A legal dispute over exemptions to biofuel-blending requirements for small refineries has reached the Supreme Court.

The Supreme Court has agreed to review a ruling by the 10th U.S. Circuit Court of Appeals, which held that the U.S. Environmental Protection Agency (EPA) was in the wrong when it waived renewable fuel blending requirements for three refineries. Units of HollyFrontier Corporation (NYSE:HFC) (Dallas, Texas) and CVR Energy Incorporated's (NYSE:CVI) (Sugar Land, Texas) Wynnewood Refining Company appealed the lower court's decision.

Aspects of the biofuel blending requirements under the Renewable Fuel Standard (RFS) have long kept the U.S. petroleum refining and biofuels industries at loggerheads. Created in 2005, the RFS program requires a certain volume of renewable fuel, such as biodiesel and corn ethanol, to replace or reduce the quantity of petroleum-based transportation fuel, heating oil or jet fuel.

The EPA is allowed to grant waivers exempting some small refineries (those with production capacity of less than 75,000 barrels per day) from the blending requirements if they show the mandates have caused them economic hardship.

Biofuel groups have complained that the number of refinery exemptions granted under the Trump administration have greatly increased, helping to undermine the RFS program. A biofuels coalition of organizations, such as The Renewable Fuels Association, said the EPA granted 31 waiver extension petitions to refiners for the 2018 compliance year, covering 1.43 billion gallons of renewable fuel, or about 7.4% of the total amount of renewable fuel required to be used nationally in 2018.

At issue is the EPA's ability to grant new exemption extensions. The 10th U.S. Circuit Court of Appeals ruled in 2020 that only refiners who have continuously received yearly extensions could be eligible for the waivers. In the case of three refineries, their exemptions had expired by 2013 at the latest, according to the biofuels coalition.

HollyFrontier and CVR Energy said in a court filing that if the lower court's ruling is allowed to stand, "small refineries in the Tenth Circuit that do not have a continuous series of exemptions will be ineligible to obtain an exemption ever again. For some small refineries, moreover, this ineligibility will result in closure, contrary to Congress's intent."

The Supreme Court's review of the lower court ruling was lauded by the Fueling American Jobs Coalition, which describes itself as a group of "union workers, mom and pop gas station owners, small retailers, and independent American oil refiners."

"The decision to take the case comes at an urgent time for independent refiners and blue-collar jobs all over the country. Already battered by suppressed fuel demand due to COVID, they currently face RIN (Renewable Identification Number) prices not seen in three years and have to endure some 770 million gallons of unlawful obligation from Small Refinery Exemptions that were never issued," the Fueling American Jobs Coalition said. Under the federal renewable fuel system quota system, refiners must either produce a required amount of biofuel or buy RINs.

The case could be heard by the Supreme Court as early as April.

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