Hanging on a word: U.S. Supreme Court rules in favor of refineries in renewable fuels case

The meaning of the word “extension” was at the heart of a dispute that made its way to the U.S. Supreme Court over small refinery exemptions under the nation’s Renewable Fuel Program (RFP).  The decision by the Supreme Court came as a bit of a surprise, as questions raised by the Justices during oral arguments on the case last Spring suggested that the Court would interpret “extension” differently than it did in its June 27 decision.

Congress established the RFP in 2005 to require domestic refineries to incorporate specified percentages of renewable fuels like ethanol into the fuels they produce.  Recognizing that meeting RFP obligations could be more difficult and costly for small-scale refineries, Congress included an automatic two-year exemption from RFP obligations in the statute for small refineries producing less than 75,000 barrels per day. 

The law also allowed the Secretary of Energy to extend an exemption for a small refinery an additional two years if blending of renewables would impose a “disproportionate economic hardship” and authorized a small refinery to petition the EPA for an “extension” of an exemption for the same economic hardship reason.  This leads us to the significance of the meaning of the word “extension”:  a small refinery that receives an extension of an exemption need not meet the RFP blending mandate for the period of the extension.

We likely all have opinions on what the word “extension” means, but what matters is what it means in the context of the statute that uses the word.  But the RFP statute doesn’t define the word.  The three small refineries that appealed the case to the Supreme Court argued that an extension is simply an increase in time.  The extension, they claimed, need not be directly connected to and occur just after an exemption.  The refineries had received the initial exemption from RFP blending, had a lapse of the exemption for a period, then later asked for and received an extension of the exemption from the EPA.   

A group of renewable fuel producers led by the Renewable Fuels Association disagreed with the refineries and defined “extension” to mean an increase in time that also requires unbroken continuity with the exemption.  They argued that the EPA could not grant a small refinery an extension if an exemption had already lapsed.  Theirs was the definition adopted by the Tenth Circuit Court of Appeals, which held that the refineries could not receive an extension because their exemptions had lapsed and made them permanently ineligible for an extension.

In its decision, the majority on the Supreme Court held in favor of the definition advanced by the small refineries.  Explaining that the courts must give a term its “ordinary or natural meaning” when Congress doesn’t provide a definition, the majority concluded that “it is entirely natural—and consistent with ordinary usage—to seek an “extension” of time even after some lapse.”  Examples the Court drew upon included a student seeking an extension for a paper after its deadline, a tenant asking for an extension after overstaying a lease, and the negotiation of an extension to a contract after it expires.  Additionally, federal laws such as recent COVID and unemployment legislation allow an extension of benefits following an expiration of those benefits, the Court explained.  The Court also pointed to dictionary meanings of the word and contextual clues within the RFP statute, such as language in the statute stating that a small refinery may “at any time” petition for an extension.

Justice Gorsuch, who wrote the majority opinion, was careful to refute the arguments offered in the dissenting opinion written by Justice Coney-Barrett, joined by Justices Sotomayor and Kagan.  Justice Coney-Barrett argued that a natural and ordinary reading of the RFP’s text and structure clearly indicate that an extension could not occur for an exemption that no longer exists.  Referring to the Tenth Circuit’s earlier holding, the dissent agreed that the “ordinary definitions of ‘extension,’ along with common sense, dictate that the subject of an extension must be in existence before it can be extended.”

Does the future of ethanol markets hang on the meaning of one word?  How will the decision affect the renewable fuels sector?  Many claim that Congress included the exemptions to help small refineries adjust to and adopt the renewable blending mandates, but not to indefinitely avoid those mandates.  Renewable fuel interests state that the exemptions have created a detrimental effect on the renewable fuels market.  On the other hand, small refineries claim that Congress did not intend to drive them out of business by forcing them to comply with renewable blending requirements but instead designed the exemption and extension to protect them from disproportionate economic hardship.   

How long the protection from RFP compliance remains in place for small refineries is a question many in agriculture are asking.  Based on the Court’s recent decision, it could be indefinitely.  Perhaps Congress should step in and clarify the meaning of that one simple word.

Read the Supreme Court decision in HollyFrontier Cheyenne Refining, LLC v Renewable Fuels Assn. here