The justices overturned a lower court decision that had faulted the U.S. Environmental Protection Agency for giving refineries in Wyoming, Utah and Oklahoma extensions on waivers from renewable fuel standard (RFS) requirements under a law called the Clean Air Act even though the companies’ prior exemptions had expired.

The extensions at issue were given to units of HollyFrontier Corp and CVR Energy.

The 6-3 ruling, authored by conservative Justice Neil Gorsuch, compared these extensions to ones granted in everyday life such as to a student wanting more time to complete a term paper even though the deadline has passed or a business contract whose term had expired.

“It is entirely natural — and consistent with ordinary usage — to seek an ‘extension’ of time even after some time lapse,” Gorsuch said.

In a dissent, conservative Justice Amy Coney Barrett, joined by liberal justices Sonia Sotomayor and Elena Kagan, faulted the ruling’s interpretation of the word “extend.” The “EPA cannot ‘extend’ an exemption that a refinery no longer has,” Barrett wrote.

President Joe Biden’s administration has been considering ways to provide relief to U.S. oil refiners from biofuel blending mandates.

The case reflected a long-running dispute between the oil and corn industries. The legal battle focused on changes made in 2005 and 2007 to the Clean Air Act to require biofuel quotas in U.S. gasoline and diesel products — intended to reduce dependence on foreign oil and support fossil fuel alternatives.

Under the program, refiners must blend billions of gallons of biofuels such as ethanol into their fuel or buy compliance credits, known as RINs, from those that do.

U.S. renewable fuel credits fell on the news, trading at $1.55 each, down from $1.65 each on Thursday (all figures US$). U.S. gasoline and diesel futures plunged about three per cent immediately following the news, but later eased losses.

States backing the refineries included Wyoming. Those backing biofuels included Iowa. Both sides cited economic threats to their rural economies posed by the litigation.

HollyFrontier Corp said in a statement, “We are pleased that our longstanding arguments were today validated by the Supreme Court.” HollyFrontier urged the EPA to “immediately take action to make the RFS a workable program for U.S. refiners and consumers.”

American Fuel and Petrochemical Manufacturers president Chet Thompson said the renewable fuel standard “is hurting consumers and jeopardizing the viability of refineries across the country, as well as the jobs and communities they support.”

Biofuel and corn producer groups that challenged the waivers, including the Renewable Fuels Association and the National Corn Growers Association, said in a statement they were “extremely disappointed in this unfortunate decision from the Supreme Court.”

Noting that because the lower court had faulted the EPA’s decision on other grounds as well, the groups said they were optimistic that Biden’s administration and the EPA would “take a far more judicious and responsible approach to the refinery exemption program than their predecessors did.”

Renewable fuel groups said that an increase in waivers during former president Donald Trump’s administration had undercut the demand for their products by billions of dollars.

Small refineries were exempt until 2011 to account for any “disproportionate economic hardship” they would endure by complying with volume requirements for ethanol and other biofuels. But the EPA was allowed to extend those exemptions for certain periods.

At issue in the case was whether the EPA impermissibly exempted units of HollyFrontier and CVR in 2017 and 2018 when they had not received continuous prior extensions of an initial exemption.

The Denver-based 10th U.S. Circuit Court of Appeals last year found that the EPA had exceeded its authority “because there was nothing for the agency to ‘extend.'”

— Reporting for Reuters by Andrew Chung in New York; additional reporting by Stephanie Kelly.

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Last week, the U.S. Surface Transportation Board (STB) granted a waiver to CP’s $25 billion agreed bid for Kansas City Southern, which means the deal would not be subjected to the tougher railroad merger rules the regulator put in place in 2001 (all figures US$).

CP won the exemption based on its smaller size, and analysts and shareholders have said that STB’s ruling reduces the regulatory risk to CP’s deal.

CP and larger rival CN are in a race to take over U.S. railroad Kansas City Southern (KCS), which would create the first direct railway linking Canada, U.S. and Mexico.

Either combination is seeking to benefit from the expected pick-up in trade after the Canada-U.S.-Mexico Agreement was ratified last year.

In its argument filed with the regulator on Friday, CP said CN’s offer to acquire KCS should be cause for concern because of its size.

“A combined CN/KCS would greatly expand the size of the fifth largest U.S. Class 1 railroad, vastly increasing the gap between CN/KCS and… CP,” Canadian Pacific said.

CN said it has voluntarily agreed to have its transaction with KCS reviewed by the STB under the current rules to demonstrate the pro-competitive nature of the deal and to address any competition concerns.

KCS did not immediately respond to a request for comment on CP’s filing to the regulator.

CN launched an unsolicited cash-and-stock offer valuing KCS at about $29.55 billion, after CP agreed to buy KCS for about $25 billion in March.

CP has previously said it was not considering increasing its offer. KCS previously said its board has determined that CN’s competing offer could be expected to lead to a “superior proposal.”

— Reporting for Reuters by Shubham Kalia in Bangalore.

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The decision came after appeals by refining companies that argued the 10th Circuit Court’s decision last year had improperly deprived them of a method to avoid financial hardship granted by Congress.

Under the U.S. Renewable Fuel Standard, refiners must blend billions of gallons of corn-based ethanol and other biofuels into their fuel or buy credits from those that do — a law meant to help farmers and reduce dependence on foreign oil.

But small facilities under financial stress can also seek waivers from the obligation, and the Trump administration has dramatically ramped up the number of such exemptions granted to the industry — angering biofuel producers that claim the waivers undercut demand for their products.

After a challenge from biofuel industry groups, the 10th Circuit ruled last January that the U.S. Environmental Protection Agency can only grant the so-called Small Refinery Exemptions to facilities that have received them continuously each year since 2010. That decision cast doubt over the entire waiver program, since most of the refineries securing waivers in recent years have not secured them continuously.

“We are disappointed in the Supreme Court’s decision to review the case but will continue to vigorously pursue a resolution to the damage that small refinery exemptions do to the biodiesel industry,” said Kurt Kovarik, spokesman for the National Biodiesel Board.

The Fueling American Jobs Coalition, which advocates on behalf of refiners, cheered the Supreme Court’s decision, saying the review comes at an “urgent time” for refiners battered by the economic downturn.

The court is expected to hear the case in April, and a ruling could take several months.

— Reporting for Reuters by Stephanie Kelly; writing by Richard Valdmanis.

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The outbreak has touched off a massive global decline in demand for motor fuels and forced companies to reduce staffing levels to slow infection rates.

Typically U.S. fuel dealers are required to stop selling winter-grade gasoline on May 1 as summer anti-smog standards come into play. But marketers will now be allowed to sell the fuel until at least May 20, and possibly beyond.

“The reason we have to do this is because people are driving fewer miles and the winter blends are stockpiled in all the tanks,” EPA chief Andrew Wheeler told Reuters in an interview. “There’s no place to put the summer blend.”

The EPA, he said, will also extend the deadline for small oil refineries to prove their compliance with the Renewable Fuel Standard (RFS), the law that requires refineries to blend billions of gallons of biofuels like ethanol into their fuel or buy credits from those that do.

Refiners are typically required to prove their compliance by March 31, but facilities with less than 75,000 barrels of daily processing capacity will be given extensions.

Wheeler said the decision was related to ongoing litigation over the agency’s Small Refinery Exemption Program, which can free some small plants from obligations under the RFS. A federal court ruled in January that the EPA had been too free with the waivers, and while the agency did not challenge the ruling, some refineries have.

Wheeler said it would be unfair to force small refineries to comply with the RFS before that case is over.

“We’re extending the compliance assistance to all the smaller refineries,” he said.

In the meantime, the agency will not revisit or rescind any of the exemptions it has given to small refineries in the past.

“Investigating and initiating enforcement actions against small refineries that were previously subject to an exemption is a low priority for the agency,” the EPA said in a press release outlining the moves.

The American Fuel and Petrochemical Manufacturers cheered the EPA’s decision to allow for sales of winter-grade gasoline past the cutoff.

“Refineries are already transitioning to producing summer grade gasoline, but with the unprecedented decline in gasoline consumption, there is simply not enough consumer demand to draw down existing inventory by the summer RVP deadline,” said Derrick Morgan, AFPM’s senior vice-president of federal and regulatory affairs.

— Stephanie Kelly reports on the U.S. energy sector for Reuters from New York.

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Renewable Fuels Association CEO Geoff Cooper said on a conference call he expects ethanol production to fall further, and called on the U.S. Environmental Protection Agency to ease strain on the industry by ceasing to grant small refineries waivers from the nation’s biofuels mandates.

The spread of coronavirus has disrupted business, travel and daily life. As governments urge people to stay indoors to curb the outbreak, fuel demand has tapered.

Margins to produce ethanol, which the United States requires to be blended into the nation’s fuel pool, have tanked, prompting concern about plant shutdowns and layoffs. Ethanol refining margins in the Corn Belt fell to as low as -11 cents a gallon in early March and currently sit at 10 cents a gallon (all figures US$).

“We’re doing everything we can to make sure we can survive and weather the storm but it’s definitely going to be ugly,” Randy Doyal, CEO of Al-Corn Clean Fuel at Claremont, Minnesota, said during the conference call hosted by RFA.

Some 200 plants across the U.S. produce just over one million barrels per day of ethanol.

The industry employs about 350,000 workers either directly or indirectly, Cooper said.

Doyal’s plant produces about 120 million gallons of ethanol per year and employs just over 50 workers, he said.

“The impact is so great on our local rural communities that it would be tragic to have these shutdowns,” Doyal said.

Some companies have shifted production to take advantage of a market that has seen a surge in demand: hand sanitizer, which can be made using ethanol. Governments and health agencies have advised people to wash their hands and use hand sanitizer to mitigate the virus’ spread.

“We’ve tried to shift our focus and supply as much on the hand sanitizer markets as we can,” said Chad Friese, general manager of the Chippewa Valley Ethanol Co. in Benson, Minnesota.

The duration of the industry’s downturn — and the severity of run cuts — remains uncertain as much is unknown about the aftermath of the coronavirus.

“We’re going through something most of us have not experienced during our lifetimes,” said Scott Richman, RFA chief economist.

— Stephanie Kelly reports on the U.S. energy sector for Reuters from New York.

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Corn and soybean farmers have been angered by the U.S. Environmental Protection Agency’s decision to greatly expand the number of exemptions given to smaller refiners from blending biofuels into the nation’s gasoline pool. They argue the expansion undercuts demand.

In response, the Trump administration has been negotiating for several months to find a way to boost demand for biofuels to satisfy farmers and rural voters. However, the proposed rule, issued in a supplemental notice by the EPA, was met with harsh criticism because it bases the biofuels volumes required for blending on U.S. Energy Department estimates — rather than actual exemptions.

“Only 11 days after President Trump’s landmark announcement, the EPA proposal reneges on the core principal of the deal,” said Iowa Renewable Fuels Association executive director Monte Shaw. “Instead of standing by President Trump’s transparent and accountable deal, EPA is proposing to use heretofore secret DOE recommendations that EPA doesn’t have to follow.”

The refining industry is required by law to blend ethanol and other biofuels into the nation’s gasoline under the nation’s Renewable Fuel Standard (RFS). As part of the RFS, EPA can exempt small refineries if they prove compliance would cause disproportionate economic hardship.

Facilities owned by oil majors Exxon Mobil and Chevron are among those to secure recent exemptions. Farmers who supported Trump heavily in his 2016 campaign have been frustrated with this, along with the ongoing U.S.-China trade war.

Trump promised in early October to boost demand for fuels like ethanol. During the negotiations, it appeared the biofuels industry had won a concession that would require refiners who are not exempt from the rules to blend the additional gallons of ethanol and other fuels that smaller facilities did not.

The proposed plan would calculate the volume of biofuels U.S. refiners have to blend by using a three-year average of exempted gallons as recommended by the Department of Energy, the EPA said.

“The supplemental notice contains a never-before-discussed proposal to estimate small refinery exemptions, with no assurance that the estimate will come close to actual exemptions,” the National Biodiesel Board said in a statement.

Oil companies were not happy either. They have consistently resisted measures to expand the biofuels market, which they view as a competitor. Refiners complain that the requirements under the RFS cost them greatly, and that having refiners make up for those who are granted exemptions would be an additional harm.

“There is simply no logic in forcing complying refineries to bear the burden of decisions outside of their control,” said Frank Macchiarola, vice-president of downstream and industry operations at industry group the American Petroleum Institute.

The EPA, in its supplemental notice, acknowledged there is uncertainty in projecting exempted volumes for 2020.

The plan would not change proposed volumes for 2020 and 2021, EPA said. In July, the EPA called for the refining industry to add 20.04 billion gallons of biofuels, including 15 billion gallons of ethanol, into fuel in 2020.

— Stephanie Kelly reports on the U.S. energy sector for Reuters from New York City.

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Clashes between farmers and the oil industry over biofuel policy have posed a challenge for Trump, who is counting on the support of both constituencies in next year’s presidential election.

U.S. farmers and ethanol producers have ramped up pressure on Trump over the past few weeks to quickly take steps to boost ethanol demand. The oil industry has struck back, saying such moves would increase costs for refiners and could cost manufacturing jobs.

“The Farmers are going to be so happy when they see what we are doing for Ethanol, not even including the E-15, year around, which is already done,” Trump said on Twitter. “It will be a giant package, get ready! At the same time I was able to save the small refineries from certain closing. Great for all!”

Trump did not offer details on what the “giant package” would contain. The E15 mentioned by Trump is a higher-ethanol blend of gasoline.

The U.S. Renewable Fuel Standard requires refiners to blend biofuels like ethanol into their fuel, but allows the U.S. Environmental Protection Agency to grant waivers to financially troubled small facilities.

The EPA announced this month a decision to grant 31 such waivers to refineries, a level the corn lobby called excessive, saying it would undermine biofuel demand.

Corn growers and ethanol producers met this week in Nebraska, with both groups voicing dissatisfaction with the Trump administration, in the first major gathering of industry leaders since the waiver announcement. They urged a policy proposal that would redistribute waived volumes from the exemptions going forward.

If implemented by the administration, the move would help reinvigorate wavering support from some in the sector for Trump, they said.

“What the association wants going forward is to put teeth back into the RFS,” said Kathy Bergren, director of public policy and renewable fuels for the National Corn Growers Association.

Kerry Knuth, chief executive of Knuth Farms in Mead, Nebraska, said he has at times been frustrated by the president and his administration’s actions. Knuth supported Trump in the 2016 election.

“There’s nothing we can do is the worst thing,” said Knuth, whose farm grows corn, soybeans and wheat. “Nobody even cares about us out here. It’s all about big industry.”

Trump last week directed Agriculture Secretary Sonny Perdue, EPA chief Andrew Wheeler and White House advisers to come up with a solution that would boost biofuel demand in the wake of the EPA waiver decision. Among the proposals was to ramp up biofuel blending quotas slightly, but there has been disagreement over when to apply the increase, sources said.

Perdue said on Wednesday he also proposed strengthening U.S. infrastructure to allow more widespread use of E15. The Trump administration in June lifted a summertime ban on E15 use that had been imposed by the administration of Democratic former President Barack Obama to combat smog.

‘Misguided’

The oil industry, which dislikes the biofuel mandates because they cut into its market share, has said it would oppose any efforts to further bolster ethanol.

On Thursday, Chet Thompson, CEO of American Fuel and Petrochemical Manufacturers, the largest U.S. oil refining association, said any reallocation and raising of biofuel blending quotas would be “bad policy and unlawful.”

Thompson warned in a conference call that this would “raise the cost of compliance for refiners and raise the cost of fuel for consumers.” He dismissed farmers’ argument that waivers hurt biofuel demand, citing data from the U.S. Energy Information Administration showing ethanol consumption for the first five months of 2019 at its highest since at least 2010. The mandate was put in place in 2005.

“We hope to be able to convince the president to change tack … He is being misinformed, he is being misguided by some of his closest advisers,” he said, adding that if persuasion fails, the industry will not refrain from court action.

On Wednesday, the chief executives of three major refiners — Valero Energy, Marathon Oil and Flint Hills Resources — wrote a letter to Trump, saying waivers did not cause a reduction in ethanol demand and they were also not the reason the biofuels industry was in dire straits.

“We urge you to prevent other changes to the RFS that would threaten the viability of our Nation’s refineries,” they said.

— Reporting for Reuters by David Alexander and Humeyra Pamuk in Washington and Stephanie Kelly in South Sioux City, Nebraska; writing by Richard Valdmanis.

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The powerful senator, who represents the largest ethanol-producing state in the country, told Iowa Public Television that low biofuel credit prices negated refiners’ complaints that they are suffering financial hardship and deserve waivers from complying with laws to encourage more biofuel use.

“They screwed us…when they issued 31 waivers,” Grassley told the broadcaster. “Compared to less than 10 waivers during all the Obama years…What’s really bad isn’t a waiver, it’s that it’s been granted to people who aren’t in hardship,” he said.

He added that he would take up the issue with President Donald Trump.

Reuters earlier reported that it was Trump who gave the green light to EPA Administrator Andrew Wheeler to go ahead with the waiver decisions, a move that infuriated corn growers while pleasing the refining industry.

Sources told Reuters that Trump wanted the issue off his desk and gave Wheeler the go-ahead to announce the 31 exemptions out of 40 applications.

“The president has heard from all sides and in the end he has had enough of it,” one source familiar with knowledge of the matter said.

On Friday, EPA’s website showed two more petitions have been submitted, bringing the total number of applications to 42. EPA had approved 31 of them while denying six.

U.S. corn and oil industries are at loggerheads over EPA’s implementation of the Renewable Fuel Standard, a more than a decade-old federal policy that requires refineries to blend corn-based ethanol into their gasoline or buy credits from those that do.

But small facilities can secure exemptions from the program if they can prove to the EPA that complying would cause them financial hardship.

Since Trump took office, the EPA has more than quadrupled the number of waivers it has granted to refineries, including some operated by giants Exxon Mobil and Chevron Corp., saving the oil industry hundreds of millions of dollars, but enraging farmers who say the exemptions threaten demand for one of their staple products.

Refiners dismiss the argument, saying ethanol demand has not been affected.

Iowa is a swing state that Trump carried in the 2016 presidential election and is potentially crucial for his re-election efforts next year. Farmers in the state have also chafed under Trump’s trade war with China that has sapped demand for agriculture products.

Trump had ordered the revamp of the waiver program in June, after hearing from angry farmers during a trip to Iowa but nearly two months of inter-agency negotiations failed to change the outcome in corn growers’ favour.

— Humeyra Pamuk is a Reuters correspondent covering U.S. energy policy from Washington, D.C.

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“EPA’s inaction on addressing lost gallons due to small refinery exemptions in this rulemaking is a clear violation of law,” Growth Energy CEO Emily Skor said in a statement.

“In doing nothing to remedy these and other deficiencies, EPA has again failed to meet its statutory obligation to ensure that annual RVOs (renewable volume obligations) are met each year,” Skor said, referring to the formal name of the mandate the EPA must set out every year.

Under the U.S. Renewable Fuel Standard (RFS), oil refiners must blend increasing amounts of biofuels into their fuel each year or purchase blending credits from those that do, a policy that has helped farmers by boosting the market for ethanol and other biofuels.

However, small refineries can be exempted if they prove that complying would cause them financial strain, a system of waivers that has expanded significantly since Donald Trump became president in January 2017.

While refiners largely applaud the system, the increasing number of waivers has infuriated another key Trump constituency, the farmbelt, which argues the program erodes demand for biofuels.

EPA’s 2019 mandate — announced in late November — did not reflect the expanding waivers, a decision that an EPA official told Reuters was due to the fact the agency did not know what the total volume of exemptions for the year would be.

Opponents dismiss this argument, saying the agency could make an estimate.

“Today’s filing calls for greater accountability from EPA to ensure that every renewable fuel obligation is fulfilled as the law intended,” Skor’s statement said.

— Reporting for Reuters by Humeyra Pamuk.

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The agency also said it is considering a number of measures to bring some transparency to the compliance credit market and decided against forcing large refiners to blend extra volumes to compensate for the hardship waiver exemptions for small refineries.

The EPA’s decision against reallocating exempt volumes drew a wave of criticism from biofuel groups and their legislative backers in congress, but was applauded by the oil industry — the latest sign in the growing divide between the rival groups.

The blending mandate would be up three per cent from a 2018 requirement of 19.29 billion gallons and identical to figures that Reuters and other news outlets reported last week.

The EPA proposal would leave the target for conventional biofuel, mostly corn-based ethanol, at 15 billion gallons, the agency said.

The agency proposed an advanced fuel requirement at 4.88 billion gallons for 2019 and a biodiesel mandate of 2.43 billion gallons for 2020. It proposed a cellulosic mandate of 381 million gallons for next year.

“I’ve traveled to numerous states and heard firsthand about the importance of the RFS to farmers and local communities across the country,” EPA chief Scott Pruitt said in a statement accompanying the release.

Mike McAdams, president of the Advanced Biofuels Association, said the EPA proposal recognizes gains in the production of next-generation alternatives to corn-based ethanol. He said additional facilities are coming online and the higher targets will help ensure markets for the new gallons.

Each year, the EPA must set annual requirements for the volume of renewable fuels that oil refiners and other fuel companies must blend with their petroleum-based products. The 2005 policy has been a source of contention between powerful corn and oil lobbies in Washington.

The agency also has the power to exempt smaller refineries from the blending requirements.

The EPA, under Pruitt, has roughly tripled the number of exemptions granted to small refiners, angering Midwest farmers and their legislative backers who say he is effectively lowering the mandate unless he forces larger refiners to make up the difference.

Exemptions representing some 2.25 million gallons worth of biofuel were granted for 2017 and 2016, according to the EPA proposal. That includes waivers covering 1.46 million RINs in 2017, the EPA said.

Pruitt was considering a plan to shift the burden to larger refineries but the plan was scrapped after an outcry from the oil industry.

“The ethanol number isn’t worth the paper it’s written on so long as Scott Pruitt is granting small refinery exemptions left and right,” said Iowa Renewable Fuels Association (IRFA) executive director Monte Shaw.

The American Petroleum Institute’s downstream group director Frank Macchiarola said the EPA made the right call in not reallocating the waived volumes, but called on the agency to embrace much needed reforms.

“The agency’s latest proposal for 2019 is yet another example – in fact it’s an annual example of a broken government program that needs a comprehensive legislative solution that includes the sunset of the program,” he said.

The deadline to issue the finalized rule is Nov. 30.

— Reporting for Reuters by Chris Prentice and Jarrett Renshaw in New York.

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