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Lion Oil Co. v. Environmental Protection Agency

United States Court of Appeals, Eighth Circuit

July 8, 2015

Lion Oil Company, Petitioner
v.
Environmental Protection Agency, Respondent

Submitted June 11, 2015.

Petition for Review of an Order of the Environmental Protection Agency.

For Lion Oil Company, Petitioner: Mark H. Foster Jr., LeAnn Johnson, William Pedersen, Perkins & Coie, Washington, DC; Eric Miller, Perkins & Coie, Seattle, WA.

For Environmental Protection Agency, Respondent: Elizabeth Boucher Dawson, U.S. Department of Justice, Environment & Natural Resources Division, Washington, DC; Loretta E. Lynch, U.S. Department of Justice, Office of the Attorney General, Washington, DC; Gina McCarthy, U.S. Environmental Protection Agency Administrator, Washington, DC.

Before GRUENDER, BEAM, and BENTON, Circuit Judges.

OPINION

BENTON, Circuit Judge.

Lion Oil Company petitioned the Environmental Protection Agency for an exemption from the Renewable Fuel Standard program for 2013. EPA denied the petition. Lion Oil appeals. Having jurisdiction under 42 U.S.C. § 7607(b)(1), this court affirms.

I.

The RFS program sets annual renewable-fuel targets for refineries. See 42 U.S.C. § 7545(o). Refineries must blend their share of renewable fuel or buy credits from those who exceed blending requirements. Congress exempted " small" refineries--75,000 barrels of crude oil or less per day--from RFS obligations until 2011. § § 7545(o)(1)(K), 7545(o)(9)(A)(i). The exemption can be extended. The Department of the Energy " shall conduct for [EPA] a study to determine whether compliance with [RFS requirements] would impose a disproportionate economic hardship on small refineries." § 7545(o)(9)(A)(ii)(I). If DOE determines a small refinery " would be subject to a disproportionate economic hardship if required to comply," EPA " shall extend the exemption . . . for a period of not less than 2 additional years." § 7545(o)(9)(A)(ii)(II). Also, " A small refinery may at any time petition [EPA] for an extension of the exemption . . . for the reason of disproportionate economic hardship." § 7545(o)(9)(B)(i). When evaluating such petitions, EPA, " in consultation with the Secretary of Energy, shall consider the findings of [DOE's] study . . . and other economic factors." § 7545(o)(9)(B)(ii).

DOE completed its study in 2011. It concluded, " Disproportionate economic hardship must encompass two broad components: a high cost of compliance relative to the industry average, and an effect sufficient to cause a significant impairment of the refinery operations." To implement these components, DOE created a dual-index scoring matrix. One index measures disproportionate structural and economic impact; the other, RFS compliance on refiner viability. The viability index has three metrics--3a (" Compliance cost eliminates efficiency gains" ), 3b (" Individual special events" ), and 3c (" Compliance costs likely to lead to shut down" ). DOE defines " individual special events" as " Refinery specific events (such as a shutdown due to an accident, and subsequent loss of revenue) in the recent past that have a temporary negative impact on the ability of the refinery to comply with the RFS." Originally, DOE scored all three metrics as 0 or 10. In a May 2014 addendum to the study, DOE added 5 as a possible score for metrics 3a and 3b (but not metric 3c).

Lion Oil, a small refinery in El Dorado, Arkansas, received exemptions through 2012. It petitioned EPA for an exemption for 2013. Citing disruption to a key supply pipeline and noting its " financial position has not improved," Lion Oil argued that RFS compliance would cause disproportionate economic hardship.

Before EPA considered the petition, DOE first scored Lion Oil on DOE's matrix, as amended by the addendum. DOE determined that Lion Oil did not score high enough on the viability index to show disproportionate economic hardship. Specifically, on metric 3b, DOE concluded the pipeline disruption was not an " individual special event" because " several refineries . . . were impacted by the reduced flow." (Lion Oil agrees that the pipeline disruption affected four other refineries.)

EPA's 23-page decision summarized DOE's analysis, a " primary factor" in its decision. EPA also said it " evaluate[d] viability . . . in the same manner that DOE considers viability in its own methodology." EPA did not re-score Lion Oil on DOE's matrix. Instead, EPA " independently" analyzed the pipeline disruption and Lion Oil's blending capacity, projected RFS-compliance costs, and financial position.

Lion Oil requested protection of " confidential business information." EPA sent its decision to Lion Oil only. At oral argument, Lion Oil's counsel said, " It's really just the specific numbers, the dollar amounts, the ...


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