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Tenth Circuit Reverses EPA in Suncor Oil Refinery Case

A series of flares at a gas plant.

Gas flaring at an oil refinery.

On Monday, the Tenth Circuit reversed a decision of the Environmental Protection Agency (EPA) against Suncor Energy (U.S.A.), Inc. The underlying case concerned Suncor’s compliance with part of the Clean Air Act concerning renewable fuel standards.

The EPA had concluded that Suncor’s “two adjacent oil refining operations in Commerce City, Colorado” should be treated as one entity for determining whether Suncor was entitled to a continuation of a “small refineries” exemption from the Clean Air Act. The exemption, if applicable, would excuse Suncor from having to comply with the “Renewable Fuel Standard Program (RFS Program)” prescribed in that legislation.  By treating the adjacent operations at the “East Refinery” and the “West Refinery” as one, the EPA concluded that the over all output of the single operation exceeded the limits of a “small refinery” and that Suncor was not entitled to the continued exemption. The Tenth Circuit did not decide the issue but remanded the case to the EPA for further proceedings.

 As part of encouraging a transition to clean energy, the RFS Program, a 2005 amendment to Clean Air Act, mandated “annual increases in the amount of renewable fuels introduced in the U.S. fuel supply.”  The statute and implementing regulations provided various timelines for compliance with exemptions. One exemption is for “small refineries,” which, pursuant to both the statute and regulations, encompass refineries that “do not exceed “aggregate daily throughput [of 75,000 barrels of crude].” Suncor exceeded that number only if the activity of the adjacent facilities are combined.

Suncor filed two petitions (one for the “East Refinery” and one for the “West Refinery”) for extensions of the exemptions in 2018. After dialogue with Suncor, the EPA concluded in October 2019, that the East and West Refineries should be treated as one refinery for the purposes of the applicability of the exemption. The EPA noted the absence of explicit statutory and regulatory definitions, and concluded that it had the discretion to make this determination. Among other factors, the EPA emphasized the highly integrated nature of the operations. The EPA also noted that the two facilities had integrated management and that Suncor referred to the facilities as one in certain public statements.

Suncor argued that i) The East and West Refineries are distinct “refineries” for the purpose of the statutory exemption and that ii) …”even if the Clean Air Act permitted the EPA to consider integration and other factors as part of its determination … the EPA’s development and application of those standards was arbitrary and capricious.”

As part of lengthy definitional analysis of the relevant terms, the Tenth Circuit noted that “ … the parties have ignored another EPA regulation that appears to us to have relevance…” That provision is the definition of “facility.”  The court stated “ … absent further explanation from the EPA, we are left to conclude that the EPA’s decision in this case, by wholly ignoring its own definition of ‘facility,’ was not ‘in accordance with the law.’ “ In a footnote, the court notes that this would be enough to “justify reversing the EPA’s decision and remanding to the agency for further review.” For the purposes of “judicial efficiency,” the court also addresses the “statutory and regulatory term ‘refinery.’”

As to the meaning of “refinery,” the court considers at length what degree of judicial deference is due the EPA’s determination. The court determined that “at best” limited deference is due and concludes that the EPA’s decision lacked sufficient clarity on the point. The Court stated that on remand the EPA might reach the same determination but provided guidance on what the EPA must do: apply the ignored definition of “facility” or explain why that definition is not relevant; provide clear guidance on its “integration analysis [pertaining to the East and West Refineries] to the extent it continues to rely on that factor”; and “omit any consideration of Suncor’s management structure or public statements unless it can demonstrate that those factors are somehow consistent with, and have a reasonable connection to, the statutory and regulatory definitions of the term ‘refinery.’ “

Suncor is represented by Hogan Lovells.

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