EPA abused discretion by denying Suncor Colorado refineries exemption from clean air law, court says

The federal appeals court based in Denver has overturned a 2019 decision of the U.S. Environmental Protection Agency that refused to grant Suncor Energy's Commerce City Refinery an exemption to a key environmental law.

Although the U.S. Court of Appeals for the 10th Circuit cautioned the EPA could find, upon further review, that Suncor still must participate in a greenhouse gas reduction program under the Clean Air Act, a three-judge appellate panel nevertheless concluded the EPA abused its discretion when it previously declined to exempt the energy company.

Suncor's appeal to the 10th Circuit involved a straightforward question with an ambiguous answer: Does the company's facility in Commerce City, consisting of an East Refinery and a West Refinery that are physically adjacent, count as a refinery? Or as two refineries?

The distinction matters in the EPA's application of the renewable fuel standard (RFS) program, which Congress first created in 2005 through the Clean Air Act. The RFS program requires renewable fuels to be blended into petroleum-based fuels, with the goal of lowering greenhouse gas emissions. Congress allowed "small refineries" to be exempt from the program — meaning refineries that process fewer than 75,000 barrels of crude oil daily.

Taken separately, Suncor's East Refinery and West Refinery processed well under 75,000 barrels per day at the time Suncor requested an exemption. However, if viewed as a single refinery, the Commerce City plant processed nearly 100,000 barrels per day in 2019, making it ineligible.

The 10th Circuit believed both interpretations were reasonable, given the ambiguity of existing regulations.

"East Refinery and the West Refinery could each potentially be classified as a 'refinery' because they each played some role in the conversion of crude oil into gasoline and diesel," wrote Senior Judge Mary Beck Briscoe in the Oct. 17 opinion, "yet the East Refinery and West Refinery, together, could also be considered a single 'refinery' because, as explained, they work together to convert crude oil into gasoline and diesel."

Still, she added, even if the EPA's conclusion was valid that the facilities are a single refinery, its reasoning was not.

In late 2018, Suncor, which is based in Calgary, sought the small refinery exemption for its East Refinery and West Refinery. On top of the upper limit of 75,000 barrels per day, the exemption is only available if compliance with the renewable fuels program would pose a "disproportionate economic hardship."

Suncor, which earned $2.95 billion in the first quarter of this year, received a denial letter from the EPA in October 2019. The agency recognized the East and West refineries were originally owned and operated by separate companies. Since Suncor acquired them, however, the company has "done significant work to integrate the process operations of the two facilities so that they now function as a single refinery," the letter read.

The EPA pointed to multiple pieces of evidence in support of its conclusion. Suncor itself publicly characterized the facilities as its "Commerce City Refinery," reported operating a single "98,000-barrel-per-day refinery" and had one vice president in charge of the entire facility.

Suncor then appealed the EPA's decision to treat the East and West facilities as a single refinery that was ineligible for a hardship exemption.

"I think it’s fair to say that perhaps nobody at Congress or EPA was thinking, 'What if you have two refineries that are next to each other sitting on I-70'," acknowledged Sean Marotta, Suncor's attorney, during oral arguments this year. "But that doesn’t mean you can go out and change the regulation or change the statute to (the EPA's) view of what constitutes better policy."

Small refinery exemptions came under fire during the Trump administration, with a bipartisan group of congressional representatives criticizing the EPA for liberally granting refineries' requests to the detriment of the renewable fuels program. In that vein, the EPA warned the 10th Circuit that a ruling in Suncor's favor could create an incentive for other large refineries to superficially subdivide their operations into facilities that fit the definition of small refinery, further evading compliance with the RFS program.

"This kind of sky-is-falling argument doesn’t seem to have much relevance, though, to how we interpret the statute," responded Judge Nancy L. Moritz.

Ultimately, the panel decided the EPA had overlooked one key clue that could illuminate how the agency should treat the Commerce City plant, and had instead turned to questionable justifications for denying Suncor's request.

The panel's opinion seized on a technical distinction that neither the EPA nor Suncor focused on during the appeal. Although there was a dispute about whether the Commerce City plant consisted of one refinery or two, the law defines a refinery as "any facility" where fuel is blended. A facility, in turn, is the single location for "all of the activities and equipment associated with the production" of fuel.

"Curiously, however, the EPA’s decision in this case made no mention of this regulatory definition of 'facility'," Briscoe wrote. "In other words, we find it difficult to characterize the EPA’s interpretation as reasonable when it clearly appears to have ignored a regulatory definition that may well have allowed it to resolve Suncor’s petitions without the need to engage in any additional interpretation of the statutory and regulatory term 'refinery.'"

As for the EPA's stated justifications in its letter to Suncor — that Suncor publicly presented its plant as one refinery under the control of a single vice president — there was no indication the EPA had relied on any established criteria when it chose to include those factors.

Although two physically-adjacent, integrated refineries could be a single facility, Briscoe elaborated, "the problem here is that the EPA’s decision does not make clear what level of integration will result in two operations being treated as a single 'refinery' for purposes of the RFS Program."

The panel returned the case to the EPA, directing it to apply its own definition of "facility" in evaluating Suncor's request for an exemption, and to otherwise provide clearer guidance about why the East and West refineries must participate in the renewable fuels program.

The case is Suncor Energy (U.S.A.), Inc. v. U.S. Environmental Protection Agency.