading without the underlying economic theories?

[01:16:50] Speaker 06:
I think our statutory interpretation would still be that, you know, they have to show a direct causal link between

[01:16:58] Speaker 06:
between the cost of compliance and the hardship that they're claiming.

[01:17:04] Speaker 06:
I think the second part, that they have to reconcile that with RIN cost pass-through, I think depends on how the court evaluates our RIN cost pass-through and RIN discount analysis.

[01:17:15] Speaker 09:
Is it your position as a matter of statutory interpretation

[01:17:20] Speaker 09:
that the statute does not authorize you to consider the costs of purchasing RINs non-radably in assessing whether a refinery experiences disproportionate economic hardship?

[01:17:36] Speaker 06:
So I think it's our position that

[01:17:43] Speaker 06:
Again, I want to leave that question to Mr. Harrison, but I think our position is that to the extent that there is, that petitioners are making a business decision in order to purchase RINs, gambling on an exemption, and then purchasing the RINs close to the time when they get a denial, that would not be, as a statutory matter, that would not be

[01:18:06] Speaker 09:
What if it weren't gambling on a denial, but a hurricane hits the refinery and it has limited cash flow and it decides to carry over a deficit to the next year so that it can spend, it can use its cash flow to get up and running again?

[01:18:26] Speaker 09:
Is that, and in the next year when it's carried over the deficit,

[01:18:35] Speaker 09:
happens for reasons that are not part of a group waiting for an exemption that never comes, but just maybe there were a lot of hurricanes.

[01:18:47] Speaker 09:
Under EPA's new approach, no hardship relief for that refinery.

[01:18:53] Speaker 06:
I think we haven't seen that approach, Your Honor.

[01:19:01] Speaker 06:
Yeah, it's not something we've been presented with.

[01:19:04] Speaker 09:
I think, you know, it's... Is it your... I mean, your statutory interpretation seems to assume the hurricane would have hit the refinery either way.

[01:19:14] Speaker 09:
So it is not caused by the cost of compliance.

[01:19:18] Speaker 06:
So certainly, EPA can't grant an exemption to relieve the hardship caused by the hurricane.

[01:19:26] Speaker 06:
I think Mr. Houston gave an example of a tornado to say that in either case, given

[01:19:34] Speaker 06:
EPA can't say, well, paying this amount would be difficult because you used all this money to pay for the hurricane.

[01:19:43] Speaker 06:
Because it's analogous to a sales tax, where the party is recovering the tax at the time they're selling the item, and then to the extent they use that money for some other

[01:19:56] Speaker 06:
you know, for some other capital expenditure, you know, and then they don't have money to pay at the time the sales taxes do, you know, they had the money, they were able to do it, but they chose not to do so.

[01:20:09] Speaker 11:
So I just want to make sure I'm clear on this.

[01:20:11] Speaker 11:
If we think that your economic theory is flawed and we want to remand on that basis, you would say that we should not address the statutory interpretation issue because you say that your statutory interpretation is driven

[01:20:25] Speaker 11:
by your economic theory, is that correct?

[01:20:27] Speaker 06:
So I wanna just distinguish two points quickly.

[01:20:30] Speaker 06:
To the extent the interpretation is that compliance costs must be the cause of the hardship, I think that that, and similarly, that EPA cannot use the exemption in order to relieve other hardships.

[01:20:50] Speaker 09:
The sole cost, it must be the sole cost.

[01:20:52] Speaker 09:
Yes.

[01:20:53] Speaker 06:
I think, so what I would say is that it has to be a significant cause, right?

[01:20:57] Speaker 09:
It has to be a cause, it has to be of sufficient magnitude that it warrants the exemption, because- Well, you say they can't use the exemption to relieve other hardships, then you're really saying, if you say that the compliance cost has to be a significant cause, that they can use the exemption a little bit to relieve other hardships.

[01:21:18] Speaker 09:
And it has to be one or the other.

[01:21:19] Speaker 06:
I think the point is that you could imagine that

[01:21:23] Speaker 06:
Imagine, for example, that the petitioners have demonstrated they can't pass on some of their compliance costs.

[01:21:29] Speaker 06:
It's a little bit, but it's some.

[01:21:30] Speaker 06:
And EPA says, well, that's true, but you had this hurricane, and that's a really big cost.

[01:21:37] Speaker 06:
Your cost compliance is pretty low, but this is a serious hardship, and so we're going to allow you to use, we're going to grant you the exemption in order to relieve that hardship.

[01:21:47] Speaker 06:
That's impermissible.

[01:21:49] Speaker 06:
That's impermissible.

[01:21:51] Speaker 06:
That would be impermissible, yes.

[01:21:53] Speaker 06:
To the extent that there was a significant cost of compliance, then I think EPA hasn't gone to this point because no petitioner, in our view, demonstrated that they could not pass on their compliance costs.

[01:22:08] Speaker 06:
This would need to be worked out in the event that, in fact, a petitioner did make such a demonstration.

[01:22:14] Speaker 06:
evaluating the hardship would need to be adjudicated on a case by case basis in that instance.

[01:22:25] Speaker 11:
So my question.

[01:22:25] Speaker 06:
Yes, exactly.

[01:22:27] Speaker 06:
Returning to your question, I think we would say that it has to be the cause and it has to be a significant cause are certainly central.

[01:22:35] Speaker 11:
But would you rethink that?

[01:22:37] Speaker 11:
If we just say hypothetically, we just completely disagree with your pass through theory that we don't think that that's

[01:22:44] Speaker 11:
supported by the record or by sufficient evidence.

[01:22:49] Speaker 11:
We think it's arbitrary, capricious, it's wrong, and we want to vacate on that basis.

[01:22:54] Speaker 11:
Would you say that we should not address the statutory construction issue because you just said that your statutory construction issue is driven by your economic analysis.

[01:23:05] Speaker 11:
So if we find that economic analysis is wrong and needs to be reconsidered,

[01:23:10] Speaker 11:
Would you then be reconsidering your statutory construction theory and therefore we should not address it and just remand on the other theory?

[01:23:17] Speaker 06:
I want to distinguish the statutory construction and the statutory implementation so that it must be a cause and it must be a significant cause.

[01:23:26] Speaker 06:
That's our statutory interpretation.

[01:23:29] Speaker 06:
I think we would stick to that.

[01:23:31] Speaker 11:
The way that it's... So that's not driven by your economic theory?

[01:23:34] Speaker 06:
No, that's driven by our statutory analysis that it has to be caused by the cost of compliance from 09A, A and B, and the way that this exemption works and extends it.

[01:23:47] Speaker 06:
What is driven by our economic analysis is the way that's implemented that they have to show

[01:23:53] Speaker 06:
a disproportionate compliance cost, that is, they can't pass on their RIN costs, and that those compliance costs have to be.

[01:24:02] Speaker 11:
And it would still have to be the sole cause, though, in your view.

[01:24:06] Speaker 06:
I think it has to be a significant cause.

[01:24:08] Speaker 06:
Sorry?

[01:24:08] Speaker 11:
It has to be a significant cause, all right?

[01:24:11] Speaker 11:
To the extent that.

[01:24:12] Speaker 11:
But I'm sorry, sole and significant are two different things.

[01:24:15] Speaker 06:
I agree.

[01:24:15] Speaker 11:
It has to be the sole cause?

[01:24:17] Speaker 06:
I think it has to be a significant cause.

[01:24:18] Speaker 06:
So to the extent.

[01:24:19] Speaker 11:
But it doesn't have to be the sole cause as long as it's significant.

[01:24:21] Speaker 06:
I think it has to be sufficient to warrant the exemption.

[01:24:24] Speaker 06:
And then at the point that EPA will then evaluate the hardship that is being experienced.

[01:24:32] Speaker 11:
So if, let's just say the red market goes crazy and it's very expensive and it's therefore taking a bigger toll on smaller refineries, you would consider that.

[01:24:41] Speaker 06:
If the RIN market, if the cost by... It goes crazy.

[01:24:46] Speaker 11:
Now there's a thousand times the price of the normal RIN cost.

[01:24:50] Speaker 11:
And they can't... And that hits small refineries.

[01:24:54] Speaker 11:
harder than large refineries.

[01:24:55] Speaker 11:
You would consider that.

[01:24:56] Speaker 06:
And they can't pass on the cost of this?

[01:24:59] Speaker 06:
Yes.

[01:25:00] Speaker 06:
I think we would in the event that they cannot pass on the cost.

[01:25:05] Speaker 11:
Okay, so it doesn't have to be the sole cause then in that implementation.

[01:25:08] Speaker 11:
I think in that case... Because that's also taking into account that they're small and therefore it hits them harder.

[01:25:14] Speaker 11:
That's not

[01:25:16] Speaker 06:
I think that in your hypothetical we would consider.

[01:25:20] Speaker 06:
Okay, so it doesn't have to be the sole cause.

[01:25:24] Speaker 09:
I have a question about, you said you were also going to talk about the retroactivity.

[01:25:27] Speaker 09:
Yes.

[01:25:28] Speaker 09:
So EPA announced these proposed denials in December 2021.

[01:25:34] Speaker 09:
And a cornerstone of EPA's position is that the refineries, the default is the refineries really have to purchase RINs rattably.

[01:25:45] Speaker 09:
And in December 2021, it was impossible for any refinery to purchase RINs rattably for the compliance years in question, right?

[01:25:55] Speaker 06:
If they had not done so.

[01:25:58] Speaker 09:
If they had not already done so.

[01:25:59] Speaker 09:
And so at that point,

[01:26:01] Speaker 09:
the refineries that have not already done so were no longer able to pass the RIN costs on to their customers.

[01:26:09] Speaker 06:
So they would still pass the RIN costs on to their customers because when they sold a gallon of obligated fuel, they would recover the RIN cost of that day.

[01:26:18] Speaker 09:
Of that day?

[01:26:18] Speaker 06:
Of that day, yes.

[01:26:19] Speaker 09:
But later, if RIN costs are up... If RIN costs are up, they would not... I'm talking about the refiner.

[01:26:25] Speaker 09:
So your view is the refiner who hasn't purchased Rattably

[01:26:29] Speaker 09:
is not going to be able to necessarily, they may luck out, they may do better, but they may also do worse and end up with costs.

[01:26:37] Speaker 09:
And it's your view that that's not retroactive because the refiners were on notice that Rattable RIN purchases were inherent in this.

[01:26:51] Speaker 09:
statute and regulations or?

[01:26:52] Speaker 06:
So they were on notice that they should plan for compliance at the time they were selling the fuel.

[01:26:56] Speaker 06:
So this is not retroactive because it doesn't attach new liabilities to completed transactions.

[01:27:01] Speaker 06:
They had an obligation, their liabilities accrue at the time they sell a gallon of obligated fuel.

[01:27:07] Speaker 09:
And where is it clear before these denial actions that they needed to plan for compliance at the time they sell the fuel?

[01:27:17] Speaker 06:
At the time they sell the fuel,

[01:27:19] Speaker 06:
I'm not sure that there's a particular citation for the proposition that they needed to purchase RINs in any particular way at the time in the 2019 year, the 2020 year.

[01:27:35] Speaker 06:
I think they knew they had to plan for compliance and that the RIN cost can vary over the course of that year.

[01:27:41] Speaker 09:
And EPA had no template for how they could do that costlessly.

[01:27:46] Speaker 09:
and no template that they had communicated to the refineries.

[01:27:49] Speaker 09:
Here's how we've got this whole theory about costless compliance, provided you act in a certain way, right?

[01:27:58] Speaker 09:
I mean, EPA doesn't dispute that if you don't act in a certain way, purchasing rattably, that sure, you can have either compliance costs or compliance bonanza, depending on

[01:28:13] Speaker 09:
what your particular choices were, right?

[01:28:15] Speaker 09:
I mean, maybe this gets into Mr. Harrison's.

[01:28:18] Speaker 06:
No, I think there are, you know, the RIN cost pass and RIN discount theories were articulated several times over the years in the 2015 Burkeholder memo, in the point of obligation denial.

[01:28:31] Speaker 09:
I mean, even back in 2009, but then that was...

[01:28:36] Speaker 09:
superseded by the 2011 DOE.

[01:28:40] Speaker 06:
Yes, I don't think that the 2009 DOE study addressed RIN cost pass-through exactly.

[01:28:46] Speaker 06:
I think it assumed that the cost of compliance would not be significant for small refiners versus large integrated refiners.

[01:28:54] Speaker 09:
So you'd say that they were on notice about RIN cost pass-through.

[01:28:57] Speaker 09:
Were they on notice about the logic of ratable RIN purchases?

[01:29:03] Speaker 06:
I'm not aware, perhaps Mr. Harrison is aware of a citation in the record for that.

[01:29:09] Speaker 06:
I am not, I think.

[01:29:10] Speaker 14:
I just have one more statutory question.

[01:29:13] Speaker 14:
So you say that if we were to decide on the arbitrary and capricious grounds, EPA would stay with its statutory interpretation.

[01:29:23] Speaker 14:
It's primary statutory interpretation.

[01:29:26] Speaker 06:
That RFS compliance has to be- Yeah, so let me just ask you- Finish the sentence that RFS compliance- RFS compliance must be a cause of the hardship and it must be a significant cause.

[01:29:39] Speaker 14:
Compliance costs right so I mean in the statute it says that you know in considering whether to extend an exemption right the EPA has to consider the findings of the DOE study and other economic factors and in the previous section I remember the exact number right the DOE study is based on compliance costs and then in this section it says DOE study and

[01:30:02] Speaker 14:
plus other economic factors.

[01:30:05] Speaker 14:
So if EPA's position is that it can only be compliance costs, I mean, that just seems to be inconsistent with the text of the statute.

[01:30:14] Speaker 06:
The DOE study is from 2011, and so EPA can't rely entirely on that study in order to make a determination as to whether a refinery today is experiencing disproportionate compliance costs.

[01:30:26] Speaker 14:
It's going to take into account... And remember, the statute is disproportionate economic hardship.

[01:30:32] Speaker 14:
Hardship is not the same as costs.

[01:30:34] Speaker 06:
So EPA cannot, you know, can't look and determine whether there are disproportionate economic hardship based solely on today, based solely on the 2011 study.

[01:30:43] Speaker 06:
And this court in Hermes has said that EPA has broad discretion in determining what economic factors to consider and that this broad language evinces an intention just not to tie the agency's hands in terms of what economic factors.

[01:30:56] Speaker 14:
Right, well that's a sort of a broadening interpretation.

[01:30:58] Speaker 14:
The agency has discretion to consider a range of factors, but what EPA has done has said is really there's only one factor, namely compliance costs.

[01:31:06] Speaker 06:
Well, I think it's looking at a range.

[01:31:09] Speaker 06:
Certainly, the compliance cost is structuring.

[01:31:11] Speaker 06:
The RIN cost pass-through and the RIN discount is structuring the types of factors that it's looking at.

[01:31:19] Speaker 06:
But I don't understand Hermes to be saying that EPA can only extend the universe of factors it considers.

[01:31:26] Speaker 06:
It can reasonably restrict them in order to effectuate the purposes of the statute as it sees fit.

[01:31:36] Speaker 09:
Thank you.

[01:32:14] Speaker 05:
Good morning, Your Honors.

[01:32:15] Speaker 05:
Brian Harrison also on behalf of EPA.

[01:32:18] Speaker 05:
Judge Payne, you asked a question to Mr. Houston what would happen if the petitioners were to lose and then had to buy RINs here.

[01:32:26] Speaker 05:
And the answer to that question is nothing.

[01:32:29] Speaker 05:
And the reason is that the petitioners here don't have to buy RINs at all because except for two of the petitioners, every single one of them in this case has retired every single RIN obligation necessary to comply with all of their RFS obligations at issue here.

[01:32:44] Speaker 05:
And for the other two petitioners, EPA considers them in compliance while their stays remain pending.

[01:32:50] Speaker 11:
But what if they lose and the stays are not pending?

[01:32:53] Speaker 05:
As to those two other petitioners?

[01:32:55] Speaker 05:
Yeah.

[01:32:55] Speaker 05:
Well, as it's been demonstrated, EPA provides compliance flexibilities through a variety of means, and so there are certainly options that EPA could explore with those petitioners and how to address those issues.

[01:33:08] Speaker 05:
I'd like to, so I'll be addressing the reasonableness of EPA's action and also the eligibility question on issues four and five of the EPA's brief.

[01:33:17] Speaker 05:
The denial actions are reasonable and appropriate under the Clean Air Act.

[01:33:21] Speaker 05:
EPA grounded its decisions in extensive data and analysis in the record.

[01:33:26] Speaker 05:
It considered all relevant factors and articulated a rational connection between the facts found and the denial actions themselves.

[01:33:33] Speaker 05:
And its decision should be afforded significant deference here.

[01:33:37] Speaker 05:
This court should not second-guess EPA's decisions as petitioners have suggested that we do.

[01:33:43] Speaker 05:
There's been a lot of talk today about the ring discount and the ring cost pass-through, which are EPA's fundamental economic principles that form the foundation of its decision here.

[01:33:52] Speaker 05:
There's also been some talk about

[01:33:54] Speaker 05:
the genesis of those and where they came from.

[01:33:58] Speaker 05:
Judge Pillard, as you mentioned, in the 2009 EPA study, there was discussion about the discussion of the RIN discount and RIN cost pass-through principles generally, but it was more fully developed in the 2015 Burke Holder memo by EPA, which formed the basis for the 2017 point of obligation denial, which this court affirmed in the Elan decision, where 13 of the original petitioners here

[01:34:23] Speaker 05:
were also petitioners in that case, and where this court found that EPA had reasonably explained and justified its basis for not only the point of obligation denial, but the rent discount and rent costs passed through principles.

[01:34:36] Speaker 05:
But here, what EPA has done is they've taken that and built upon it.

[01:34:41] Speaker 05:
They've used additional market data, they've revised the information that they've had, they've used their decade plus of expertise in administering the RFS program,

[01:34:50] Speaker 05:
And most importantly, they took information provided to them by the small refineries themselves and by market participants in order to confirm the applicability of the RIN discount and the RIN cost pass-through principles here.

[01:35:04] Speaker 05:
After that, EPA issued a proposed denial and invited the small refineries to come forward with information disproving the applicability of those principles to the specific small refineries.

[01:35:14] Speaker 05:
Many of them took EPA up on that opportunity, and EPA evaluated carefully each of the small refinery submittals, both as proposed comments and also supplements to their small refinery exemption petitions.

[01:35:26] Speaker 05:
And what EPA found when it did that analysis was one of two things.

[01:35:31] Speaker 05:
One, there was either insufficient evidence to disprove the applicability of the RIN discount or RIN cost pass-through specific to that small refinery, or in many instances, the second point, many of those small refineries submitted information that supported EPA's economic principles of the RIN discount and the RIN cost pass-through.

[01:35:49] Speaker 05:
For example, in at least four of the petitioning small refineries provided

[01:35:55] Speaker 05:
pricing contracts that demonstrated the existence of the RIN discount principles.

[01:36:02] Speaker 05:
In response to that, what EPA or what the petitioners have provided here is said, EPA, you were wrong.

[01:36:07] Speaker 05:
We were right.

[01:36:09] Speaker 05:
But petitioners need to do more than that here.

[01:36:11] Speaker 05:
And as we cited in our brief, and the Supreme Court has long recognized, the burden of proving an exemption under a special exception to a statute rests with the party seeking the exemption.

[01:36:24] Speaker 11:
What about their argument that they can't buy RINs rateably all the time because they're small refineries, RINs are sold in larger batches than they can do.

[01:36:35] Speaker 11:
So they only can do it one or two or three times a year, so they can't do it rateably.

[01:36:39] Speaker 11:
and then you say you can't even apply for an economic hardship exemption if you're not buying them rateably, because that's therefore not the sole cause.

[01:36:48] Speaker 05:
So, Judge Pan, I would like to, I disagree with the premise there that the ability to purchase rattlely is linked to the EPA's RIN cost pass-through.

[01:36:59] Speaker 05:
These are distinct concepts because in the application of the RIN cost pass-through, if I'm selling you a gallon of fuel for, the fuel costs 99 cents and the RIN costs one cent, the second you give me that dollar, I have the one cent for the price of the RIN that I can then go out on the market and buy.

[01:37:17] Speaker 05:
The question that you're asking, though, goes to the second point on the ability of the small refineries to radically purchase those RINs when I have that one cent in my hand.

[01:37:26] Speaker 05:
And I think that there were a few petitioners who provided general comments that they had challenges or issues with purchasing RINs on such a small scale.

[01:37:36] Speaker 05:
EPA, in its experience and expertise in administering this program, responded to those comments, specifically in confidential appendices to the two that did, and also in Appendix B generally, that there exists RIN brokerages and other publicly available ways for them to acquire those RINs.

[01:37:55] Speaker 05:
And one other point on the rattleable purchases that Judge Cohen did.

[01:37:58] Speaker 11:
That doesn't really answer my question.

[01:38:01] Speaker 11:
If they are not able to purchase RINs rateably, then you won't even accept their hardship petition, because then you're saying, oh, you made a business decision.

[01:38:10] Speaker 11:
The RIN compliance is not the sole causation.

[01:38:13] Speaker 05:
Well, not necessarily, Your Honor.

[01:38:15] Speaker 05:
And the reason is because there's a possibility that if this small refinery did not purchase RINs rateably, and the costs of the RINs are lower at a later point in time when they acquire them, then they have no hardship there because they receive the benefit of receiving more for the RIN

[01:38:29] Speaker 11:
So in this situation, let's make it a hypothetical.

[01:38:32] Speaker 11:
Say they can't purchase RINs rateably and they have a hardship because RIN prices have now gone through the roof and they want to tell you, now I have an economic hardship.

[01:38:43] Speaker 11:
You wouldn't even accept that because you're saying that even though you're buying RINs, which is complying with the RFS program, that's not a cost of compliance because of the timing of which they did that.

[01:38:54] Speaker 05:
Right, and so I think, so for one, that's not what we have here.

[01:38:58] Speaker 05:
No petitioners have provided that.

[01:38:59] Speaker 11:
Can you just answer my hypothetical?

[01:39:00] Speaker 05:
So for that hypothetical, I think the answer is that if that information was demonstrated to EPA, then I think that that would form a basis for EPA to then consider a small refinery exemption petition.

[01:39:14] Speaker 11:
Oh, so you're walking back then that it's a business decision if you buy

[01:39:19] Speaker 11:
Well, I'm sorry.

[01:39:21] Speaker 05:
I may have misunderstood your question then.

[01:39:26] Speaker 05:
The point that I'm making is that the EPA believes that petitioners and small refineries can purchase RINs raritably.

[01:39:34] Speaker 05:
In the event that they're not able to and the costs of the RINs have gone up significantly, I still, EPA's position is still that that was a business decision that they made by not purchasing the RINs on a raritable and ongoing basis.

[01:39:47] Speaker 11:
Okay, so then can you answer my question?

[01:39:49] Speaker 11:
Why is that not a cost of complying with the RFS program?

[01:39:53] Speaker 11:
They're still buying RINs to comply with

[01:39:56] Speaker 11:
the program, this is just a timing issue when they buy the RINs.

[01:40:00] Speaker 05:
Well, it's because they have the, assuming you're outside of the construct of your hypothetical, they have the money in their hand at the time that the transportation fuel is sold, so they're able to go out into it.

[01:40:12] Speaker 11:
They're able to, but they've chosen to comply with your program in a different way.

[01:40:16] Speaker 11:
It's still a cost of compliance with your program.

[01:40:18] Speaker 11:
It is, but again, I think- If it is, then they should be able to make that application to you.

[01:40:23] Speaker 05:
But it's a business decision.

[01:40:24] Speaker 11:
And so as Mr. Hughes mentioned, if you could address my hypothetical, which I gave, I guess to the wrong attorney, if I go on a business trip and my travel costs are covered and I order an Uber and it's, I could go an hour earlier or I can go an hour later and it'll be surge pricing.

[01:40:44] Speaker 11:
Okay.

[01:40:44] Speaker 11:
And I pay more because I go an hour later because it's more convenient for me.

[01:40:48] Speaker 11:
I still get reimbursed for my Uber, even if I choose to do it at a different time that costs more.

[01:40:55] Speaker 11:
It's still a travel cost.

[01:40:57] Speaker 11:
How is this any different?

[01:40:58] Speaker 05:
It's different because it applies across the board to all obligated parties, and so... That doesn't make it different.

[01:41:07] Speaker 05:
So I think that it does in this circumstance, because other obligated parties retire rents on a rattle basis and don't experience the ongoing hard.

[01:41:16] Speaker 11:
But my question is, why does it even matter?

[01:41:19] Speaker 11:
It's still a cost of complying with your program, no matter what timing I put to this.

[01:41:25] Speaker 11:
If you could just answer, Judge Piller.

[01:41:27] Speaker 11:
Yeah.

[01:41:28] Speaker 05:
I think that my answer is the same.

[01:41:30] Speaker 05:
The cost of the compliance is based on EPA's expectation that the refineries will retire the rings in a manner that is, however they choose, but if they do it radically, which is a good business practice that EPA has said is that, then the costs of compliance are not as disproportionate as they may be

[01:41:53] Speaker 05:
in a future situation where the rent prices go up.

[01:41:56] Speaker 09:
So, I mean, I take it what you're effectively saying in response to Judge Pan is, no, it's as if there were also a rule at your company that you can't, you know, that you have to buy more than two weeks in advance your airline ticket.

[01:42:10] Speaker 09:
You, you know, if there's surge pricing, you have to take the metro or, you know, that you're really imposing an additional

[01:42:19] Speaker 09:
requirement of reasonableness of the recovery of the travel costs?

[01:42:24] Speaker 05:
Well, so to that point, I think if there isn't that level of reasonableness or whatever you want to call it, then what happens is that the small refineries will then game the system and attempt to wait to the end of the year in the hopes that the price of the rent is down or that they could receive an exemption.

[01:42:43] Speaker 11:
But the bottom line is you have to make it not a travel cost in order for the

[01:42:48] Speaker 11:
statute not to apply.

[01:42:49] Speaker 11:
It has to not be a cost of compliance.

[01:42:53] Speaker 09:
So I have other questions, even assuming your ratability concept in principle is consistent with the statute and would resolve a lot of the problems with the fluctuating RIN market.

[01:43:09] Speaker 09:
And first and foremost, as Mr. Houston mentioned, in 2019, the EPA analyzed a proposal

[01:43:23] Speaker 09:
to require real-time and then it said that would be a little too coming a quarterly RIN compliance Submissions retirements and in that context and this was I found this really

[01:43:40] Speaker 09:
revealing, EPA concluded it would be, quote, virtually impossible, close quote, to require rateable RIN retirement.

[01:43:49] Speaker 09:
And it wasn't about, you know, bureaucratic burdens having to do with the actual retirement.

[01:43:55] Speaker 09:
It had to do with the acquisition.

[01:43:56] Speaker 09:
The generation of, this is a quote, from 48 fed reg at 10,

[01:44:04] Speaker 09:
616, the generation of RINS and the production and import of transportation fuel are not aligned over the course of the year.

[01:44:15] Speaker 09:
Cumulative RIN generation would not catch up to the cumulative RIN retirement requirement until December.

[01:44:20] Speaker 09:
Now, as I understood this when I read this,

[01:44:24] Speaker 09:
Basically, the blending is not auspiciously done all along throughout the year.

[01:44:33] Speaker 09:
Cold weather affects it.

[01:44:35] Speaker 09:
Very hot weather may affect it.

[01:44:37] Speaker 09:
And so in practice, blenders are not actually generating rins rateably.

[01:44:45] Speaker 09:
And so if all refineries thought, I'm going to do just what EPA says, and even if it was only weekly, I'm going to just do it as I go along.

[01:44:54] Speaker 09:
I take EPA's factual position in 2019 to have been, that cannot be done, at least not by everybody.

[01:45:05] Speaker 09:
And I don't see an answer to that in the denial actions.

[01:45:09] Speaker 05:
EPA did address this what I think they've called RIN hoarding by the blenders in Appendix B to the denial action itself and found that there's no evidence to suggest that blenders are withholding, supplying RINs to the market for parties to- I'm not referring to RIN hoarding.

[01:45:28] Speaker 09:
I'm not referring to anything that has to do with trying to play a market, beat a market, corner a market, manipulate a market.

[01:45:35] Speaker 09:
I'm just referring to the actual physical

[01:45:38] Speaker 09:
engineering that takes place as EPA described it in 2019.

[01:45:43] Speaker 09:
And as I understood that description, it was saying, if you're a blender and you're in business to blend for good reasons that have to do with temperature and the process that you're engaged in, and plus a little bit the demands of four RINs, a big uptick at the end of the compliance year, that they're not blending

[01:46:07] Speaker 09:
evenly throughout the year.

[01:46:08] Speaker 09:
And if they're not blending evenly throughout the year and you tell the refiners, you've got to be buying rateably, they are not going to be able to do that unless there's something I'm missing.

[01:46:19] Speaker 05:
And I didn't see it in the rule or in the denial.

[01:46:25] Speaker 05:
So with respect to the denial actions, I don't think that that was directly addressed beyond the point I mentioned about the RIN hoarding.

[01:46:33] Speaker 05:
Further to that point, I think it's important to note that EPA has invited the small refineries to come forward with specific information like that, that the blenders are not providing them with the rins because they're holding back for seasonal allocations and things like that.

[01:46:49] Speaker 05:
And EPA just hasn't seen that here.

[01:46:51] Speaker 09:
Well, EPA described it.

[01:46:53] Speaker 09:
And also in the NITEL study, the 2017 study, which I thought was really clear and really helpful,

[01:47:03] Speaker 09:
You know, EPA relies on that study.

[01:47:05] Speaker 09:
And then EPA basically says, look, you can insulate yourselves, small refiners, from the vicissitudes of the RIN market by effectively taking that penny price premium that you got when you sold the fuel and turn around that day and buy a RIN, right?

[01:47:25] Speaker 05:
Well, it doesn't have to be that day.

[01:47:27] Speaker 09:
OK, in fact, if it were that day,

[01:47:30] Speaker 09:
You would lose out because the Natel study says 100% recovery really doesn't happen until two days later, right?

[01:47:41] Speaker 09:
So really your rule should have been bi-ratably asterisk meaning two days later.

[01:47:48] Speaker 05:
Well, so the rule that was discussed or that we're discussing was never finalized by EPA on the ratable purchases.

[01:47:56] Speaker 09:
No, no.

[01:47:57] Speaker 09:
But it was information that was published that presumably is factually accurate about the world.

[01:48:04] Speaker 05:
And so I think this goes to the point you made earlier, Judge Pillard, about the ratable purchasing doesn't have to be immediate or real time.

[01:48:11] Speaker 05:
It's on an ongoing basis, whether it be daily or two days later or a week later or a month later.

[01:48:17] Speaker 05:
At the end of the day, the ratable purchasing is on an ongoing systemic basis, and sometimes it'll be high and sometimes it'll be low.

[01:48:26] Speaker 05:
But at the end of the day, what EPA has found is that it balances itself out.

[01:48:30] Speaker 09:
That is a surprise to me.

[01:48:32] Speaker 09:
You know, what is readability?

[01:48:36] Speaker 09:
And if EPA doesn't give a clear definition of what it is and then say that definition is supported by the economic data on which we rely,

[01:48:48] Speaker 09:
then I don't think it's connected the dots.

[01:48:50] Speaker 09:
I mean, I do appreciate the role that the ratable purchasing is as a kind of saying, look, guys, the pass-through is in general and in the aggregate.

[01:49:02] Speaker 09:
To make it come home for you, you also need to behave reasonably, right?

[01:49:08] Speaker 09:
I mean, that's EPA's position.

[01:49:10] Speaker 09:
Here's how you behave reasonably.

[01:49:13] Speaker 09:
And I don't think EPA has clearly said, here's how you behave reasonably.

[01:49:17] Speaker 09:
And if it's monthly, there's still a lot of exposure to the rent market.

[01:49:23] Speaker 09:
Or EPA hasn't endeavored to say, here's why there's not a lot of exposure to the rent market.

[01:49:30] Speaker 09:
And that is actually what we mean.

[01:49:34] Speaker 09:
monthly, that for us counts, or if you do it weekly, that for us counts.

[01:49:38] Speaker 09:
I mean, even the weekend holiday problem opens an aperture of exposure to a market, right?

[01:49:46] Speaker 05:
So in response to that and generally, the weekend issue EPA reviewed and analyzed and found there to be no significant correlation between having the weekends exist and having weekend pricing as well.

[01:49:58] Speaker 05:
And that goes to the larger point about all of this is that

[01:50:01] Speaker 05:
If this is not an issue then, the weekend pricing is not an issue unique to small refineries, it's common to all obligated parties.

[01:50:11] Speaker 11:
But the weekend pricing issue does undermine your theory of pass through and discount, and it seems to me that the answer that in the long run this all evens out doesn't really address the problem because these applications are not in the long run, they're by the year.

[01:50:30] Speaker 11:
I just think that that's a significant flaw in your reasoning on the pass-through and the discount theories.

[01:50:38] Speaker 05:
So EPA responded specifically to the analysis provided about the weekends and holiday rates and explained why that was wrong.

[01:50:47] Speaker 09:
And the explanation was you should buy on Friday.

[01:50:51] Speaker 05:
Market participants could make purchases on Friday to account for the weekend.

[01:50:56] Speaker 05:
They could enter a contract to purchase on the Monday with the estimated sales.

[01:51:01] Speaker 05:
And then there could be a difference, a sale to cover the difference.

[01:51:05] Speaker 05:
EPA articulated a number of ways that a small refinery could go about doing that.

[01:51:11] Speaker 09:
So do your best to explain what you

[01:51:15] Speaker 09:
think you mean by saying small refineries must purchase rattably?

[01:51:24] Speaker 05:
Small refineries must purchase rins on an ongoing and systemic basis in a manner on a regular, which is usually a regular basis, in a manner that

[01:51:43] Speaker 05:
acquires as many RINs as possible as close to the time that they acquired the cost of the RIN from their sale of transportation fuel.

[01:51:54] Speaker 14:
Can I take a step back and just ask you, I mean, when Congress created this system, I mean, it realized that there would be a market for RINs.

[01:52:01] Speaker 14:
It created a market-based system for the buying and selling that EPA would administer.

[01:52:06] Speaker 14:
And it seems that now EPA's new assumption is that this market is

[01:52:11] Speaker 14:
basically perfectly efficient, that there is pass-through that the market functions in this particular way.

[01:52:20] Speaker 14:
But it seems like a key assumption that Congress made in enacting the statute was that even in a market-based system,

[01:52:27] Speaker 14:
there could be disproportionate economic hardship for small refineries because of their unique circumstances, even in the context of a market-based system.

[01:52:38] Speaker 14:
And I'm just wondering how EPA's general conclusion that there's sort of perfect market efficiency is consistent with what Congress seems to have assumed in enacting the statute.

[01:52:50] Speaker 05:
So a few points on that.

[01:52:51] Speaker 05:
One is that Congress left to EPA

[01:52:54] Speaker 05:
the implementation of the RFS program.

[01:52:56] Speaker 05:
And so EPA has developed that expertise and experience over the course of administering the program to better understand how the small refinery exemption best applies and best fits in with the purposes of the statute and of its regulatory purpose.

[01:53:12] Speaker 14:
And I think also... It seems like over time means over time, EPA has concluded that this market works efficiently and in some kind of perfect way.

[01:53:24] Speaker 14:
Even for small refineries, even like sort of aggregated across the market.

[01:53:29] Speaker 14:
And that seems to be in tension with the statute.

[01:53:32] Speaker 05:
Well, so EPA studied the discounted ring cost pass throughs here specific to the small refineries with information provided to it from the small refineries on market data on pricing and other information.

[01:53:43] Speaker 05:
And it found that the RIN discount and the RIN cost pass-through principles applied.

[01:53:48] Speaker 05:
EPA then went back to those small refineries and said, give us information that shows that we're wrong and that these don't apply to you.

[01:53:56] Speaker 05:
And in every instance, EPA analyzed and studied that information and found that the RIN discount and the RIN cost pass-through principles apply to that specific small refinery.

[01:54:06] Speaker 05:
Or, as I mentioned before, in some circumstances, found that the information was either not sufficient to support

[01:54:13] Speaker 05:
the invalidity of it, or directly supported EPA's position on the RIN discounted RIN cost pass-through.

[01:54:19] Speaker 14:
I think that's because, I mean, EPA seems to, you know, it describes facts in the world as, you know, to Judge Pillard's point, you know, well, what if blenders aren't producing RINs?

[01:54:27] Speaker 14:
You say like, well, well, that's not, you know, there's RIN hoarding, or there's gamesmanship by small refineries.

[01:54:32] Speaker 14:
But some of these actions may just be part of, you know, how small refineries do business.

[01:54:39] Speaker 14:
Well, so I guess two points on that one is that like it doesn't have to be gamesmanship for it to be economically rational for them to wait to purchase rents.

[01:54:49] Speaker 05:
Right.

[01:54:49] Speaker 14:
I think it doesn't have to be in hoarding if a blender isn't able to produce wins on an ongoing basis.

[01:54:56] Speaker 05:
Right.

[01:54:56] Speaker 05:
I think that.

[01:55:00] Speaker 05:
I think that the important thing to note on that is that the petitioners have not provided the information.

[01:55:06] Speaker 05:
EPA has said, and EPA certainly would concede that there are likely circumstances or variabilities that may come up that would

[01:55:15] Speaker 05:
would be sufficient to prove disproportionate economic hardship or to justify a small refinery exemption.

[01:55:22] Speaker 05:
But under the facts presented here and in the record that we have here, no small refinery has done that.

[01:55:29] Speaker 05:
And so to your point, Judge Rao, about whether the way that EPA is implementing this is effectively reading the exemption on the statute,

[01:55:37] Speaker 05:
We disagree with that and we've explained in our brief how there are things that the petitioners' small refinery can submit to EPA.

[01:55:46] Speaker 05:
If those are submitted, EPA will take a look at them and perhaps those would rise to the level sufficient to justify a small refinery exemption.

[01:55:55] Speaker 09:
It seems very unlikely.

[01:55:56] Speaker 09:
I think you mentioned in response to a question from Judge Pan, or it might have been your colleague, that all of the small refiners

[01:56:06] Speaker 09:
before the court have actually made their compliance showings for the 2019 to 2021?

[01:56:12] Speaker 05:
That's correct.

[01:56:14] Speaker 09:
And, but did they do so rateably?

[01:56:16] Speaker 09:
I mean, did they, not the showing, but did they buy the RINs, they bought the RINs presumably non-rateably and so they're pointing to costs and EPA is disallowing those costs?

[01:56:29] Speaker 05:
I don't think that there's anything in the record that shows how those rents were acquired, so I don't want to speculate to that point.

[01:56:38] Speaker 09:
Wouldn't you, under your definition of rateability, seems like that would be pretty challenging to implement, because you would have to look at the pattern of rent purchases for every applicant and decide whether it was sort of

[01:56:59] Speaker 09:
systemic and continuous enough?

[01:57:04] Speaker 09:
Is that wrong?

[01:57:05] Speaker 05:
I don't think so, but I do think that what I want to make sure we're clear on is that there is a distinction between the the ratable purchasing of RINs and the applicability and validity of the RIN cost pass-through.

[01:57:18] Speaker 09:
And so... Right, I understand EPA to be saying, you can correct me if I'm wrong, that the RIN pass-through is shown

[01:57:29] Speaker 09:
and that it's shown to be true on average and across time, and it's shown pretty solidly.

[01:57:39] Speaker 09:
But that the second part of your denial action is also critical from the perspective of an individual small refiner, which is how do we make sure that we are in the average and not high or low in terms of

[01:57:58] Speaker 09:
RIN costs and to that your answer is you buy them rateably, right?

[01:58:06] Speaker 09:
Otherwise, yeah, you choose to buy them rateably.

[01:58:10] Speaker 09:
And if you do that, you'll be protected.

[01:58:13] Speaker 09:
You will be zero or trivial in terms of your compliance costs, right?

[01:58:18] Speaker 09:
Correct.

[01:58:19] Speaker 09:
And what I'm not seeing is a clear enough definition of what rateably means and a

[01:58:27] Speaker 09:
demonstration that if that definition, whatever it is, is met, that the allocation among small refiners of the data points that make up the average of zero are actually also going to be zero or close there too.

[01:58:48] Speaker 05:
Well, I think to that point, Judge Priller, the key is to remember that the burden here rests with the small refineries to establish that they could not purchase, that they are not passing on their ring costs.

[01:59:00] Speaker 09:
But how do they even know what ratably means to show that they've done it?

[01:59:04] Speaker 05:
Well, I don't think, well, they can show that they haven't passed their ring costs on in any number of ways, and perhaps one of them is ratable purchasing, but they're- So you're saying even on this record, they haven't shown

[01:59:16] Speaker 09:
having presumably not done it rattably, they haven't shown their net costs in that situation.

[01:59:26] Speaker 05:
Yes, that's correct.

[01:59:30] Speaker 09:
I'm making a skeptical face because I'm not sure that I saw anything addressing that in

[01:59:39] Speaker 05:
So EPA responded to specific comments from petitioners who claimed that they were not able to purchase RINs rattably.

[01:59:48] Speaker 05:
We addressed these at pages 74 to 77 or 78 of our brief, or 79 of our brief.

[01:59:57] Speaker 09:
This is the contracting and broker point.

[02:00:01] Speaker 05:
To some extent, but also how they're not able to acquire RINs for other reasons of capital or other costs.

[02:00:13] Speaker 11:
Your friend on the other side said they're unevenly generated and they also don't know how much they're supposed to buy because the EPA doesn't timely

[02:00:22] Speaker 11:
put forth its volume requirements.

[02:00:24] Speaker 11:
What about those factors?

[02:00:26] Speaker 05:
I think on the uneven generation of the RINs, we've touched on that a little bit.

[02:00:33] Speaker 05:
I mentioned how EPA responded to the claim that there's no evidence to support that blenders may be holding onto RINs and distributing them at various times.

[02:00:43] Speaker 05:
What was the second point, Judge Pan?

[02:00:46] Speaker 11:
That they don't know how much they're supposed to purchase because EPA doesn't let them know what the volume requirements are.

[02:00:52] Speaker 11:
on a timely basis.

[02:00:53] Speaker 05:
So I think to that EPA

[02:00:57] Speaker 05:
even in those situations where EPA has acted belatedly, the compliance obligations are always following the year in which, or the obligations must be demonstrated in the year following that of the compliance year.

[02:01:10] Speaker 05:
EPA has provided compliance flexibilities in a number of circumstances.

[02:01:15] Speaker 09:
But that assumes, the compliance is the once-a-year retirement of the RINS, and there's a window for getting

[02:01:23] Speaker 09:
your paperwork together and showing the compliance.

[02:01:26] Speaker 09:
But if readability really matters, then you're also saying that the small refineries should be purchasing as they go along.

[02:01:38] Speaker 09:
And to the extent they haven't been doing that, then the late announcement of the level of requirement and the compliance flexibility doesn't capture

[02:01:52] Speaker 09:
their ability or inability to make up for not having contemporaneously purchased RINs.

[02:01:58] Speaker 09:
And you're saying, well, they should have known that.

[02:02:00] Speaker 09:
Even before the denial actions, they should have known that.

[02:02:02] Speaker 05:
Well, the default here under the statute is compliance.

[02:02:05] Speaker 05:
And so.

[02:02:06] Speaker 09:
But you're adding a wrinkle to compliance.

[02:02:10] Speaker 05:
The way to obtain compliance is to either acquire the RINs through purchasing or through blending.

[02:02:19] Speaker 09:
And rattably.

[02:02:22] Speaker 09:
Crucially.

[02:02:22] Speaker 05:
Well, that is what EPA has recommended that obligated parties do as good business practice, but has not required small refineries or obligated parties to do.

[02:02:33] Speaker 09:
If they want to get an exemption, it's required.

[02:02:37] Speaker 09:
Well, not necessarily, Your Honor, because if they... Or if they want to get an exemption and they, by not having done ratably, they end up behind the market, I take your position to be tough luck.

[02:02:51] Speaker 05:
Exactly.

[02:02:53] Speaker 05:
But on the other hand, if they wait to the end to purchase the RINs to demonstrate compliance and the prices have gone down, well then they have more money in their pocket.

[02:03:03] Speaker 05:
So again, I just want to make sure that the readability point is separated apart from the RIN cost pass-through notion.

[02:03:13] Speaker 09:
Is it?

[02:03:14] Speaker 09:
I mean, I know it's conceptually separate, but it seems like you need both to prevail.

[02:03:23] Speaker 09:
You don't claim that pass-through alone ensures no compliance costs for an individual refiner.

[02:03:38] Speaker 05:
I think that's, yes.

[02:03:46] Speaker 05:
If I may, on just two other points on the merits before addressing the eligibility question, there was a point made about a windfall of blenders and how blenders receive a windfall of profits from selling their rins.

[02:04:04] Speaker 05:
EPA studied that as part of this denial action and found that that was not the case.

[02:04:09] Speaker 05:
And if I may just make a quick few quick points on eligibility.

[02:04:13] Speaker 05:
I see him over my time.

[02:04:15] Speaker 09:
We'll give you two minutes to do that.

[02:04:21] Speaker 05:
So on issue five for eligibility, EPA correctly found that the two refineries, Company A and B, were ineligible to petition for the small refinery exemption because they were not small refineries at the time of the initial blanket exemption provided by 75-4509A.

[02:04:36] Speaker 05:
And the reason is, Company A was not an obligated small refinery because it produced more than 75,000 barrels per day in aggregate for the qualification years, and it retired RINs to demonstrate its compliance.

[02:04:48] Speaker 05:
And the reason Company B wasn't was because it didn't produce any transportation fuels during those qualification years.

[02:04:55] Speaker 05:
EPA's interpretation that a small refinery must have received the initial blanket exemption is consistent with the Supreme Court's decision in Holly Frontier, which said, quote, there is nothing odd about the fact that Congress chose only to protect existing small refineries rather than new entrants.

[02:05:13] Speaker 09:
But didn't Company B produce crude oil, and isn't that the trigger?

[02:05:19] Speaker 05:
So Company B made a later business decision to begin producing transportation fuel, which triggered its obligations under the RFS.

[02:05:29] Speaker 05:
Prior to that point, it was producing fuels, but not obligated products.

[02:05:37] Speaker 11:
So at the time that the statute that they're relying on was passed, they did not fit the definition

[02:05:42] Speaker 11:
of a small refinery in your view.

[02:05:46] Speaker 05:
They did not be correct.

[02:05:48] Speaker 11:
And the reason is because they did not, they were not producing the obligated fuels under- So you're not relying on the fact that they didn't, I guess, do the letter to be deemed a small refinery?

[02:06:01] Speaker 05:
Well, so that's an additional basis that we've argued that the EPA's regulations at the time in 2007 and 2010 required an entity claiming that they were eligible to receive the small refinery blanket exemption.

[02:06:14] Speaker 05:
to tell EPA that they did.

[02:06:17] Speaker 05:
And the reason for that is, EPA can't say, no, you're not eligible to receive the exemption, but it's EPA administering the program and issuing those regulations so it knows which small refineries are claiming, which refineries are claiming the small refinery exemption for that period.

[02:06:32] Speaker 14:
EPA did give them an exemption, though, in 2018.

[02:06:35] Speaker 05:
EPA gave both Company A and Company B exemptions in 2018, but those were remanded by this court during the pendency of the Holly frontier decision.

[02:06:47] Speaker 09:
One more question, just moving forward, what exactly is EPA looking for in assessing hardship petitions going forward?

[02:06:58] Speaker 05:
Well, I think a lot of that depends on how these cases are resolved.

[02:07:02] Speaker 09:
Assuming your denial actions are sustained.

[02:07:10] Speaker 05:
So you're asking what is EPA looking for in a small refinery exemption petition to qualify

[02:07:16] Speaker 05:
So we explained in our brief, I can't find the quote, but we explained in the proposed denial that those things that a small refinery can provide to EPA that would help show it things that may be sufficient to show disproportionate economic hardship under the statute.

[02:07:35] Speaker 09:
Would be something like we can't find a broker that will help us purchase RINs rateably.

[02:07:46] Speaker 09:
We can't find RINs for sale until later in the year because of the pattern across the calendar year of blending?

[02:07:58] Speaker 05:
Well, so, again, EPA received that information and analyzed it and responded to it in the record.

[02:08:05] Speaker 05:
The area of the proposed denial that outlines the various

[02:08:10] Speaker 05:
Points are, it's on our brief, pages 95 to 96, and the JA is at 227 to 228.

[02:08:18] Speaker 05:
And so I think, again, to my point earlier to Judge Rao's questions, EPA is not foreclosing the possibility of these exemptions.

[02:08:26] Speaker 05:
They're just saying that under the record here, the specific small refinery petitioners have not met their burden to demonstrate that they qualify for the small refinery exemption.

[02:08:36] Speaker 09:
I'm sorry, you said JA, something 27 to 28?

[02:08:40] Speaker 05:
J.A.

[02:08:40] Speaker 05:
227 to 228.

[02:08:42] Speaker 09:
Great.

[02:08:43] Speaker 09:
Okay.

[02:08:45] Speaker 09:
All right.

[02:08:45] Speaker 09:
Thank you.

[02:08:49] Speaker 09:
And now we will hear briefly from Mr. Morrison for three minutes and then Mr. Houston has a brief rebuttal.

[02:08:58] Speaker 09:
Good morning.

[02:09:00] Speaker 13:
Good morning, Your Honor.

[02:09:05] Speaker 13:
Good morning and may it please the court.

[02:09:06] Speaker 13:
My name is Matthew Morrison.

[02:09:08] Speaker 13:
I represent the Renewable Fuel Interveners, the Renewable Fuels Association and Growth Energy.

[02:09:14] Speaker 13:
I'd like to make a few brief but important points to address some of the panel's questions that have arisen this morning.

[02:09:22] Speaker 13:
And I'd like to begin with addressing a point that Judge Pan made, an inquiry that Judge Pan made about what's at stake in this proceeding.

[02:09:32] Speaker 13:
For small refiners, as you've heard, the stakes are actually not very high.

[02:09:37] Speaker 13:
That's because the overwhelming evidence has confirmed, after a decade of study, that whatever cost they incur in complying with the RFS are costs they will recoup.

[02:09:49] Speaker 13:
And if there is any suggestion of incurring costs greater than other refiners, those costs cannot be related to RFS compliance, which are for the most part essentially the same nationwide.

[02:10:03] Speaker 13:
But for renewable fuel producers, this is a high stakes proposition.

[02:10:08] Speaker 13:
The petitioners are asking this court to absolve them of responsibility for 1.63 billion gallons of renewable fuel.

[02:10:17] Speaker 13:
gallons of fuel that Congress intended to be blended into transportation fuel.

[02:10:23] Speaker 13:
So if this court grants the petitioners wish, their exemptions will erase those volumes, devastating renewable fuel producers nationwide.

[02:10:33] Speaker 13:
It will also decrease the demand for renewable fuels, which Congress actually sought to increase through the Renewable Standard Program.

[02:10:42] Speaker 13:
And it will threaten the financial viability of America's farmers and renewable fuel producers who have seen the price for their products plummet as a result of these unwarranted exemptions.

[02:10:53] Speaker 11:
What percentage of the market is attributable to small refineries?

[02:10:57] Speaker 11:
I'm sorry, you're on.

[02:10:58] Speaker 11:
What percentage of the market is attributable to small refineries?

[02:11:01] Speaker 13:
I think it's, depending on if you define it by the 75,000 barrel per day, I think in the DOE cutoff, I'm not sure of the exact percentage.

[02:11:12] Speaker 13:
I want to say it was about a third, perhaps.

[02:11:16] Speaker 13:
A third.

[02:11:16] Speaker 13:
I have to check on that, but yeah.

[02:11:19] Speaker 13:
I'd have to check on the exact.

[02:11:21] Speaker 09:
And that's not the exempt.

[02:11:24] Speaker 13:
Those are the ones that qualify for 75,000 barrels a day or less.

[02:11:28] Speaker 14:
Those small refineries produce 30% of the output?

[02:11:31] Speaker 13:
I don't know the exact percentage.

[02:11:35] Speaker 13:
I don't know the exact percentage.

[02:11:36] Speaker 13:
I would be happy to look into that.

[02:11:38] Speaker 13:
But I don't have that number off the top.

[02:11:40] Speaker 14:
Is that relevant to whether it affects the market?

[02:11:44] Speaker 13:
Yes, it does.

[02:11:45] Speaker 13:
Yeah, it certainly would.

[02:11:47] Speaker 13:
Secondly, is there anything else?

[02:11:53] Speaker 09:
You said that there would be 1.63 billion gallons of renewable fuel that would be forgiven.

[02:12:04] Speaker 09:
Are you referring to not the refiner's obligations that are subject to the alternative

[02:12:15] Speaker 09:
compliance action, because those are being deemed net.

[02:12:20] Speaker 09:
You're talking about 2019 to 2021, the obligations that EPA has left intact, but as to which it's allowed compliance flexibility?

[02:12:32] Speaker 13:
Right, that number represents the total volume obligations of the refiners in the April and June denials.

[02:12:40] Speaker 09:
So it doesn't back out the alternative compliance demonstrations.

[02:12:48] Speaker 13:
That's correct, Your Honor.

[02:12:49] Speaker 13:
That's correct.

[02:12:50] Speaker 09:
Do you have the figure for the only remaining obligations that EPA is purporting here to enforce?

[02:12:57] Speaker 13:
Not for the net difference, but backing it out would only apply, of course, to the April denials.

[02:13:03] Speaker 13:
For the June denials, it would still be

[02:13:06] Speaker 13:
those volumes, they have additional time, but we're still talking about those volumes.

[02:13:10] Speaker 09:
And that's the amount that I'm interested in, because that really is, I mean, given the side that you've intervened on, that's the only amount that actually is at stake.

[02:13:20] Speaker 09:
It's not the part that's subject to the alternative compliance action is, that's gone.

[02:13:28] Speaker 13:
Right.

[02:13:28] Speaker 13:
But that's still a relevant volume because if those volumes are forgiven by the agency, that means there's less demand for renewable fuel in the future.

[02:13:39] Speaker 09:
Now, is that right?

[02:13:40] Speaker 09:
Because I thought in 2020 EPA changed its

[02:13:43] Speaker 09:
Calculation practices and that as of 2020 if there are exempted refiners that they don't figure into the denominator for the calculation of the obligations and so the entire amount the volume that EPA.

[02:14:01] Speaker 09:
has said is feasible for the market to produce, those obligations are put on the non-exempt remaining market participants.

[02:14:08] Speaker 09:
So it's not going to have an effect under that approach on demand for renewable fuels.

[02:14:13] Speaker 09:
Is that wrong?

[02:14:14] Speaker 13:
EPA was at one point doing a look back at the amount of small refinery exemption volumes.

[02:14:22] Speaker 13:
provided in prior years and setting the volumes going forward.

[02:14:27] Speaker 13:
We're no longer in that period right now after beginning in 2023.

[02:14:32] Speaker 13:
But yes, the EPA did take into account, it would look at the volumes that were exempt in prior years.

[02:14:39] Speaker 13:
Oh, it did.

[02:14:39] Speaker 09:
And you're saying that expired as of 2023?

[02:14:41] Speaker 13:
Excuse me?

[02:14:42] Speaker 09:
You're saying that expired as of 2023, that treatment?

[02:14:45] Speaker 13:
In 2023, EPA gets to set the volumes based on a variety of factors laid out in the statute.

[02:14:51] Speaker 13:
It's almost like a new RFS or RFS 3.

[02:14:56] Speaker 13:
It's no longer looking to the volumes that Congress set.

[02:15:01] Speaker 13:
And that's really important because there's been a little bit of discussion today about late volumes.

[02:15:05] Speaker 13:
There's no late volumes when the volumes are set in the statute.

[02:15:09] Speaker 13:
And in the years in question we have, Congress was pretty clear about the volumes it expected.

[02:15:15] Speaker 11:
So what is the total volume?

[02:15:16] Speaker 11:
Because we're talking about 1.6 billion gallons here.

[02:15:19] Speaker 11:
What's the total volume of renewable fuel?

[02:15:22] Speaker 13:
What's the what?

[02:15:23] Speaker 11:
What's the total volume of renewable fuel?

[02:15:25] Speaker 11:
I'm just trying to get a sense of the scale of this issue.

[02:15:27] Speaker 13:
Were those years in question nationwide?

[02:15:30] Speaker 13:
For 2016, I don't have, I apologize, I don't have the numbers.

[02:15:36] Speaker 13:
There's typically around 15 billion gallons of conventional renewable fuel, corn-based ethanol.

[02:15:43] Speaker 13:
There's a lesser amount for advanced biofuels, which could be cellulosic fuels and biodiesel.

[02:15:52] Speaker 13:
So it's in the range of 15 to 20 billion gallons.

[02:15:56] Speaker 13:
So this is 1.6 billion of the 20.

[02:15:59] Speaker 13:
Right, exactly.

[02:16:00] Speaker 09:
But over a period of years, the 1.6, and you gave an annual.

[02:16:05] Speaker 13:
Right, I'm talking annually.

[02:16:06] Speaker 13:
That's correct.

[02:16:08] Speaker 09:
The 1.6 is annual?

[02:16:10] Speaker 09:
No, the 1.6 was the cumulative over all the years at issue.

[02:16:12] Speaker 13:
That was just what we're talking about for the exemptions.

[02:16:14] Speaker 09:
All the years at issue.

[02:16:16] Speaker 13:
At issue here, yeah, altogether.

[02:16:18] Speaker 13:
Secondly, I wanted to try to clarify an important thing that's come up repeatedly today about causation.

[02:16:24] Speaker 13:
To qualify for an exemption,

[02:16:27] Speaker 13:
RFS compliance obligations have to be the direct cause of the hardship, even if the refineries allege reasons unrelated to RFS compliance.

[02:16:38] Speaker 13:
In other words, the refinery has to show that the hardship would not exist but for the RFS compliance obligation.

[02:16:46] Speaker 13:
And contrary to what the petitioners have argued, the EPA has never adopted a sole cause standard here.

[02:16:55] Speaker 13:
In fact, the petitioners concede on page 50 of their brief that a but-for standard is appropriate.

[02:17:01] Speaker 13:
So things such as structural or macroeconomic conditions, even hurricanes, can contribute to the hardship, but there could be no exemption if RFS compliance costs are not a direct cause of the hardship.

[02:17:17] Speaker 13:
And to the extent that a hardship would exist for reasons entirely unrelated to RFS compliance, that should be ineligible for an exemption.

[02:17:27] Speaker 13:
And really, this is as much common sense as it is the best reading of the statute, because it would make no sense for Congress to allow relief from RFS obligations where the exemption would not even redress what was causing the hardship.

[02:17:42] Speaker 09:
All right.

[02:17:43] Speaker 09:
Thank you.

[02:17:45] Speaker 13:
Thank you.

[02:17:55] Speaker 03:
Thank you, Your Honor.

[02:17:56] Speaker 03:
I'd like to begin with Refinery A just briefly.

[02:17:59] Speaker 03:
This refinery received the original exemption from Congress.

[02:18:03] Speaker 03:
Statutory text 75-4509A little i says, quote, the requirement to comply with the RFS shall not apply to small refineries before 2011.

[02:18:14] Speaker 03:
Refinery A met the statutory definition of small before 2011.

[02:18:18] Speaker 03:
Now, EPA thinks that Holly Frontier clarified the law

[02:18:22] Speaker 03:
But if that's right, if they're going to use the Supreme Court's clarification to adopt a new interpretation of eligibility for the exemption, they have to give us fair notice of it and apply it prospectively.

[02:18:33] Speaker 03:
On the statute, I think I heard my friend Mr. Hughes say that EPA started with a new economic theory and then let that drive its statutory interpretation.

[02:18:41] Speaker 03:
That's precisely the problem.

[02:18:44] Speaker 03:
They worked backwards to twist the text to make it fit

[02:18:47] Speaker 03:
and try to squeeze it into their new economic theory.

[02:18:50] Speaker 03:
Judge Pan, I think you have it exactly right.

[02:18:52] Speaker 03:
We agree that RFS compliance has to be a substantial contributing factor.

[02:18:58] Speaker 03:
It has to be a cause of the hardship.

[02:19:01] Speaker 03:
Our point is that the compliance does not need to be the sole cause of the hardship.

[02:19:06] Speaker 03:
A sole causation standard is incompatible with the statutory term

[02:19:10] Speaker 03:
disproportionate economic hardship.

[02:19:13] Speaker 03:
Now, my friends equivocated at the podium today, but the denials are clear.

[02:19:18] Speaker 03:
EPA demands disproportionate costs, not disproportionate hardship, and it insists on a sole causation standard.

[02:19:26] Speaker 03:
You can see this at JA 3224, including footnote 13.

[02:19:30] Speaker 03:
This was driven by the 10th Circuit's analysis adopting a sole causation standard.

[02:19:35] Speaker 03:
Judge Pillard's hurricane example powerfully proves why that simply makes no sense.

[02:19:40] Speaker 03:
Given that refineries economic circumstances in the language of the statute, it is experiencing disproportionate economic hardship from compliance with the RFS.

[02:19:51] Speaker 03:
But EPA has told us in the denial actions expressly that it would refuse to consider that economic circumstance as a basis for hardship relief.

[02:20:00] Speaker 09:
Do you think the 10th Circuit's reasoning was wrong or do you think EPA has mischaracterized it?

[02:20:06] Speaker 03:
I think honestly it's actually a little bit of both to be quite clear, Your Honor.

[02:20:10] Speaker 03:
I mean, I think the 10th Circuit's reasoning is flawed because I do think the 10th Circuit

[02:20:14] Speaker 03:
says something pretty similar to what my friend Mr. Morrison said, and we just fundamentally disagree with that.

[02:20:19] Speaker 03:
We don't think that you can make the statutory standard disproportionate economic hardship work on that ground.

[02:20:25] Speaker 03:
The 10th Circuit did say it endorsed the idea, for example, refusing to consider natural disasters.

[02:20:31] Speaker 03:
I think EPA then sort of grabbed onto that reasoning and then attempted to drive a truck through it and make it do even more work, even though that opinion was obviously vacated and overturned by the Supreme Court.

[02:20:43] Speaker 09:
It wasn't overturned by the Supreme Court.

[02:20:46] Speaker 09:
The 10th Circuit's opinion was... Yeah, but they only reached that one question.

[02:20:50] Speaker 09:
Yes, but in response to that, the 10th Circuit... And EPA has said, we're relying on the reasoning.

[02:20:54] Speaker 09:
It doesn't matter whether it's authoritative or not.

[02:20:57] Speaker 09:
A panel of judges grappled with the issue, described their outcome, and EPA says, we think that's right.

[02:21:04] Speaker 03:
The 10th Circuit subsequently vacated that opinion.

[02:21:07] Speaker 03:
But yes, EPA says that it was relying on its own independent conclusion.

[02:21:10] Speaker 03:
I'm happy to take their word on that.

[02:21:12] Speaker 03:
I think the point is just that's not consistent with the statutory text, with what disproportionate economic hardship means.

[02:21:18] Speaker 03:
On whether the EPA's reasoning is arbitrary and capricious, we've talked a lot about the flaws in their rateable RIN instruction, excluding their unexplained change from their prior statements.

[02:21:30] Speaker 03:
I think that's the most obvious flaw in their analysis, but it's certainly not the only one.

[02:21:35] Speaker 03:
Their conclusion is about pass-through, that it happens everywhere, for every refinery, all across the country.

[02:21:42] Speaker 03:
But the way that they get there is by extrapolating on just two fuels markets, the Gulf Coast and New York Harbor, and they have no plausible response to the voluminous evidence that petitioners put in the record explaining why pass-through doesn't happen always, given their individual circumstances.

[02:21:59] Speaker 03:
EPA doesn't have a meaningful response to PAR Hawaii,

[02:22:02] Speaker 03:
which has to index its fuels to the Singapore market where there obviously is no RFS.

[02:22:08] Speaker 03:
It doesn't have any plausible response to Calumet, Montana, where the market, as we've shown in a declaration, is dominated by large integrated refiners that force Calumet to discount its prices below the market standard.

[02:22:21] Speaker 03:
DOE always recognized this.

[02:22:23] Speaker 03:
It knew that when RIN prices rose and EPA demands more blending, it will be a significant advantage to blend rather than be at the market

[02:22:31] Speaker 03:
That's exactly what happened.

[02:22:32] Speaker 03:
That's JA 1415.

[02:22:34] Speaker 03:
On retroactivity, Judge Pillard, I think you asked my friends at the EPA, where did EPA tell the refineries before this compliance year they will have no cost so long as they buy rateably?

[02:22:45] Speaker 03:
They couldn't give you an answer because they didn't.

[02:22:48] Speaker 03:
EPA said in 2017, refineries, quote, need not acquire RINs at the same time that they produce the fuel.

[02:22:55] Speaker 03:
That's JA 16,000.

[02:22:56] Speaker 03:
And of course, as you noted, they said it would be virtually impossible for the market to meet that demand.

[02:23:01] Speaker 03:
They are punishing us in December 2021 for having failed to buy rateably back in 2019 and 2020.

[02:23:09] Speaker 03:
We'll need no opportunity to do anything about it.

[02:23:11] Speaker 03:
Thank you.

[02:23:12] Speaker 09:
Thank you very much.

[02:23:13] Speaker 09:
We'll take a short break and we'll resume with 221074.

[02:23:16] Speaker 09:
Good afternoon.

[02:23:19] Speaker 04:
Good afternoon.

[02:23:23] Speaker 04:
Okay, may I please the court?

[02:23:26] Speaker 04:
The premise of this case, of course... My name is... My name is David Lane.

[02:23:30] Speaker 04:
I'm on behalf of the District of Grove Energy.

[02:23:34] Speaker 04:
The premise of our challenge is, you know, our challenge is to do alternative compliance actions.

[02:23:39] Speaker 04:
The premise, of course, is that the denials of exemptions that were the subject of the prior case are valid.

[02:23:46] Speaker 04:
Based on the questioning, I think I need to...

[02:23:48] Speaker 04:
Skip a few points about EPA's discretion in this context and really focus on some of the retroactivity issues that have come up, because they're central to the AC.

[02:23:56] Speaker 14:
Could you please first start at the threshold about jurisdiction over your petition and standing for growth energy?

[02:24:03] Speaker 04:
Certainly.

[02:24:04] Speaker 04:
I think that standing has already been decided by this court in the Elan case and then a national biodiesel case.

[02:24:11] Speaker 04:
In both of those, the petitioner was an association of renewable fuel producers challenging the level of RFS obligations and the court found standing because RFS obligations, when you lower the obligation, you invite additional competition for the content of the fuel.

[02:24:29] Speaker 14:
I'm aware of those cases, but so what about our recent decision in Ohio versus EPA, which found that the petitioners had not met their pleading burden for standing?

[02:24:41] Speaker 04:
In those cases?

[02:24:42] Speaker 14:
So it's not the case that Growth Energy, even if it's been granted standing in the past, sort of perpetually has standing to bring claims.

[02:24:49] Speaker 14:
In every case or controversy, they have to meet the pleading burden of establishing standing.

[02:24:54] Speaker 14:
And here, I'm not sure that they

[02:24:56] Speaker 14:
that they have?

[02:24:57] Speaker 04:
Well, I certainly agree that we have to meet it in every case, but the reason why it was met in those prior cases, it applies exactly the same here.

[02:25:05] Speaker 04:
We're talking about the levels of obligations and lowering the obligations will reduce the demand for renewable fuel and increase the competition with renewable fuel.

[02:25:14] Speaker 11:
But isn't this case different because we're talking about past years?

[02:25:17] Speaker 11:
Like whether or not RINS need to be retired for 2018, 2017, and 2016,

[02:25:23] Speaker 11:
That's not going to affect demand for renewable fuels, either in those years because it's over, or prospectively.

[02:25:31] Speaker 04:
No, that is incorrect.

[02:25:32] Speaker 04:
If I may, just one more point in response to Judge Rahm, and I'll answer your question.

[02:25:36] Speaker 04:
The final point is the Ohio case.

[02:25:38] Speaker 04:
The petitioners there, the problem with their theory of standing was that the automakers had already voluntarily agreed to meet or exceed EPA's standards.

[02:25:46] Speaker 04:
So even if EPA's standards were reversed,

[02:25:48] Speaker 04:
it would not affect the production or the transition into electric vehicles.

[02:25:54] Speaker 04:
That's not the situation here.

[02:25:55] Speaker 04:
The obligated parties are not promising to meet their obligations, even if they're not getting the relief.

[02:25:59] Speaker 14:
Any evidence about that one way or another, right?

[02:26:01] Speaker 14:
I mean, the RFS obligations set a floor, but we don't know.

[02:26:04] Speaker 14:
I mean, will people blend more renewable fuels?

[02:26:07] Speaker 14:
There are so many different things that could happen in the marketplace, and it depends on lots of independent decisions of third parties.

[02:26:15] Speaker 14:
that are being regulated.

[02:26:16] Speaker 04:
It doesn't here.

[02:26:16] Speaker 04:
It depends on the obligation, which creates the amount of competition.

[02:26:22] Speaker 04:
It creates a zone of exclusivity for renewable fuel and a zone of competition.

[02:26:26] Speaker 04:
And whenever an agency moves that line and invites additional competition, there's injury to the party that now has to face competition that it wouldn't otherwise face.

[02:26:35] Speaker 04:
And to answer your question, Judge Pan, it is about the future and it is about demand.

[02:26:41] Speaker 04:
There are RINs in the bank that would not be there if EPA had denied the exemptions and then required compliance.

[02:26:52] Speaker 04:
And those RINs can be used in the future.

[02:26:54] Speaker 09:
They expire.

[02:26:56] Speaker 04:
No, they roll from year to year.

[02:26:58] Speaker 09:
Only one year forward from the compliance year.

[02:27:02] Speaker 04:
Yes, but that's not how it works in practice.

[02:27:05] Speaker 04:
Each RIN expires one year after its year of generation.

[02:27:08] Speaker 04:
However, the bank rolls from year to year.

[02:27:11] Speaker 04:
EPA has explained this in its rulemakings multiple times.

[02:27:15] Speaker 04:
Every year obligated parties

[02:27:17] Speaker 04:
first use all the old RINs to meet their obligations.

[02:27:21] Speaker 04:
Then they use new RINs to meet the difference in their obligations.

[02:27:25] Speaker 04:
And if they've got more new RINs left over, they put those in the bank.

[02:27:29] Speaker 04:
The result is that old RINs become new RINs in the bank year to year.

[02:27:33] Speaker 04:
And EPA's term for this is mediating obligations across years.

[02:27:38] Speaker 09:
So right now... I thought they couldn't do that.

[02:27:40] Speaker 09:
I mean, this isn't really squarely an issue here, so I'm having...

[02:27:45] Speaker 09:
but if you carry forward, don't you have to then meet all the next years?

[02:27:51] Speaker 09:
You can't continually, and no individual can continually carry forward.

[02:27:54] Speaker 04:
That's correct, but there's, there, we have a series of unlawful actions by EPA.

[02:28:00] Speaker 04:
The 2016 general waiver, which was vacated in the Americans for Clean Energy case, and then we have the initial grants of exemptions that are the subject of this case and the prior one.

[02:28:10] Speaker 04:
As a result of those actions,

[02:28:13] Speaker 04:
The amount of rins that were required to be retired was lower than the amount of renewable fuel that was actually generated and should have been retired had EPA not committed those errors.

[02:28:26] Speaker 04:
That inflated the bank.

[02:28:28] Speaker 04:
Then those rins got rolled into newer vintages and newer vintages and so on.

[02:28:34] Speaker 04:
There's still a bank out there.

[02:28:35] Speaker 04:
It was 1.8 billion at the time of the alternative compliance action, and the obligations covered by the alternative compliance action is 1.6 billion.

[02:28:45] Speaker 04:
That means that all those RINs from the incorrect exemption denials, the initial denials, are sitting in the bank.

[02:28:52] Speaker 04:
They have a different vintage, a different ID number, but that bank wouldn't be there if the compliance had been required as properly, you know, as EPA eventually determined it should have been.

[02:29:03] Speaker 04:
Now they're in the bank.

[02:29:04] Speaker 04:
In some future year, it could be 24, it could be 25, we don't know, because there's uncertainty right now.

[02:29:10] Speaker 04:
But once this gets resolved, depending on the obligations that EPA sets for a future year, obligated parties can draw down that bank and use it to comply instead of using more renewable fuel.

[02:29:21] Speaker 11:
And that suppresses... How do obligated parties access the bank?

[02:29:25] Speaker 04:
They're in the market.

[02:29:26] Speaker 04:
They buy RINs and then they retire them.

[02:29:28] Speaker 04:
It's not like there's not a single repository.

[02:29:31] Speaker 04:
The bank is just a colloquial term for saying all excess RINs that were generated and carried over.

[02:29:36] Speaker 04:
And that rolls from year to year.

[02:29:39] Speaker 04:
It doesn't evaporate.

[02:29:40] Speaker 04:
The RIN evaporates, but it gets converted into a more recent vintage RIN.

[02:29:45] Speaker 04:
And so the bank stays constant until obligated parties draw it down.

[02:29:49] Speaker 04:
Why do they draw it down?

[02:29:51] Speaker 04:
To avoid their obligation to use more renewable fuel, which is the exact thing the program was designed to do.

[02:29:58] Speaker 04:
So there's real impact here.

[02:29:59] Speaker 04:
We're not talking about past years.

[02:30:01] Speaker 04:
We're talking about past years that have been mediated into future years through the Ren Bank.

[02:30:06] Speaker 09:
Mr. Lane, if we were to, for purposes of the question for clarifying your position, if we were to grant the petitions in 221073 and vacate this latest round of denials, what should we do with this compliance action?

[02:30:25] Speaker 09:
EPA wants us

[02:30:27] Speaker 09:
to remand to the agency so it can evaluate its next steps.

[02:30:31] Speaker 09:
Would you oppose such remand?

[02:30:34] Speaker 09:
Would your challenges become obsolete?

[02:30:39] Speaker 04:
What do we do?

[02:30:40] Speaker 04:
If you were to vacate the exemptions and remand them, then I assume that the alternative compliance action would basically become moot unless EPA were to re-deny the exemptions on remand, at which point,

[02:30:58] Speaker 04:
EPA might reissue the alternative compliance action for those re-denials, and then we'd be right back here.

[02:31:02] Speaker 09:
So they're sort of moot in a very specific way, and they're unripe with respect to any future action.

[02:31:07] Speaker 09:
They're sort of a non-issue.

[02:31:11] Speaker 04:
Yeah.

[02:31:12] Speaker 04:
They're not presented.

[02:31:12] Speaker 04:
Correct.

[02:31:13] Speaker 04:
Because the alternative compliance action was taken only because EPA denied the exemptions after initially granting them.

[02:31:19] Speaker 04:
If that denial goes away, then there is no sort of occasion to need to issue alternative compliance actions.

[02:31:26] Speaker 09:
and not technically moved.

[02:31:29] Speaker 04:
I don't know what the technical label would be.

[02:31:33] Speaker 09:
Would you oppose remand to EPA in that circumstance?

[02:31:37] Speaker 04:
I think our deal would be that you would say something to really constrain its discretion on remand.

[02:31:42] Speaker 04:
But if you felt like the premise of this case no longer existed, then it might make sense for you to remand.

[02:31:50] Speaker 14:
Well, do they both get vacated together, both the denial orders and the alternative compliance?

[02:31:55] Speaker 14:
I mean, aren't they sort of a package?

[02:31:59] Speaker 14:
So if we were to vacate the denial orders, would this court necessarily vacate the compliance orders along with them?

[02:32:07] Speaker 04:
I think that would make practical sense.

[02:32:10] Speaker 04:
The reverse, of course, is not true, although not in a way that I would like.

[02:32:13] Speaker 04:
You could affirm the exemption denials, but also affirm the alternative.

[02:32:23] Speaker 04:
But the two are, beyond the practical question of this linking that we're talking about, the two are interrelated because all of the retroactivity issues that were discussed in the first case are present and arguably properly present only in our case.

[02:32:42] Speaker 04:
Because in adjudication context, EPA is supposed to apply the rule as it exists at the time, and that would result in denial.

[02:32:49] Speaker 04:
The question of whether to withhold retroactive effect is really what the alternative compliance action is about, not the denial action.

[02:32:58] Speaker 14:
And I guess if we were to affirm the denials for company A and B, then we would still have to reach the alternative compliance.

[02:33:11] Speaker 14:
It's validity.

[02:33:15] Speaker 04:
I suppose, I'm not sure if alternative compliance covers those.

[02:33:20] Speaker 14:
Does it not cover?

[02:33:20] Speaker 04:
Because they weren't.

[02:33:23] Speaker 04:
Well, I'm not sure.

[02:33:24] Speaker 04:
Because I don't know if they specifically received the exemption denials in the first place back in 2016 to 18.

[02:33:30] Speaker 04:
That's the linchpin for EPA's alternative compliance action.

[02:33:35] Speaker 04:
But from a retroactivity standpoint, there are a number of points to make.

[02:33:39] Speaker 04:
But where I think I should start is, what was the state of play

[02:33:44] Speaker 04:
when the small refineries sought their exemptions or even during the relevant compliance years of 2016 to 18.

[02:33:53] Speaker 04:
I'd like to really clarify, this is certainly a topic of discussion in the prior case, but I think I need to clarify what was going on.

[02:33:58] Speaker 04:
EPA timely issued obligations for those years, for 16, 17, 18, also for 19 and 20.

[02:34:08] Speaker 04:
They were on the books before the year began, under Hermes and under Monroe Energy,

[02:34:13] Speaker 04:
At that point, the obligated parties had to expect to take reasonable preparation to comply and could not have expected to receive discretionary relief from their obligations.

[02:34:25] Speaker 04:
What happened?

[02:34:27] Speaker 04:
So then we can narrow the focus.

[02:34:29] Speaker 04:
Was there some sort of abrupt change in how EPA was going to evaluate exemption petitions?

[02:34:34] Speaker 04:
Did EPA not put the obligated parties on notice of what they would need to do to get exemptions?

[02:34:40] Speaker 04:
Well, there's really two components to the exemption decisions.

[02:34:44] Speaker 04:
There's the causation requirement, and there's the pass-through analysis.

[02:34:48] Speaker 04:
The causation requirement, EPA and DOE had always said that RFS compliance must cause the hardship.

[02:34:58] Speaker 04:
Now, it does not mean that they would disregard other factors.

[02:35:02] Speaker 04:
It means that if the hardship would exist irrespective of compliance, there could not be an exemption.

[02:35:10] Speaker 04:
But if the hardship might exist as a result of compliance plus other factors, then those other factors could be relevant.

[02:35:17] Speaker 04:
EPA reaffirmed this in its 2016 memorandum.

[02:35:21] Speaker 04:
DOE said it in the 2011 study.

[02:35:24] Speaker 04:
That was the causation standard.

[02:35:26] Speaker 04:
Then you have the pass-through analysis.

[02:35:28] Speaker 04:
DOE had always been saying that net RIN cost and RIN pass-through would be relevant.

[02:35:36] Speaker 04:
However, they didn't have the data on it.

[02:35:39] Speaker 04:
It wasn't until May 2015, the first EPA study that says obligated parties can recoup all of their RIN costs, and they could do it.

[02:35:48] Speaker 04:
And the study says it.

[02:35:49] Speaker 04:
It's in the records.

[02:35:50] Speaker 04:
It's in the JA at 108 or 106.

[02:35:52] Speaker 04:
is where it begins, that they could do it by entering brokerage contracts or taking other steps to ensure that they acquire their RINs concurrently.

[02:36:02] Speaker 14:
How does this go to your challenge to the compliance action as opposed to the denial order?

[02:36:07] Speaker 14:
It was in our previous case.

[02:36:09] Speaker 04:
Because it's about retroactivity.

[02:36:11] Speaker 04:
Did EPA suddenly change its approach after the fact in some way that unsettles justifiable reliance?

[02:36:18] Speaker 04:
And my point is there was no justifiable reliance that they were going to get the exemptions or that they would get the exemptions without readily buying RINs.

[02:36:26] Speaker 04:
Now, that's 2015 right before the 2016 year which is the first year that's at issue here.

[02:36:31] Speaker 04:
Once you know those things, once you know there's a causation requirement and that RIN cost can be passed through and that rateable acquisition is on the table, it's reasonably within your expectation that you should be doing that rather than doing either a less efficient form of compliance or one that is betting.

[02:36:49] Speaker 04:
What they're really saying is that they want an asymmetry.

[02:36:54] Speaker 04:
When they sell their fuel, they get a rim premium on top of their fuel.

[02:37:00] Speaker 04:
They put that in their pocket.

[02:37:02] Speaker 04:
Then they have to go out and acquire rims.

[02:37:03] Speaker 04:
That's a cost.

[02:37:04] Speaker 04:
EPA says those two things can negate each other if you acquire rateably.

[02:37:09] Speaker 04:
What they want is when rim prices go down,

[02:37:12] Speaker 04:
They want to put the difference, they want to keep the difference.

[02:37:15] Speaker 04:
And when rim prices go up, they want to keep all of the rim premium and be completely absolved of their compliance application.

[02:37:22] Speaker 04:
And I don't think that was a reasonable expectation going into 2016, 17, or 18.

[02:37:29] Speaker 04:
I'm over time, but I do have some additional points.

[02:37:32] Speaker 09:
And we're on a schedule.

[02:37:34] Speaker 09:
So we're going to thank you.

[02:37:36] Speaker 09:
And unless there are further questions, we're going to hear from, is it Mr. Griot or Clio?

[02:37:47] Speaker 10:
Clio is closer.

[02:37:48] Speaker 10:
It's actually Grillo.

[02:37:49] Speaker 10:
It used to be IOT long ago, and the I got dropped in immigration.

[02:37:53] Speaker 10:
But I'm here representing EPA, is the important point.

[02:38:00] Speaker 10:
And first, I'm per the schedule addressing gross arguments.

[02:38:05] Speaker 10:
Their petition here should be denied because EPA had authority and reasonably acted to preserve the RFS program.

[02:38:13] Speaker 10:
My friend on the other side orients you to the situation at the time, and I think that's important to do.

[02:38:18] Speaker 10:
At the time that EPA took the compliance action, it was concurrent with the denial action.

[02:38:23] Speaker 10:
And at that point in 2018, for the 2018 compliance year, there have been 31 refineries that had received grants and had their rents returned to them.

[02:38:32] Speaker 10:
Those grants have been challenged, brought up to this court.

[02:38:35] Speaker 10:
They're ultimately remanded to EPA.

[02:38:37] Speaker 10:
And then EPA denied them as part of the denial action.

[02:38:40] Speaker 10:
So for those 31 refineries that had initially been received grants back in 2018, they now had denials and therefore concurrent compliance obligations.

[02:38:49] Speaker 10:
What EPA did is it said, what happens if we require them to comply?

[02:38:54] Speaker 10:
And we looked at the situation and there are 1.6 billion rents that would need to be retired in very short order.

[02:39:01] Speaker 10:
And EPA reasonably determined that that would cause significant obstacles, insurmountable obstacles, in fact, to the ongoing functioning of the RFS program for everyone.

[02:39:10] Speaker 14:
So where's the statutory authority for making that determination?

[02:39:13] Speaker 14:
I mean, the statute is very specific.

[02:39:15] Speaker 14:
It gives EPA a lot of very particular authorities to

[02:39:19] Speaker 14:
you know, to set up the RIN credit system, to generate the use of credits for RFS obligations, to deal with deficits and surpluses, to do the hardship exemption.

[02:39:32] Speaker 14:
Certainly right.

[02:39:32] Speaker 14:
And those are all very specific authorities.

[02:39:34] Speaker 14:
And it seems that EPA has exercised some other authority that's not really in the statute.

[02:39:39] Speaker 10:
So what EPA did was, oh, Congress gave EPA a mandate to carry out the RFS program as a whole.

[02:39:45] Speaker 10:
And that included a compliance credit system that includes this carryover rent system that we've discussed where you can use subsequent years for prior years.

[02:39:53] Speaker 10:
And so the statute tells EPA to develop regulations for compliance provisions as appropriate to ensure that the overall purpose of the statute is met.

[02:40:03] Speaker 10:
And in the EPA's regulations that it developed, EPA determined that they have the flexibility to require the retirement of rents in any instance identified by EPA.

[02:40:12] Speaker 10:
There's some inherent flexibility for EPA within the statute.

[02:40:17] Speaker 10:
As this court has recognized and the Supreme Court has recognized, regulations can't capture every unique factual situation.

[02:40:23] Speaker 14:
But why not just grant the exemption, right?

[02:40:25] Speaker 14:
I mean, just like a political shell game, you know, deny the exemptions, but basically give them the exemptions in an alternative compliance order.

[02:40:32] Speaker 14:
I mean, is it just like a labeling issue?

[02:40:35] Speaker 14:
I mean, what's happening?

[02:40:38] Speaker 10:
So when those petitions or when those grants that have been challenged were remanded back to the agency,

[02:40:43] Speaker 10:
So in 2021, they were looking at everything from a straggle of 2016, 2017, 2018 forward.

[02:40:50] Speaker 10:
And EPA reasonably chose to apply its new interpretation, which we just heard my colleagues arguing about, of its interpretation of rank cost pass through and its approach.

[02:41:04] Speaker 10:
It decided to do so and reasonably decided to do so across all pending positions that were in front of it.

[02:41:09] Speaker 10:
It didn't want to say,

[02:41:10] Speaker 10:
We're going to grant these and not these, because it wanted to apply the same consistent framework.

[02:41:15] Speaker 10:
But then what it did with compliance actions, it looked at the consequences of that and reasonably said, we need to mitigate those consequences.

[02:41:21] Speaker 14:
But why isn't the consequences of that just other economic factors for granting an exemption?

[02:41:25] Speaker 14:
I mean, it seems like Congress provided a specific vehicle, grant exemptions, when there has been some disproportionate economic hardship.

[02:41:32] Speaker 14:
And it seems like what the alternative compliance actions are identifying is that there would be a real hardship to compliance now for years in the past.

[02:41:40] Speaker 14:
So why not grant the exception?

[02:41:41] Speaker 10:
So the difficulty in that situation, the 2018 compliance year was closed.

[02:41:45] Speaker 10:
And so there was no opportunity for the refineries to demonstrate and ask for in the process that we envision this process in which you submit the information, the burden is on the refineries to show that they're eligible, that they would have to submit this information, that EPA would then consider that information instead of going through that process considering that these obligations were due imminently.

[02:42:05] Speaker 10:
EPA decided reasonably to act in the way that it did with the compliance action instead of requiring the process that you're describing.

[02:42:10] Speaker 10:
And the question isn't whether EPA could have done X or could have done Y. The question is whether this action was reasonable.

[02:42:16] Speaker 10:
And it was.

[02:42:17] Speaker 10:
It was not arbitrary because EPA was reacting.

[02:42:19] Speaker 14:
It was reasonable.

[02:42:20] Speaker 14:
It also has to have statutory authority to take the alternative compliance action.

[02:42:24] Speaker 10:
Right.

[02:42:24] Speaker 10:
So the statutory authority is going to come from this concept that regulations can't adjudicate every unique factual situation and that it's appropriate and fine for agencies to flesh out through adjudications like this one.

[02:42:37] Speaker 10:
The parameters of particular situations

[02:42:38] Speaker 10:
Particularly in Niagara Mohawk, in this case in 1967, remedies as when agencies are at the zenith of their ability to have this discretion to maintain the efficiency of the program.

[02:42:49] Speaker 10:
And that was the issue that was in, that was the crux of the issue in Niagara Mohawk, is that EPA, or in that case it was the

[02:42:58] Speaker 10:
Power Commission was looking to maintain the efficiency of the licensing system for dams in upstate New York.

[02:43:03] Speaker 10:
So here, EPA reasonably was acting to maintain the efficiency.

[02:43:07] Speaker 14:
I'm sorry, is it EPA's position that you could not have granted hardship exemptions for the 2018 years?

[02:43:14] Speaker 14:
Is that what I heard you say at the beginning of your response, that that would not be possible to grant a hardship exemption?

[02:43:19] Speaker 10:
I think the answer is that it would be impracticable.

[02:43:21] Speaker 10:
Whether it was possible or not is an open question, but the process would have required submission of information showing that it was a hardship.

[02:43:29] Speaker 10:
What EPA essentially did, Your Honor, is it determined that this would in fact be a hardship on the program and the system as a whole.

[02:43:36] Speaker 10:
And in line with the cases that this court has looked at,

[02:43:40] Speaker 11:
I'm sorry, but they did apply for a hardship exemption, but you're just saying that not on this ground, and you can't grant an exemption unless they ask for those specific grounds?

[02:43:50] Speaker 10:
This is specific to 2018.

[02:43:51] Speaker 10:
The compliance action is specifically for the refiners.

[02:43:53] Speaker 10:
They had had grants, had their rents returned to them, and now had denials.

[02:43:59] Speaker 10:
That compliance year was closed.

[02:44:01] Speaker 10:
It was not as though they had not yet reached the point at which they needed to make that compliance demonstration.

[02:44:06] Speaker 10:
That compliance demonstration had already happened.

[02:44:07] Speaker 10:
in the past, and they had received grants, and those grants have been challenged.

[02:44:11] Speaker 10:
I think that's the key difference between this and other years.

[02:44:14] Speaker 10:
The compliance years were still open, in part because EPA took other mitigating actions.

[02:44:19] Speaker 10:
The extension rule, the second extension rule that this court heard

[02:44:22] Speaker 10:
last summer in which EPA was attempting to get the program back on track to sort of give additional flexibility for years that had not yet closed.

[02:44:31] Speaker 10:
And that's part of why it's important to understand that that wasn't possible here because that compliance year had closed for 2018 and the 1.6 billion rent obligation was due and imminently due and therefore requiring that compliance would have placed an unreasonable burden upon these refiners.

[02:44:47] Speaker 09:
I have a kind of related but more specific question about company A and company B.

[02:44:53] Speaker 09:
If we were to vacate the denials in 221073, except with respect to those two companies, would the compliance actions remain in place as to those two?

[02:45:10] Speaker 09:
They would still need the compliance action, or would you request for vacator and remand of the compliance actions applied to them to,

[02:45:23] Speaker 09:
because of sort of the nature of the, a core reason for the compliance action was that there would be lots of refineries scrambling for rents, and if it was only two, no compliance action warranted.

[02:45:36] Speaker 09:
What's the position of the EPA in that situation?

[02:45:41] Speaker 10:
Two points, Your Honor.

[02:45:43] Speaker 10:
One, for companies A and B, they were found to be not eligible.

[02:45:47] Speaker 10:
And so the first threshold for eligibility for

[02:45:51] Speaker 10:
relief would be to show that they're eligible.

[02:45:53] Speaker 10:
So if you, in fact, vacate on those grounds, the denial on those grounds, they would still have to be evaluated for whether or not they had a disproportionate economic hardship.

[02:46:00] Speaker 10:
That's a separate question.

[02:46:04] Speaker 09:
If they're not eligible, on what ground would we evaluate?

[02:46:08] Speaker 10:
Oh, if you find that they're not eligible.

[02:46:10] Speaker 09:
If we were to find that they were not

[02:46:12] Speaker 09:
eligible, then there's no equitable relief for them.

[02:46:20] Speaker 09:
They would be, boom, out of compliance the day the opinion issues.

[02:46:27] Speaker 10:
That's correct, Your Honor.

[02:46:28] Speaker 10:
And I think the difference between that and the compliance action here, and I think the volume point that you're making, is that it was the size and the scope of the problem that EPA was facing in this unique circumstance with the 2018 obligations all coming due

[02:46:41] Speaker 10:
essentially simultaneously, that's different than one or two companies having compliance obligations because their eligibility is found to come into existence.

[02:46:52] Speaker 10:
So we're looking at the systemic structural concerns and the impacts that would have had on the RFS program.

[02:46:57] Speaker 10:
And again, importantly, not just the RFS program for small refineries, the RFS program writ large for the entire industry was threatened by the requirement to have 1.6 billion rents come due.

[02:47:09] Speaker 09:
Why did EPA choose to separate out the denial and the compliance actions in these sort of nominally separate actions?

[02:47:18] Speaker 10:
EPA has the authority to do this, which is not a direct answer to your question.

[02:47:21] Speaker 10:
The answer is, EPA chose to do this in its discretion.

[02:47:24] Speaker 10:
I don't have a firm answer on why, and I don't think it's particularly relevant given that the question here is whether or not what EPA did

[02:47:32] Speaker 10:
address the effects of this specific situation.

[02:47:34] Speaker 09:
I mean, it sort of relates to Judge Rao's question about the agency's authority.

[02:47:41] Speaker 09:
If the compliance actions are exercising EPA's authority under ordinary administrative law principles and principles of adjudication to withhold the consequences of its announcement of a new legal principle, your position is that that's not, the formality of having them be two separate actions doesn't affect that

[02:48:02] Speaker 09:
equitable remedial fashioning authority.

[02:48:05] Speaker 09:
That's correct.

[02:48:06] Speaker 10:
And this is an equitable remedial relief in line with there's plenty of cases that show that adjudications can have retroactive effects and you can withhold those effects grounded in notions of equity and fairness.

[02:48:16] Speaker 10:
Essentially, it's an equity argument.

[02:48:18] Speaker 10:
And here, the harm would have been significant, not just to these particular parties, but to the system as a whole.

[02:48:23] Speaker 10:
And EPA reasonably decided to mitigate those in the way that it did.

[02:48:30] Speaker 09:
All right.

[02:48:31] Speaker 09:
Thank you very much.

[02:48:33] Speaker 09:
And I guess we'll hear from you again in connection with the other remedies.

[02:48:43] Speaker 07:
May it please the court, Daniel Fythe of Sidley Austin for interveners.

[02:48:47] Speaker 07:
I'd like to begin by addressing some of Judge Rao's points on standing before turning to statutory authority, and then with my little time perhaps addressing briefly the issue of remedy.

[02:48:57] Speaker 07:
So on the standing issue, I think Judge Rao, you're exactly right that growth energy has not carried its pleading burden here.

[02:49:04] Speaker 07:
They haven't even shown that they were injured back in 2016 to 2018 from granting the exemptions during that period, because as you said, the RFS sets a floor.

[02:49:18] Speaker 07:
In those years, we know that there were, I believe, 3.5 billion excess RINs generated in 2018, which at a minimum shows that

[02:49:27] Speaker 07:
there's reason to think that the floor was not actually doing the work, that what was driving renewable fuel production in those years was actual demand, not the regulatory floor set by the RFS.

[02:49:39] Speaker 14:
But that cuts the other way.

[02:49:42] Speaker 14:
Is that in the record?

[02:49:46] Speaker 07:
I believe that's mentioned in the compliance actions, the total number of RINs going into 2018.

[02:49:53] Speaker 07:
Judge Pillard, I don't believe it cuts the other way, because insofar as there are excess RINs, that shows that parties are generating excess of what the renewable fuel standard is, such that the minimum demand represented by the renewable fuel standard is not what's actually driving renewable fuel production.

[02:50:10] Speaker 07:
Therefore, they're not injured.

[02:50:11] Speaker 07:
by the level of the floor.

[02:50:14] Speaker 07:
They're producing simply in response to the market demand.

[02:50:21] Speaker 09:
But now we're post-Blendwall, post-2013.

[02:50:24] Speaker 09:
That is no longer the case.

[02:50:27] Speaker 07:
I think that the point I'm making is that for those years, I believe 2016 to 2018 was also post-Blendwall, and there was still excess RINS being generated in those years.

[02:50:39] Speaker 09:
And yet we held that there was standing for growth energy.

[02:50:43] Speaker 09:
I'm not sure I'm following.

[02:50:45] Speaker 07:
Well, so where the court has held that there was standing, I think the two cases that they point to, Alon and National Biodiesel Board, those are distinguishable cases.

[02:50:54] Speaker 07:
In both of those, the National Biodiesel Board represented 100% of biodiesel fuel production.

[02:51:01] Speaker 07:
And so any change in the level would clearly affect one of its producers because those producers represented everybody.

[02:51:09] Speaker 07:
That's not the case here.

[02:51:10] Speaker 07:
Again, this gets back to the fundamental failure to carry their pleading burden.

[02:51:14] Speaker 07:
In fact, you heard in the prior argument, Growth Energies Council recognized that the overall size of the small refineries in proportion to the overall refining market is relevant to the impact of those small refineries

[02:51:30] Speaker 07:
on, you know, on the renewable fuel producers.

[02:51:33] Speaker 07:
There's nothing in the record here that shows that.

[02:51:37] Speaker 07:
So it's just, I mean, Growth Energy's own council acknowledged the fact that he acknowledges relevant to the injury question that they haven't actually introduced record evidence on.

[02:51:48] Speaker 07:
Let me quickly turn, if I may, to the statutory authority question that Judge Rao raised.

[02:51:54] Speaker 07:
So it is in fact, it is true that EPA can point to a specific provision that authorizes what it did here.

[02:52:01] Speaker 07:
But it is equally true that growth energy can't point to a specific provision that governs here because the statute simply does not address the question of what happens when EPA acts after an applicable statutory deadline as occurred here.

[02:52:15] Speaker 07:
That's precisely the circumstance that is governed by this court's decision in Americans for Clean Energy.

[02:52:20] Speaker 14:
The text instructor of the statute gives EPA some very specific authorities, and then it seems that, you know, EPA has claimed just some additional general authority to make the RFS system

[02:52:31] Speaker 14:
function.

[02:52:33] Speaker 14:
I'm not sure if that's compatible with the very specific authorities that Congress gave to the EPA.

[02:52:39] Speaker 07:
So two points on that Judge Rao.

[02:52:41] Speaker 07:
First, that was equally true in Americans for Clean Energy.

[02:52:44] Speaker 07:
There, the statute set an annual statutory volume obligation, and the EPA departed below it, and this court upheld it.

[02:52:52] Speaker 07:
And the reason it upheld it is the second part of the answer, which is the court recognized that where an agency acts late,

[02:52:59] Speaker 07:
It has a duty grounded in basic principles of due process to mitigate any hardships from its late action.

[02:53:07] Speaker 07:
And this case is really a heartland, straightforward application of the obligation to mitigate hardships from late action recognized in Americans for clean energy.

[02:53:16] Speaker 14:
So if we vacate, assume that we vacate the denial order,

[02:53:20] Speaker 14:
What happens to this case?

[02:53:22] Speaker 14:
Is it moot?

[02:53:23] Speaker 14:
Is it, you know, must we vacate the compliance orders?

[02:53:26] Speaker 14:
I mean, yeah, maybe speak a little bit to the remedy question.

[02:53:29] Speaker 07:
Sure.

[02:53:29] Speaker 07:
So I think for the reasons that Judge Pillard identified, the case would not be moot.

[02:53:33] Speaker 07:
It would not be legally moot.

[02:53:35] Speaker 07:
And we think as a matter of judicial economy, it wouldn't be appropriate to say that it was moot.

[02:53:40] Speaker 07:
I think that there are two potential possibilities here.

[02:53:43] Speaker 07:
One is that the court could hold this case in abeyance pending the outcome of any disposition of the exemption petitions on remand.

[02:53:53] Speaker 07:
I think another possibility is that the court could uphold the compliance actions

[02:53:58] Speaker 07:
In other words, deny the petition for review in this case, uphold EPA's compliance action, and then dismiss the corresponding petitions for review in the denial action as moot.

[02:54:11] Speaker 07:
Now, I want to be clear that I represent a broad coalition of interveners.

[02:54:18] Speaker 07:
If to the extent the court is interested in this, we would ask for the opportunities to submit a short letter brief on this issue, because not all of the interveners are similarly situated, and so the form of relief could affect different ones differently.

[02:54:31] Speaker 07:
But I do think that those are kind of the two principal possibilities here.

[02:54:36] Speaker 07:
I think that those are, you know, consistent with

[02:54:38] Speaker 07:
not losing the benefit of all the briefing and preparation on this case, and they're also consistent with providing interveners with some measure of certainty about their compliance obligations going forward.

[02:54:53] Speaker 09:
That is, I understand where you're coming from.

[02:54:57] Speaker 09:
If no harm, then no foul.

[02:55:02] Speaker 09:
But it's odd to say we would uphold a

[02:55:06] Speaker 09:
Alternative compliance scheme without finding that the underlying merits action that supported it actually was valid or not.

[02:55:20] Speaker 09:
Maybe I'm misunderstanding what you're talking about.

[02:55:26] Speaker 09:
There does feel like were we to, let's say, expand the alternative compliance action all the way to 2021, then there's really no issue for the refineries.

[02:55:42] Speaker 09:
And so then the question is, well, why are we deciding?

[02:55:46] Speaker 07:
221073 right and that's sort of the basic intuition that you're expressing so I guess I guess the intuition is kind of the inverse of the relief that's being sought in that case I think that the

[02:55:57] Speaker 07:
the petitioners in the denial action, if I'm not mistaken, as an alternative to vacating the denial actions, ask for the relief granted in this case to be extended to all of the petitions there.

[02:56:11] Speaker 07:
I think recognizing that as a practical matter that will mitigate the harms from the retroactivity in that case.

[02:56:18] Speaker 09:
But we couldn't do that without upholding the denial action.

[02:56:27] Speaker 09:
We couldn't not act on the denial action and give that relief.

[02:56:35] Speaker 07:
That may be true, Your Honor.

[02:56:37] Speaker 14:
The alternative compliance is a remedy for the denial action, or it's a mitigation.

[02:56:43] Speaker 07:
Yeah, but given the way that these cases have been teed up, and I think this goes back to the separation of the cases, I think that if you were to

[02:56:50] Speaker 07:
if you were to recognize that the injury has been satisfied by the alternative compliance actions, you wouldn't need to reach the validity of the denials in the first place.

[02:57:02] Speaker 14:
There was an injury from the denial actions that was unlawful, or no?

[02:57:09] Speaker 07:
I think that the basis for EPA's decision in the compliance actions

[02:57:17] Speaker 07:
They assume the lawfulness of the denial.

[02:57:19] Speaker 07:
So I don't know that you actually have to conclude that the denials are unlawful to uphold the compliance action here.

[02:57:27] Speaker 07:
Again, I do want to sort of clarify my writ here and request that we have the opportunity, if the court is interested, for a letter brief on this because of the different ways that the different dispositions may affect the different interveners in this case.

[02:57:47] Speaker 07:
I think that roughly represents the different ways this could resolve.

[02:57:54] Speaker 09:
All right.

[02:57:54] Speaker 09:
I believe your time is up.

[02:57:55] Speaker 09:
Yes.

[02:57:56] Speaker 09:
And we will be hearing from you again.

[02:57:59] Speaker 07:
You won't be hearing from me again.

[02:58:01] Speaker 09:
No, we won't be hearing from you again.

[02:58:03] Speaker 09:
We'll be hearing from Mr. Len on rebuttal.

[02:58:12] Speaker 09:
Lane.

[02:58:13] Speaker 04:
Either way, I'll respond.

[02:58:16] Speaker 04:
Quickly on standing, it's about the future.

[02:58:19] Speaker 04:
It's not about the past, as I was explaining with this mediation of obligations and use through time.

[02:58:25] Speaker 04:
In the June denial action, EPA recognizes.

[02:58:28] Speaker 04:
It said that absent the alternative compliance actions, renewable fuel use would increase.

[02:58:33] Speaker 04:
That's at J377.

[02:58:36] Speaker 04:
A lawn refining, on the question of whether there's a difference between national biodiesel and growth energy, in a lawn refining,

[02:58:43] Speaker 04:
Although it might have been the fact that MBB represented the whole market, that wasn't the reasoning.

[02:58:49] Speaker 04:
The reasoning was that all of the members would be affected by the action.

[02:58:54] Speaker 04:
That case was also being decided after the relevant compliance years were over.

[02:58:59] Speaker 04:
And there's a recognition that in the future, this would affect use.

[02:59:03] Speaker 04:
And because all members participate in the market in an undifferentiated way, they're all affected.

[02:59:09] Speaker 04:
It's exactly the same here.

[02:59:10] Speaker 14:
I think that goes to the question of whether growth energy could demonstrate standing in this case.

[02:59:16] Speaker 14:
I mean, my question is whether

[02:59:18] Speaker 14:
growth energy has met the pleading burden.

[02:59:20] Speaker 04:
Well, I think it's self-evident.

[02:59:22] Speaker 14:
There was much more pled in the Ohio versus EPA case.

[02:59:25] Speaker 14:
There were, I think, 10 declarations from economists as to the nature of the market and how it worked.

[02:59:30] Speaker 14:
And here we have just one short declaration from the growth energy CEO that doesn't speak to any of these other economic factors.

[02:59:40] Speaker 04:
This court's own precedents already established the mechanics of why there's an injury here.

[02:59:44] Speaker 04:
The RFS sets the demand.

[02:59:47] Speaker 04:
It defines the level of competition.

[02:59:49] Speaker 14:
That doesn't go to your pleading burden though.

[02:59:51] Speaker 04:
In Winnewood, this court found sufficient a statement in the record by one refinery CEO that the action would have huge effects for everyone in the market.

[02:59:59] Speaker 04:
That's it.

[03:00:00] Speaker 04:
That's the totality of the evidence, because this is basic economic.

[03:00:04] Speaker 04:
It's not drive-by, because there is a finding that based on economic principles and the way the program works, that it is necessarily the case that we are going to be injured.

[03:00:15] Speaker 14:
So if we've found that in the past, then there's no pleading burden to demonstrate standing for a party?

[03:00:20] Speaker 04:
I think it's self-evident, and when it's self-evident, there isn't a pleading burden.

[03:00:23] Speaker 14:
Is there a case that says where it's self-evident, there's no pleading burden?

[03:00:27] Speaker 04:
Sierra Club.

[03:00:28] Speaker 04:
I mean, that's this court's rule.

[03:00:29] Speaker 04:
If it's self-evident, the petitioner doesn't have to do anything more to show standing.

[03:00:34] Speaker 04:
That's been the rule, I don't know, decades.

[03:00:36] Speaker 11:
It's not self-evident to me.

[03:00:37] Speaker 11:
I mean, this is a pretty complex statutory scheme, and I'm no expert on renewable fuels.

[03:00:42] Speaker 11:
It's not self-evident to me.

[03:00:44] Speaker 11:
Are you relying on self-evident?

[03:00:47] Speaker 04:
No, well, we put in the declarations.

[03:00:50] Speaker 04:
This court's own precedents.

[03:00:51] Speaker 04:
Declaration one.

[03:00:52] Speaker 04:
We had a reply declaration when the interveners raised this in their brief.

[03:00:57] Speaker 04:
This court's decisions say RFS standards define the level of demand for renewable fuel.

[03:01:04] Speaker 04:
In the American fuel case, the court said, when exemptions are granted, they create a renewable fuel shortfall.

[03:01:11] Speaker 04:
Who bears that?

[03:01:13] Speaker 04:
Growth Energy's members, they are the producers of the renewable fuel.

[03:01:17] Speaker 04:
When there's a shortfall, it's their product that's not being purchased.

[03:01:23] Speaker 14:
Are you representing 100% of the market?

[03:01:25] Speaker 04:
No, we don't need to.

[03:01:26] Speaker 04:
All of our members participate in the market.

[03:01:29] Speaker 04:
And that's enough.

[03:01:30] Speaker 04:
Each one of them is injured.

[03:01:31] Speaker 04:
And that's Alon Refining recognized that.

[03:01:33] Speaker 04:
Each member of MBB in that case participated in the market.

[03:01:37] Speaker 04:
They're all affected by the level of demand and the access to competition level.

[03:01:40] Speaker 11:
I think the thing that's not addressed by any prior case is sort of the weird timing involved in this case that we're talking about.

[03:01:47] Speaker 11:
Rins from you know past years, so just not at all clear to me that these other cases are on point That's the case in every single RFS case because every RFS case is decided after the compliance year has occurred and five years later Six years some of them were many years later And it doesn't matter because it's the RIN Bank that again mediates the obligation to the future There is this theory about the RIN Bank in your you have the burden to explain this to us And I don't understand it and it's not in your brief

[03:02:13] Speaker 04:
I believe we covered it in our briefs.

[03:02:15] Speaker 04:
It's all over EPA's documents.

[03:02:17] Speaker 04:
Every one of its rules that are issued.

[03:02:18] Speaker 11:
This whole RIN Bank, the way it works, is in your brief?

[03:02:21] Speaker 04:
I believe we explained it.

[03:02:22] Speaker 04:
And it's also in EPA's own documents.

[03:02:25] Speaker 04:
They say it over and over again that this is how the RIN Bank works.

[03:02:30] Speaker 04:
And in the June denial at 377 when they say that not giving the alternative compliance could result in increased renewable fuel use in the future, that's what they're talking about.

[03:02:40] Speaker 04:
They're saying because the bank right now is inflated and it will be drawn down to meet these obligations under the exemptions, that will then require new renewable fuel use to meet future obligations.

[03:02:53] Speaker 04:
That's simply the mechanism of the program.

[03:02:55] Speaker 04:
I do want to make one point about alternative compliance action on the merits.

[03:03:01] Speaker 04:
There are alternatives.

[03:03:02] Speaker 04:
The government seems to think that it can't do anything else, but it's done something else many times.

[03:03:07] Speaker 04:
It can extend underlying obligations, expand rent vintages, and draw it on the bank.

[03:03:12] Speaker 04:
It did it in Monroe Energy and other cases.

[03:03:15] Speaker 09:
Okay.

[03:03:15] Speaker 04:
Thank you.

[03:03:15] Speaker 09:
Thank you.

[03:03:20] Speaker 09:
Now we have Council for Petitioners, Sinclair, and Winnewood, and we're starting with the EPA's treatment of the 2018 petitions, and you must be Mr. Holmstead.

[03:03:35] Speaker 12:
That's correct, Your Honor.

[03:03:35] Speaker 12:
Thank you.

[03:03:37] Speaker 12:
I'll be addressing EPA's treatment of Sinclair and two points of administrative law that are relevant to both Sinclair and Winnewood.

[03:03:49] Speaker 12:
Mr. Hershey will then be addressing the EPA's treatment of Winnewood and the remedy that both parties are seeking in this case.

[03:03:57] Speaker 12:
This case involves two basic principles of administrative law.

[03:04:01] Speaker 12:
First, as this court has said many times, agencies must treat like cases alike unless they provide a compelling justification for treating them differently.

[03:04:12] Speaker 12:
Second, when taking action, an agency may not simply ignore an important aspect of the situation before it.

[03:04:20] Speaker 12:
EPA has violated both these principles in this case with respect to both Sinclair and Winnewood.

[03:04:27] Speaker 12:
EPA's treatment of Sinclair in this case has been outrageous, and I do not use that term lightly.

[03:04:34] Speaker 12:
We understand that agencies sometimes make honest mistakes, but even after EPA finally acknowledged its mistake in handling Sinclair's 2018 petition, it has refused to do anything to undo the tens of millions of dollars of harm that this mistake has caused to Sinclair.

[03:04:52] Speaker 12:
The record shows that but for that mistake, Sinclair would have been in the identical situation as the 31 small refineries that were covered by the compliance action.

[03:05:02] Speaker 12:
We are simply asking the court to require EPA to provide a remedy for its mistake by giving Sinclair the same benefit that it provided to 31 of its competitors.

[03:05:13] Speaker 12:
If this court has questions, I'd be pleased to answer them or I could explain this in a little more detail.

[03:05:19] Speaker 14:
there's a sequencing question about in terms of remedy so so if we assume that the we grant the petition in 1073 right we vacate the denial order then maybe that makes our ruling on the compliance order route in some sense but I wonder if in order to give in order to address the Sinclair position does this court have to determine that the

[03:05:47] Speaker 14:
compliance order is within EPA's authority?

[03:05:52] Speaker 12:
I think the answer is there must be some way for the court to recognize that EPA's treatment of both Sinclair and Winnewood

[03:06:06] Speaker 12:
Even if we're just talking about it, a grant or an exemption that is either a few months late or a few years late, that EPA has an obligation to provide a meaningful relief for that.

[03:06:18] Speaker 12:
Even if EPA were to grant our exemption tomorrow, that leaves us five years without having had the benefit that 31 of our competitors have had.

[03:06:28] Speaker 12:
So I'd have to think about exact.

[03:06:31] Speaker 14:
What's the ongoing injury that we would

[03:06:33] Speaker 14:
that you're seeking redress for, if we were to vacate the denial order.

[03:06:38] Speaker 12:
Well, vacating the denial, even if that results in automatically granting the petition for Sinclair, doesn't do anything to undo the injury.

[03:06:48] Speaker 12:
Because even though we were previously granted our exemption, we never received our rins back.

[03:06:54] Speaker 12:
So simply putting our grant back in place again does not automatically restore the rins.

[03:07:02] Speaker 12:
that we should have been given back in August of 2018.

[03:07:04] Speaker 09:
So it's your position that even if, let's say we were to invalidate the denial actions and remand to the agency, the additional relief that your client seeks, it's in this distinct position from the other petitioners because it wants this Pruitt-Kirnoil

[03:07:25] Speaker 09:
additional relief.

[03:07:25] Speaker 09:
So your view is that we would still have a basis to rule on that in such a hypothetical situation that the denial action were vacated and remanded.

[03:07:37] Speaker 09:
And the general compliance action, whether it's mooted or not ripe or just follows with the denial action, you still think we need to reach the Pruitt-Curneuil

[03:07:51] Speaker 12:
I believe so, Your Honor.

[03:07:53] Speaker 12:
And certainly, it is within this Court's equitable powers to mandate that EPA do something to undo the harm that it has caused to both Sinclair and to Winnewood.

[03:08:04] Speaker 09:
Wouldn't we need to wait until EPA were to grant Winnewood's petition and revisit the requisite remedy?

[03:08:13] Speaker 12:
So they have granted, before the action that you would have

[03:08:19] Speaker 12:
overturned the denial action.

[03:08:22] Speaker 09:
They had granted, but then they'd already denied.

[03:08:25] Speaker 09:
So it was pre-denied before the denial action.

[03:08:28] Speaker 12:
Right.

[03:08:29] Speaker 12:
It was granted.

[03:08:29] Speaker 09:
Denied.

[03:08:31] Speaker 12:
Well, it wasn't granted.

[03:08:32] Speaker 09:
It was granted, held in abeyance, remanded.

[03:08:34] Speaker 12:
Yeah.

[03:08:37] Speaker 12:
I guess.

[03:08:39] Speaker 11:
But aren't you in a better position if on remand than you're granted?

[03:08:42] Speaker 12:
I'm sorry, say again.

[03:08:43] Speaker 11:
Aren't you in a better position if we remand and then you get granted an exemption?

[03:08:50] Speaker 12:
We don't know, because the grant of an exemption doesn't do anything to restore our rents.

[03:08:55] Speaker 12:
We've already experienced that one time before.

[03:08:57] Speaker 12:
EPA granted our exemption in January of 2021, but then refused to return our rents.

[03:09:03] Speaker 11:
They would have two obligations to return your rents if on remand you are granted an exemption.

[03:09:11] Speaker 12:
We absolutely believe that you should overturn the denial action.

[03:09:14] Speaker 12:
That's clear.

[03:09:16] Speaker 11:
The question is just what to do with this one.

[03:09:17] Speaker 11:
If we do that, do we?

[03:09:21] Speaker 09:
There's no basis for the, even for the Pruitt kernel oil yet.

[03:09:29] Speaker 09:
I'm just not following the basis for Winnewood to get that relief.

[03:09:34] Speaker 09:
If both the denial action and the alternative compliance action were to be remanded to the agency.

[03:09:41] Speaker 09:
Is your specific relief still before us?

[03:09:46] Speaker 12:
I believe so, Your Honor, because if the denial action is vacated, that restores the exemptions for everyone except for Sinclair.

[03:10:02] Speaker 12:
Because EPA, after granting the exemption for Sinclair,

[03:10:09] Speaker 12:
Then came to us and said they were going to ask to remand everyone's because they wanted to reconsider it.

[03:10:16] Speaker 12:
They went to court and then asked the court to remand and vacate.

[03:10:21] Speaker 12:
We were under the impression they were going to treat us just like everyone else, but they didn't.

[03:10:26] Speaker 12:
They asked the court to remand and vacate.

[03:10:32] Speaker 12:
With respect to everyone else, they simply asked for a remand.

[03:10:35] Speaker 12:
So we're uniquely harmed.

[03:10:37] Speaker 12:
So even if this court vacates the denial action,

[03:10:40] Speaker 12:
we're left holding the bag, even though we received an exemption from EPA based on exactly the same criteria as the other 31 small refineries.

[03:10:49] Speaker 09:
But isn't that because EPA sought voluntarily vague hatred and remand in the 10th Circuit, and Sinclair didn't oppose that?

[03:11:01] Speaker 09:
Why isn't that fatal to the claim for relief?

[03:11:04] Speaker 09:
I don't understand why Sinclair allowed that to happen without opposition.

[03:11:09] Speaker 09:
Isn't that the actual harm that Sinclair is trying to address?

[03:11:13] Speaker 12:
What we're trying to address is the disparate treatment.

[03:11:15] Speaker 12:
I understand, but that occurred when the exemption that was granted was... We were told that the reason for seeking the remand was that EPA was gonna seek a remand of all the petitions that it had granted in 2018.

[03:11:35] Speaker 12:
When they sought

[03:11:37] Speaker 12:
remand and vacature of our petition.

[03:11:39] Speaker 12:
We didn't know that they were not going to seek the same relief because they told us they were going to treat us like the other ones.

[03:11:45] Speaker 12:
So we had

[03:11:48] Speaker 12:
We had no real basis to oppose that, because EPA said that they were going to ask for remand of all of these decisions.

[03:11:54] Speaker 12:
And we had already seen that it didn't make any difference if our exemption was in place, because our exemption had been in place for several months, and EPA had never returned our RINS.

[03:12:05] Speaker 09:
And during those several months, when Winnewood got its RINS returned,

[03:12:12] Speaker 09:
Sinclair didn't challenge that, for example, with the mandamus action or say, wait, wait, we're left behind during that January to May period.

[03:12:20] Speaker 09:
Didn't file an action saying we're being treated unequally now.

[03:12:25] Speaker 12:
We didn't know we were being treated unequally until EPA later came back and asked for something different in this court.

[03:12:31] Speaker 12:
So we had no way of knowing we were being treated differently until, as I said, EPA came and asked for something different in this court than it had asked for in the 10th Circuit.

[03:12:43] Speaker 09:
You didn't know that others had been restored their rins in that.

[03:12:46] Speaker 12:
No, we knew everyone else had received their rins back in August of 2019.

[03:12:52] Speaker 12:
When we got our exemption finally in January of 2021, we assumed that EPA would do what it had done in every other case and return our rins.

[03:13:02] Speaker 12:
They refused to do that.

[03:13:03] Speaker 09:
Right, so you complained that they were dragging their feet, they were refusing to bring it, but you didn't then file an action.

[03:13:09] Speaker 12:
Yes, we did.

[03:13:10] Speaker 12:
We filed an action to force EPA to return our rents.

[03:13:18] Speaker 12:
That's when EPA came to us and basically said, don't waste your time.

[03:13:22] Speaker 12:
We're going to ask for all the 2018 exemptions, including yours, to be remanded so that we can reconsider them.

[03:13:28] Speaker 12:
I didn't see that in your brief.

[03:13:30] Speaker 12:
Did you?

[03:13:30] Speaker 12:
It is in our brief.

[03:13:32] Speaker 09:
I know it's in the... You filed like an APA challenge.

[03:13:35] Speaker 12:
We filed an APA challenge in the 10th Circuit.

[03:13:38] Speaker 09:
Oh.

[03:13:38] Speaker 12:
And that's discussed in the procedural background of sort of the history of EPA's treatment of Sinclair.

[03:13:45] Speaker 12:
It was only after we filed that case in the 10th Circuit, the EPA came to us and basically said, don't waste your time with this case because we're going to seek a remand of all of the 2018 petitions, exemptions.

[03:14:03] Speaker 09:
All right.

[03:14:04] Speaker 09:
Thank you.

[03:14:05] Speaker 09:
Thank you.

[03:14:08] Speaker 09:
And now we'll hear from Mr. Hershey.

[03:14:20] Speaker 02:
Good afternoon, Your Honors.

[03:14:21] Speaker 02:
Sam Hershey from Whiting Case on behalf of Petitioner of Winningwood Refining Company.

[03:14:25] Speaker 02:
You just heard from Mr. Holmstead regarding the harm inflicted on Winningwood's co-petitioner, Sinclair.

[03:14:29] Speaker 02:
I just want to clarify or clean up a little confusion that may exist between the different facts that affect Sinclair versus Winningwood, and I'll do that in my presentation.

[03:14:38] Speaker 02:
Like Sinclair, Winningwood obtained a 2018 small refinery exemption from EPA.

[03:14:43] Speaker 02:
For reasons I will discuss in a moment, the Fifth Circuit's decision in Calumet

[03:14:47] Speaker 02:
which vacated EPA's attempt to retroactively revoke Winnewood's exemption, forecloses EPA's attempt to escape accountability as to Winnewood.

[03:14:56] Speaker 02:
After Kalamit, the only question is not if Winnewood is entitled to rim replacement relief, but when.

[03:15:03] Speaker 02:
Winningwood has spent five years in litigation seeking RIN replacement relief from EPA.

[03:15:08] Speaker 02:
And Winningwood has been forced to pursue that litigation despite the fact that Winningwood has done everything right.

[03:15:14] Speaker 02:
Indeed, EPA does not dispute that Winningwood did everything right.

[03:15:18] Speaker 02:
Winningwood submitted its SRA petition well ahead of the compliance deadline.

[03:15:22] Speaker 02:
It retired RINs at the compliance deadline, even though the prior year it had been found to be exempt and believed would be found to be exempt again when EPA ruled.

[03:15:31] Speaker 02:
Winnewood even purchased RINs raritably, as EPA now counsels small refineries to do.

[03:15:37] Speaker 02:
Winnewood expected that if it followed the law, EPA would do so too.

[03:15:41] Speaker 02:
But unfortunately, as has become a pattern with EPA in respect of the RFS, that was not to be.

[03:15:48] Speaker 02:
EPA blew the statutory deadline by hundreds of days, and after EPA finally granted Winnewood's petition, in other words, when the time came to make Winnewood whole,

[03:15:58] Speaker 02:
EPA simply returned the same devalued and expired RINs that Winnewood had retired months earlier.

[03:16:05] Speaker 02:
As a result, Winnewood suffered tens of millions of dollars of losses solely as a result of EPA's unlawful action.

[03:16:12] Speaker 02:
Winnewood promptly filed suit in federal court, challenging EPA's failure to provide meaningful relief in the form of replacement rents.

[03:16:20] Speaker 02:
Yet despite being on notice of Winnewood's entitlement to rent replacement relief, EPA to this day has never provided a valid, timely explanation for its refusal to provide rent replacement relief to Winnewood.

[03:16:33] Speaker 02:
Indeed, despite a Ninth Circuit decision, current oil,

[03:16:36] Speaker 02:
Requiring EPA to issue the exact relief Winnewood is seeking here today, EPA continues to defy its legal obligations to remedy the harm caused by its unlawful actions.

[03:16:46] Speaker 02:
And that should end today for three reasons.

[03:16:49] Speaker 02:
First, the compliance action fails by its own terms.

[03:16:53] Speaker 02:
In the decision document, EPA acknowledges that the standard articulated in Americans for clean energy is applicable here.

[03:17:00] Speaker 02:
In that case, this court recognized

[03:17:02] Speaker 02:
that, quote, EPA was bound by our precedence, not to mention basic principles of due process, to reasonably consider and mitigate any hardship caused to obligated parties by reason of its lateness, close quote.

[03:17:16] Speaker 02:
The compliance action fails to consider, much less mitigate, the hardships suffered by Winnewood.

[03:17:22] Speaker 02:
There is not a single word addressing the prejudice to Winnewood from having the RIN replacement relief to which it was indisputably entitled stripped away.

[03:17:31] Speaker 02:
The compliance action fails to consider an important aspect of the problem.

[03:17:36] Speaker 02:
As a Supreme Court recognized in regions of the University of California, where alternatives such as Pruitt rent replacement relief were within the ambit of existing policy and the decision document contains no discussion of it, that omission alone renders the decision arbitrary and capricious.

[03:17:53] Speaker 02:
Nowhere in the decision document or even the voluminous administrative record does EPA mention, much less explain, its refusal to provide such relief to Winnewood.

[03:18:03] Speaker 02:
On that basis alone, EPA failed to consider an important aspect of the problem and remand without vacatur as to Winnewood is required.

[03:18:12] Speaker 02:
Third and finally, the Fifth Circuit's recent Calumet decision

[03:18:15] Speaker 02:
vitiates any distinction EPA may seek to draw between this case and Kern Oil.

[03:18:20] Speaker 02:
While EPA states for the first time on pages 66 and 67 of its response brief that Winnewood is not like the parties in Pruitt and Kern Oil because Winnewood's SRE petition was reportedly denied, that is a post-hoc rationalization that cannot be considered by this Court.

[03:18:35] Speaker 02:
And even if this court were to consider such an argument, the Fifth Circuit's Calumet decision held that EPA's purported revocation of Winnewood's 2018 S-repetition was impermissibly retroactive.

[03:18:46] Speaker 09:
Would the place to get your current oil relief be in the Fifth Circuit on remand?

[03:18:53] Speaker 09:
I don't believe so, Your Honor.

[03:18:58] Speaker 02:
We challenged the compliance action in the Fifth Circuit, and that case was transferred here because the Fifth Circuit determined this court had jurisdiction.

[03:19:04] Speaker 02:
So I believe we were properly before this court.

[03:19:08] Speaker 02:
And Your Honor, may I quickly address the kernel relief that we are seeking?

[03:19:13] Speaker 09:
Yes, you have.

[03:19:15] Speaker 02:
All right, a minute is all I think I need.

[03:19:17] Speaker 02:
The relief we are seeking today is a current oil instruction to EPA to issue replacement rinse to Winnewood and Sinclair because the fact is, EPA has demonstrated time and again that it cannot be trusted to do the right thing.

[03:19:30] Speaker 02:
Given EPA's history under the RFS program, this court must make EPA do the right thing, just as the Ninth Circuit did in Curran Oil.

[03:19:37] Speaker 02:
And I'll note that the only distinction that EPA has ever drawn between Winnewood and the petitioners in Curran Oil is that Winnewood's SRA petition was reportedly denied.

[03:19:46] Speaker 02:
That denial has been ruled null and void by the Fifth Circuit's decision in Cali.

[03:19:50] Speaker 14:
Where does our authority come from to order that type of specific

[03:19:54] Speaker 02:
Yes, your honor.

[03:19:55] Speaker 14:
Well, I understand the Ninth Circuit did so in Kernelow, but where does the, what is our lawful authority for that type of?

[03:20:03] Speaker 14:
Well, you could vacate the compliance order, we can remand, but you're asking for something much more specific, a specific direction for them to do a particular thing.

[03:20:14] Speaker 02:
So, your honor, under the Regents case,

[03:20:17] Speaker 02:
EPA is required to consider options that are within the ambit of the policy, and EPA has not considered those.

[03:20:26] Speaker 02:
This is the only option that would treat when it was similar to similarly situated parties in Pruitt and Kern Oil.

[03:20:34] Speaker 02:
And EPA has demonstrated it's not going to do that.

[03:20:36] Speaker 02:
So this court could absolutely write EPA a blank check on remand to do what it deems appropriate, but we know from experience that EPA is not going to do that.

[03:20:45] Speaker 02:
So I think it's within the authority of this court to direct EPA to do the right thing and to treat when it would similar to similarly situated parties.

[03:20:53] Speaker 02:
I'll note we said a number of cases in our brief that by Sanchez's case and others, where courts have directed administrative agencies to take certain action, where the agency has repeatedly failed to follow the law and to treat similarly situated parties similarly in this case.

[03:21:09] Speaker 08:
All right.

[03:21:10] Speaker 02:
Thank you so much.

[03:21:13] Speaker 09:
And then we're hearing again from Mr. Grillo.

[03:21:23] Speaker 10:
Good afternoon, Your Honor.

[03:21:25] Speaker 10:
Sinclair and Winnewood are asking for relief premised on exemptions they don't have.

[03:21:30] Speaker 10:
They both have denials and no further relief is warranted.

[03:21:33] Speaker 09:
So if EPA on remand were to grant Winnewood's exemption, then that would be the time to consider coronal relief or no?

[03:21:43] Speaker 10:
That's a different hypothetical situation.

[03:21:45] Speaker 09:
That is a hypothetical situation.

[03:21:47] Speaker 10:
EPA's action in light of granting Winnewood's exemption should be evaluated in light of the decision they make at that time.

[03:21:57] Speaker 10:
And it's worth noting that Winnewood does not, in fact, have a grant at this point.

[03:22:01] Speaker 10:
The Fifth Circuit has vacated and remanded, but EPA has not yet acted on that.

[03:22:07] Speaker 09:
Neither has an exemption that springs back into life if the denial action is.

[03:22:11] Speaker 10:
It's EPA's position that their obligations are pending right now.

[03:22:14] Speaker 10:
It's back into pending.

[03:22:15] Speaker 10:
The decision that the ball is in EPA's court to make this decision at this time.

[03:22:25] Speaker 14:
OK.

[03:22:25] Speaker 14:
Anything?

[03:22:26] Speaker ?:
OK.

[03:22:26] Speaker 14:
Can this court order EPA to issue replacement rents?

[03:22:33] Speaker 10:
No, Your Honor.

[03:22:35] Speaker 10:
In short, EPA... So what about Kern Oil?

[03:22:38] Speaker 10:
So Kern Oil was a very specific situation in which Kern had received a grant after EPA's deadline for making the decision.

[03:22:48] Speaker 10:
So in that instance, Kern had a grant.

[03:22:50] Speaker 10:
In this case, Winnewood does not.

[03:22:52] Speaker 10:
Winnewood has a denial.

[03:22:53] Speaker 10:
And so does Sinclair and so in this situation, the compliance action reasonably address the implications on the office program as a whole and made a decision to not force additional compliance.

[03:23:04] Speaker 10:
So, when he would already got its rents back in 2019, the effect of the compliance actions that they get to keep those.

[03:23:11] Speaker 10:
We don't necessarily agree that that's.

[03:23:15] Speaker 10:
proper, but given the impacts on the overall system as a whole, we took the compliance action.

[03:23:21] Speaker 10:
So the Kern remedy here would be wholly inappropriate for this court to order because Winiwet does not have a grant.

[03:23:26] Speaker 10:
Kern had a grant.

[03:23:27] Speaker 10:
In Pruitt, EPA initially denied the petition.

[03:23:31] Speaker 10:
The 10th Circuit vacated and remanded.

[03:23:33] Speaker 10:
Our remand EPA granted.

[03:23:34] Speaker 10:
And they are provided with replacement relief.

[03:23:36] Speaker 10:
In that case, Pruitt had a grant.

[03:23:38] Speaker 10:
That's the important distinction.

[03:23:39] Speaker 10:
That's the relevant distinction.

[03:23:40] Speaker 10:
And an order here to grant when you would rent replacement relief would be inappropriate.

[03:23:49] Speaker 09:
All right.

[03:23:50] Speaker 09:
We don't have more questions.

[03:23:52] Speaker 09:
And so there's no reason to use your time unless.

[03:23:55] Speaker 10:
I want to address one point that came up in the discussion with the interveners, is what would happen if you were to vacate the denial action?

[03:24:01] Speaker 10:
What would the implications be for the compliance action?

[03:24:04] Speaker 10:
In EPA's view, I think my colleague in the interview laid out two options.

[03:24:08] Speaker 10:
EPA would propose a third, which would be a remand without vacator, given the allied signal test, which would essentially mean that the compliance obligations would not spring back into existence while EPA figured out the implications of the denial action.

[03:24:22] Speaker 09:
And are you asking for that?

[03:24:23] Speaker 10:
No, Your Honor, I'm merely raising the point.

[03:24:26] Speaker 10:
I think that the denial actions were properly decided and accordingly the compliance actions were properly decided.

[03:24:30] Speaker 09:
But if, but I'm sorry, but if we were to hold that, if we were to grant the petitions with respect to the denial action and accordingly the alternative compliance, are you asking us to remand without vacatur rather than vacate and remand?

[03:24:47] Speaker 10:
That's correct.

[03:24:48] Speaker 09:
You are?

[03:24:48] Speaker 10:
So yes.

[03:24:51] Speaker 14:
to remand the compliance order without vacating it.

[03:24:56] Speaker 10:
The alternative compliance action, meaning that the 2018 compliance obligations would remain, that the effect of the compliance action would remain while EPA reconsidered the implications going forward.

[03:25:07] Speaker 10:
So that we do not essentially create this problem that we are trying to solve.

[03:25:12] Speaker 09:
But you're not asking for that with respect to, well, it would depend on the basis.

[03:25:16] Speaker 09:
But you're not asking for that if we were to vacate and remand the denial order.

[03:25:21] Speaker 09:
no reason to think that that could be an allied signal.

[03:25:25] Speaker 10:
Oh, I have no, right, that is correct.

[03:25:29] Speaker 10:
I'm not addressing the proper course in the instance of the denial action.

[03:25:32] Speaker 09:
And are company A and company B subject to the alternative compliance action with respect to their 2018 hardship?

[03:25:43] Speaker 10:
I don't believe so, Your Honor.

[03:25:44] Speaker 10:
I do not believe they're in the bucket of refineries that had grants, had their rents returned to them, and then later had those grants denied.

[03:25:50] Speaker 10:
I think they were deemed to be ineligible for different reasons.

[03:25:53] Speaker 10:
But that's my understanding.

[03:25:58] Speaker 14:
If we were to remand without vacating the alternative compliance action, would that be effectively a holding that EPA has the authority to undertake the alternative compliance action?

[03:26:14] Speaker 10:
EPA has the authority to take the alternative compliance action.

[03:26:17] Speaker 10:
Yes.

[03:26:17] Speaker 14:
I understand if EPA believes that they have the authority to do that, but would that be a holding from this court that we agree that EPA has the authority to take the alternative compliance action?

[03:26:28] Speaker 14:
I do think a lot of this remedial decision tree is a bit tricky.

[03:26:31] Speaker 10:
Yes.

[03:26:38] Speaker 14:
It would be suggesting that EPA has this authority.

[03:26:43] Speaker 10:
Correct.

[03:26:43] Speaker 10:
That's a good way to put it.

[03:26:44] Speaker 14:
Because the action would be staying in effect.

[03:26:48] Speaker 10:
Right.

[03:26:48] Speaker 10:
So it would be suggesting, but I do not think it would necessarily be necessary to reach that affirmative conclusion in order to take that action.

[03:26:57] Speaker 09:
OK.

[03:26:57] Speaker 09:
On whether the company A and company B are covered, I at least see company A in a JA-22 for

[03:27:07] Speaker 10:
For the compliance action?

[03:27:09] Speaker 10:
Mm-hm.

[03:27:09] Speaker 10:
Okay.

[03:27:10] Speaker 10:
Meaning that they received grants and had their rents returned to them?

[03:27:17] Speaker 09:
Just says small refinery obligations governed by this action.

[03:27:19] Speaker 10:
I'm happy to follow up as necessary.

[03:27:25] Speaker 10:
It's not a question.

[03:27:26] Speaker 09:
I was... Okay.

[03:27:31] Speaker 09:
Okay.

[03:27:31] Speaker 09:
Thank you.

[03:27:31] Speaker 09:
Thank you.

[03:27:31] Speaker 09:
You win the prize for not using all your time.

[03:27:37] Speaker 09:
Of course, they're still contenders.

[03:27:39] Speaker 09:
Mr. Homestead.

[03:27:45] Speaker 14:
Somebody should bring the judge's lunch.

[03:27:48] Speaker 12:
I will be brief.

[03:27:50] Speaker 12:
I simply want to call the court's attention to this decision at T and a merchants project where it said that an agency like a court can undo what is wrongfully done by virtue of its order.

[03:28:00] Speaker 12:
Otherwise, without that power, regulated parties can be substantially and irreparably injured by agency errors, which is what has happened here.

[03:28:09] Speaker 12:
If agencies have that authority, courts have the ability to order them to take those actions.

[03:28:14] Speaker 12:
I just urge you not to leave Sinclair out in the cold again.

[03:28:18] Speaker 12:
This court and the Ninth Circuit, in some cases, have been so frustrated by the way EPA has handled these small refinery exemptions that it has ordered unusual reliefs.

[03:28:27] Speaker 12:
In the Sinclair case previously, this court noted that in light of EPA's delays in making decisions, it had to make a decision within 90 days.

[03:28:36] Speaker 12:
In the Kern Oil case, the Ninth Circuit originally just gave a blank check remand back to EPA.

[03:28:43] Speaker 12:
And when EPA failed to provide relief, it ordered specific release.

[03:28:47] Speaker 12:
that they grant replacement rents and that they do so within 90 days.

[03:28:52] Speaker 12:
In light of EPA's outrageous treatment towards Sinclair and Winnewood, we believe it's within the court's equitable jurisdiction to order that type of relief here.

[03:29:04] Speaker 12:
Simply remanding either the

[03:29:07] Speaker 12:
denial action or the compliance action, especially a remand without vacatur, just leave Sinclair out in the cold again, having been treated unfairly by EPA since 2019.

[03:29:19] Speaker 12:
Thank you.

[03:29:20] Speaker 09:
All right.

[03:29:22] Speaker 09:
Well done.

[03:29:23] Speaker 09:
And then we have Mr. Hershey.

[03:29:30] Speaker 02:
Thank you, Your Honors.

[03:29:31] Speaker 02:
Once again, Sam Hershey from Wynne Case for Wynnewood Refining Company.

[03:29:35] Speaker 02:
Mr. Grillo says that Winnewood's petition was denied.

[03:29:38] Speaker 02:
It has a denial.

[03:29:40] Speaker 02:
That is simply not the case.

[03:29:42] Speaker 02:
The Fifth Circuit could have remanded without vacatory.

[03:29:44] Speaker 02:
That's not what happened here.

[03:29:45] Speaker 02:
The Fifth Circuit vacated EPA's decision to attempt to retroactively revoke Winnewood's petition, the grant of Winnewood's petition.

[03:29:53] Speaker 02:
As we've discussed in our brief, when a decision is vacated, it cannot be relied on for any purpose.

[03:29:58] Speaker 02:
It is null and void.

[03:29:59] Speaker 02:
And the C train and the long line of progeny that comes from that case stand for the proposition.

[03:30:03] Speaker 02:
that a legally vested property right, which is exactly what the Fifth Circuit found, the statutory entitlement to an SRE exemption that Winnewood had, cannot be retroactively revoked.

[03:30:14] Speaker 02:
It cannot happen without statutory authority, which the Fifth Circuit found does not exist here.

[03:30:19] Speaker 02:
So it is not the case that Winnewood's petition is denied.

[03:30:22] Speaker 02:
It was granted, the attempt to deny it was invalid and has been voided and vacated.

[03:30:27] Speaker 02:
The second point I want to make is, I think, a very simple statement of how the law should operate.

[03:30:32] Speaker 02:
First, EPA has to follow the law.

[03:30:34] Speaker 02:
I think we can all agree on that.

[03:30:35] Speaker 02:
And second, when EPA does not follow the law, it has to mitigate the hardship that it inflicts as a result of its violation of the law.

[03:30:42] Speaker 02:
This is the standard that EPA takes onto itself in the compliance action when it says it is bound

[03:30:47] Speaker 02:
by Americans with clean energy to consider and mitigate hardship.

[03:30:51] Speaker 02:
But what EPA is saying is, yes, we violated the law when we delayed granting Winnewitz Petition by 235 days, causing them tens of millions of dollars of damages.

[03:31:00] Speaker 02:
Yes, we violated the law, or the Fifth Circuit found we violated the law when we sought to retroactively revoke the grant of Winnewitz Petition without statutory authority, contrary to the law.

[03:31:10] Speaker 02:
And this court just grants us a blank remand to do what we want going forward.

[03:31:13] Speaker 02:
In other words, EPA has not committed to mitigating the hardship, and we will be right back here with EPA violating law in some new way that we are going to have to challenge.

[03:31:23] Speaker 02:
After five years of litigation, we respectfully submit the Ninth Circuit got it right, and other courts that we've cited in our brief got it right.

[03:31:29] Speaker 02:
When an administrative agency repeatedly fails to follow the law and mitigate hardship, it is to this court, as a co-equal branch of government, to require them to do so.

[03:31:39] Speaker 02:
And that's the relief we would respectfully request.

[03:31:41] Speaker 02:
Unless there are any questions, I thank you very much.

[03:31:44] Speaker 09:
Thank you.

[03:31:44] Speaker 09:
The case is submitted.