D.C. Circuit Challenge to EPA’s Small Refinery Exemption Decisions Could Reshape Renewable Fuel Standard Waiver Policy

The Renewable Fuel Standard (RFS) small refinery exemption (SRE) program is once again at the center of high-stakes litigation. Competing legal challenges pending before the U.S. Court of Appeals for the D.C. Circuit could significantly influence how the U.S. Environmental Protection Agency (EPA) evaluates future waiver petitions under the Trump Administration and may further define the scope of the Clean Air Act’s “disproportionate economic hardship” standard.

In REH Co., LLC v. EPA, refiners and renewable fuel interests are attacking EPA’s 2025 decisions from opposite directions. The consolidated litigation challenges EPA’s resolution of approximately 191 small refinery exemption petitions covering multiple compliance years, testing the agency’s effort to revive SREs after the Biden Administration had categorically denied all pending petitions. The case involves EPA’s August and November 2025 decisions resolving 175 petitions from 38 refineries and 16 additional petitions from eight refineries.

Refiners Argue EPA Continues to Read the SRE Too Narrowly

In their July 10 opening brief, the refinery petitioners argue that EPA continues to apply an unlawfully restrictive interpretation of the statutory exemption despite prior court rulings rejecting similar approaches.

According to the refiners, EPA improperly denied or only partially granted most petitions by relying on an overly restrictive Department of Energy (DOE) scoring matrix that fails to faithfully implement the Clean Air Act’s small refinery exemption. The petitioners contend that EPA and DOE improperly evaluated refinery financial condition, misapplied hardship metrics, and failed to account for refinery-specific circumstances.

Perhaps most notably, refiners challenge EPA’s remedy when exemptions were granted for past compliance years. Rather than issuing replacement Renewable Identification Numbers (RINs), EPA returned expired RINs that could no longer be used for compliance. The refiners argue that these expired credits are effectively worthless and therefore do not constitute the “exemption” Congress required under the Clean Air Act. The brief characterizes the remedy as a “sham” that fails to alleviate the economic hardship the exemption is intended to address.

The refiners seek remand of EPA’s full and partial denials and ask the court to require EPA to provide meaningful relief where exemptions are warranted.

Biofuels Industry Argues EPA Granted Too Many Exemptions

Renewable fuel organizations, including Growth Energy and the Renewable Fuels Association, have taken the opposite position.

They argue that EPA unlawfully granted exemptions because refiners generally recover their RFS compliance costs through fuel prices and therefore cannot demonstrate the “disproportionate economic hardship” required by Section 211(o)(9) of the Clean Air Act. The biofuels petitioners seek vacatur of the exemptions EPA granted.

Their position largely echoes the rationale adopted by the Biden EPA, which concluded that refiners’ ability to pass through RIN costs eliminated any qualifying economic hardship.

The Case Tests EPA’s New SRE Framework

The litigation provides the first major judicial test of the Trump EPA’s revised approach to SRE petitions.

Rather than adopting the Biden Administration’s categorical denial policy, EPA revived the exemption process by relying heavily on a DOE-developed scoring matrix that evaluates refinery financial health and operational circumstances across numerous metrics. Based on those scores, EPA issued full exemptions, partial exemptions, or denials.

Although EPA granted relief in many cases, it denied or partially denied a substantial number of petitions, prompting challenges from both refiners and renewable fuel interests.

Prior Decisions Shape the Litigation

The case follows a series of significant judicial decisions limiting EPA’s discretion in administering the SRE program.

In HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association (2021), the Supreme Court rejected EPA’s position that refineries must have maintained uninterrupted exemptions since the inception of the RFS program to remain eligible for future exemptions.

More recently, the D.C. Circuit’s 2024 decision in Sinclair Wyoming Refining Co. v. EPA rejected the Biden EPA’s blanket denial of SRE petitions, concluding that the agency’s interpretation effectively read the exemption out of the statute. The court also criticized EPA’s reliance on a universal “cost pass-through” theory as inconsistent with the statutory framework. The refinery petitioners rely heavily on Sinclair, arguing that EPA continues to apply an unduly restrictive interpretation despite that decision.

Practical Implications

The D.C. Circuit’s decision could have significant implications for both the refining and renewable fuels industries, and the stakes are only heightened by a backlog and delay problem that extends beyond this litigation. HF Sinclair recently filed suit against EPA over its continued delay in deciding the company’s exemption petition, following a similar suit filed in June by the American Fuel and Petrochemical Manufacturers on behalf of the refining industry. EPA has stated that 42 small refinery exemption petitions remain pending, with a September 1 deadline to issue decisions, and HF Sinclair is just one of many refiners still waiting on relief from their RFS compliance obligations.

Among the principal issues before the D.C. Circuit in REH Co. are:

• Whether EPA’s DOE scoring methodology appropriately measures “disproportionate economic hardship.”
• Whether EPA may satisfy an exemption by returning expired RINs rather than providing economically meaningful relief.
• The continuing viability of cost pass-through theories in evaluating hardship.
• EPA’s authority to issue partial exemptions.
• The scope of judicial review over EPA’s individualized hardship determinations.

The outcome will likely establish important parameters for future SRE adjudications and may determine how aggressively EPA can administer the exemption program under the current administration. It also may influence the treatment of the significant backlog of historical waiver petitions and the way EPA structures remedies for exemptions granted after compliance obligations have already been satisfied.

This client alert is for general informational purposes only and does not constitute legal advice. For questions, readers should contact Michael R. Blumenthal or another member of Frantz Ward’s Environmental Practice Group.