SINCLAIR WYOMING REFINING COMPANY, and SINCLAIR CASPER REFINING COMPANY, Petitioners,
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, Respondent. STATE OF WYOMING, Amicus Curiae.
FOR REVIEW OF A FINAL ORDER FROM ENVIRONMENTAL PROTECTION
AGENCY (EPA No. EPA-1:CAA-08-2011-007)
Jeffrey R. Holmstead (Brittany M. Pemberton with him on the
briefs) Bracewell LLP, Washington, D.C., for Petitioners.
Cirino, Environmental Defense Section, Environment and
Natural Resources Division, United States Department of
Justice (John C. Cruden, Assistant Attorney General, Jeffrey
H. Wood, Acting Assistant Attorney General, and Susan Stahle,
Of Counsel, United States Environmental Protection Agency,
with him on the briefs) Washington, D.C., for Respondent.
E. Peterson, Senior Assistant Attorney General, Wyoming
Office of the Attorney General, Cheyenne, Wyoming, on briefs
for Amicus Curiae.
TYMKOVICH, Chief Judge, LUCERO, and MORITZ, Circuit Judges.
TYMKOVICH, CHIEF JUDGE.
amendment to the Clean Air Act (CAA), Congress directed the
EPA to operate a Renewable Fuel Standards Program (the RFS
Program) to increase oil refineries' use of renewable
fuels. But for small refineries that would suffer a
"disproportionate economic hardship" in complying
with the RFS Program, the statute required the EPA to grant
exemptions on a case-by-case basis.
conclude the EPA has exceeded its statutory authority under
the CAA in interpreting the hardship exemption to require a
threat to a refinery's survival as an ongoing operation.
That interpretation is outside the range of permissible
interpretations of the statute and therefore inconsistent
with Congress's statutory mandate. Because we find that
the EPA exceeded its statutory authority, we vacate the
EPA's decisions and remand to the EPA for further
Energy Policy Act of 2005, Congress amended the CAA to
encourage the use of renewable fuels. The statute's RFS
program requires oil refineries to either produce a
sufficient proportion of renewable fuels as part of their
output or purchase credits generated by other refineries to
meet their increased renewable-fuel obligations. See
42 U.S.C. § 7545(o); 40 C.F.R. § 80.1429. But
Congress also directed that small refineries may receive a
statutory exemption if participation in the program would
cause them "disproportionate economic hardship." 42
U.S.C. § 7545(o)(9)(B).
The Renewable Fuel Standards Program
the RFS Program, Congress prescribed annual target volumes
for renewable fuel sales, which increase each year until
reaching a maximum level in 2022. Congress charged the EPA
with implementing the RFS Program and empowered it with
authority to alter the statutory volumes of renewable fuel if
the EPA finds that the RFS Program is causing severe economic
or environmental harm or there is an inadequate supply of
domestic renewable fuels. The EPA must also consult with the
Department of Energy (DOE) in exercising this power.
See 42 U.S.C. § 7545(o)(7). The statute further
requires "obligated parties, " including
"refineries, blenders, and importers, " to comply
with the RFS Program. 42 U.S.C. § 7545(o)(3)(B)(ii).
the EPA's accompanying regulations, an obligated party
must satisfy its Renewable Volume Obligation each year by
holding sufficient credits, known as Renewable Identification
Numbers (RINs), at the end of each compliance year. A RIN is
created when a producer makes a gallon of renewable fuel,
blends the renewable fuel with petroleum-based fuel, and
sells the resulting product domestically. 40 C.F.R. §
80.1429. An obligated-party can accumulate RINs to meet its
RFS Program requirement by: (1) blending renewable fuels into
petroleum-based fuel and selling the product domestically; or
(2) obtaining RINs through another source, such as the RIN
trading system Congress directed the EPA to establish.
See 42 U.S.C. § 7545(o)(5). Put simply, the
program induces refineries to produce renewable fuel products
(e.g., ethanol), and if they cannot, to purchase
biofuel-generated credits from refineries that can.
Small Refinery Exemptions
was aware the RFS Program might disproportionately impact
small refineries because of the inherent scale advantages of
large refineries and therefore created three classes of
exemptions to protect these small refineries.
the statute exempted all small refineries from the RFS
Program until 2011. 42 U.S.C. § 7545(o)(9).
in the meantime, Congress directed DOE to conduct a study
"to determine whether compliance [with the RFS Program]
. . . would impose a disproportionate economic hardship on
small refineries" after the program's
implementation. 42 U.S.C. § 7545(o)(9)(A)(ii)(I). DOE
conducted the study in 2011 and determined that a number of
small refineries, including Sinclair's two Wyoming
refineries, would suffer "disproportionate economic
hardship" if they were required to comply with the RFS
Program. Accordingly, the EPA extended the blanket
exemption for two more years.
after the exemption period expired, Congress provided a
process for small refineries to petition the EPA "at any
time" for an extension of the initial exemption
"for reason of disproportionate economic hardship."
42 U.S.C. § 7545(o)(9)(B)(i). In evaluating these
petitions, the EPA must consult with DOE and consider the
findings of DOE's study in addition to "other
economic factors." 42 U.S.C. § 7545(o)(9)(B)(ii).
third exemption is at issue in this case.
Sinclair's Petitions for Small Refinery Exemptions
owns and operates two refineries in Wyoming: one located in
Sinclair, Wyoming, and another in Casper, Wyoming. Both fall
within the RFS Program's definition of "small
refinery" and were exempt from the RFS requirements
until 2011. Those exemptions were extended until 2013 after
DOE found Sinclair's Wyoming refineries to be among the
13 of 59 small refineries that would continue to face
"disproportionate economic hardship" if required to
comply with the RFS Program.
then petitioned the EPA to extend their small-refinery
exemptions, arguing that both refineries would continue to
suffer "disproportionate economic hardship" under
the RFS Program. The EPA denied Sinclair's petitions in
two separate decisions, finding that both refineries appeared
to be profitable enough to pay the cost of the RFS Program.
Sinclair filed a timely petition for review with this court.
We grant Sinclair's petition for review, vacate the
EPA's decisions for both of Sinclair's refineries,
and remand for further proceedings consistent with this
review Sinclair's petitions under the Administrative
Procedure Act (APA). The APA requires courts to consider
agency action in conformity with the agency's statutory
grant of power, and agency action is unlawful if it is
"in excess of statutory jurisdiction, authority, or
limitations, or short of statutory right." 5 U.S.C.
§ 706(2)(C). See generally id. § 706
(describing additional agency actions that reviewing courts
can hold unlawful and set aside, including arbitrary and
review questions of statutory interpretation de novo.
EnergySolutions, LLC v. Utah, 625 F.3d 1261, 1271
(10th Cir. 2010).
Judicial Review of Agency Action
court reviews an agency's legal determination, it
generally applies the analysis set out by the Supreme Court
in Chevron v. Natural Resources Defense Council, 467
U.S. 837 (1984). Under Chevron, reviewing courts
apply a two-step analysis. Chevron step one asks
"whether Congress has directly spoken to the precise
question at issue." Id. at 842-43. If
Congress's intent is clear, then both the court and the
agency "must give effect to the unambiguously expressed
intent of Congress." Id. at 843. Courts
determine Congress's intent by employing the traditional
tools of statutory interpretation, beginning-as always-with
an examination of the statute's text. See New Mexico
v. Dep't of Interior, 854 F.3d 1207, 1223-24 (10th
Cir. 2017). But, if Congress has "not directly addressed
the precise question at issue"-if "the statute is
silent or ambiguous with respect to the specific
issue"-the court must determine at Chevron step
two "whether the agency's answer is based on a
permissible construction of the statute."
Chevron, 467 U.S. at 843-44.
circumstances, however, a court never reaches the
Chevron analysis. In such cases, we do not need to
answer the step one or step two questions. As the Supreme
Court explained in United States v. Mead Corp., 533
U.S. 218 (2001), the initial step of the Chevron
inquiry is actually to determine whether Chevron
should apply at all. See Cass R. Sunstein,
Chevron Step Zero, 92 Va.L.Rev. 187, 247 (2006)
(conceptualizing the inquiry of whether Chevron
applies as "Chevron step zero"); see
also Gutierrez-Brizuela v. Lynch, 834 F.3d. 1142, 1157
(10th Cir. 2016) (Gorsuch, J., concurring) (discussing the
step zero inquiry and the confusion created by
Mead, the Court held that Chevron applies
only where "it appears that Congress delegated authority
to the agency generally to make rules carrying the force of
law, and that the agency interpretation claiming deference
was promulgated in the exercise of that authority."
Mead, 533 U.S. at 226-27. This context-driven
determination requires us to examine the method by which the
agency exercised its delegated authority. Mead
instructs: "It is fair to assume generally that Congress
contemplates administrative action with the effect of law
when it provides for a relatively formal administrative
procedure tending to foster the fairness and deliberation
that should underlie a pronouncement of such force."
Id. at 229-30. Mead thus created, in
effect, a "safe harbor of Chevron
deference" for agency interpretations produced via
formal agency action-formal rulemaking or adjudication-and
those produced via informal notice-and-comment rulemaking.
Charles H. Koch, Jr. & Richard Murphy, 3 Admin. L. &
Prac. § 10:12 (Feb. 2017 update); see also
Richard J. Pierce, Jr., Administrative Law Treatise,
§ 3.5 (2010) ("After Mead, it is possible
to know only that legislative rules and formal adjudications
are always entitled to Chevron deference, while less
formal pronouncements like interpretative rules and informal
adjudications may or may not be entitled to Chevron
situations where Chevron does not apply,
Mead requires us to examine the persuasiveness of
agency action with no thumb on the scale of judicial
deference. As Mead explained, we follow the analysis
set forth in Skidmore v. Swift & Co., 323 U.S.
134 (1944). In that case, the Court explained that the weight
courts provide an administrative judgment "will depend
upon the thoroughness evident in [the agency's]
consideration, the validity of its reasoning, its consistency
with earlier and later pronouncements, and all those factors
which give it power to persuade, if lacking power to
control." Id. at 140.
Mead, the Court examined agency action that was less
formal than notice-and-comment rulemaking when it reviewed an
opinion letter issued by the Social Security Administration.
See Barnhart v. Walton, 535 U.S. 212, 221-22 (2002).
It found that such informal agency action "does not
automatically deprive that interpretation of the judicial
deference otherwise its due, " but rather, whether
courts provide Chevron deference "depends in
significant part upon the interpretive method used and the
nature of the question at issue." Id. The
factors the Court considered included the interstitial nature
of the legal question, the related expertise of the agency,
the importance of the question to administration of the
statute, the complexity of that administration, and the
careful consideration the agency had given the question over
a long period of time. Id. at 222.
question we must answer, then, is whether to apply
Chevron or Skidmore deference to the
EPA's use of informal adjudications to resolve
Sinclair's petitions. See WildEarth Guardians v.
Nat'l Park Serv., 703 F.3d 1178, 1188 (10th Cir.
2013). Sinclair argues that we should review the EPA's
decisions using only Skidmore deference, but
maintains it would still prevail under a more deferential
Chevron review. Aplt. Supp. Br. at 1-2. The EPA, of
course, argues the opposite.
preliminary matter, we acknowledge that the EPA's
decisions resolving Sinclair's hardship petitions were
conducted via informal adjudication (the same procedure
employed by the U.S. Customs Service in Mead). The
parties do not seriously contest this conclusion. The
decisions were adjudications because they were
specific to the parties at issue-in fact, they were specific
even to the individual refineries at issue (the EPA produced
separate decisions for the Sinclair, Wyoming and Casper,
Wyoming refineries)-and were resolving petitions for
Sinclair's exemptions from the RFS Program. The decisions
were also informal because they were resolved on the
basis of Sinclair's submissions and involved no oral
argument, opportunity for cross-examination, or other
"trial-like" procedures generally required by the
APA. See Pierce, supra, at Vol. 1 §
8.2 (describing the trial-like procedures the APA requires
for formal adjudications); see also J.A. Vol. 1 at
31 (the Casper, Wyoming refinery opinion describing
Mead, we conclude that Skidmore deference
applies to the EPA's decision here. First of all,
Congress specifically authorized the EPA to promulgate
regulations on aspects of the RFS Program, but not for the
small refinery exemptions. This means the agency did not have
the benefit of notice-and-comment about its interpretation of
the term "disproportionate economic hardship."
See, e.g., 42 U.S.C. § 7545(o)(2)(A)(i)
(requiring the EPA to promulgate regulations to "ensure
that gasoline sold or introduced into commerce in the United
States . . . contains the applicable volume of renewable
fuel"). Instead, the EPA conducted its
interpretation via informal adjudication. And the fact that
the adjudication was informal is also
important-Sinclair's involvement in the decision-making
was limited to submitting ...