In this episode of our "An Energized Exchange" podcast series, presented by the Energy & Natural Resources Industry Sector Group, attorneys Andy Kriha, Susan Lafferty and Zach Pilchen break down recent U.S. Supreme Court decisions in relation to the Clean Air Act (CAA), including U.S. Environmental Protection Agency v. Calumet Shreveport Refining and Oklahoma v. EPA. As the attorneys explain, these two rulings settle disagreements among federal courts over which venue is appropriate for challenging certain EPA actions under the CAA. They discuss the key takeaways from these decisions and what they signal for the future of where and how EPA actions can be disputed in court.
The speakers also contributed to a Holland & Knight alert on these decisions.
Podcast Transcript
Andy Kriha: Hi, and welcome to our latest episode of "An Energized Exchange." I'm Andy Kriha, an associate at Holland & Knight in our Washington, D.C., office. I'm joined today by Susan Lafferty, a partner in our D.C. office, and Zach Pilchen, senior counsel in our D.C. office. And today, we are going to be talking about two recently decided Supreme Court cases, EPA v. Calumet Shreveport Refining and Oklahoma v. EPA, that were decided together, that overlap and really help us understand where EPA actions are going to be allowed to be challenged in the future. So with that, Zach, I want to throw it over to you to get us started with the text and history of the venue provision of the Clean Air Act.
Zach Pilchen: Thanks, Andy. So the Clean Air Act has a unique venue provision, Section 307(b) of the Clean Air Act. This is a pretty dense piece of text. Actually at oral argument, Justice Jackson called it very complicated, and Justice Kavanaugh said it was difficult to apply in a coherent way, but the Supreme Court found their way through it in the end.
So the text of the statute sets up these basically three options for venue when someone is challenging an EPA action under the Clean Air Act. So for things like the National Ambient Air Quality Standards or National Emission Standards for Hazardous Air Pollutants or a list of other things in the Clean Act or for any, quote, "other nationally applicable regulation or final action taken," you go to the D.C. Circuit. Second, by contrast, for any local or regionally applicable action — and the act gives examples of State Implementation Plans under the National Ambient Air Quality Standards program, as an example — you go to the appropriate regional circuit court of appeals. And then there's an exception though. So this was an exception that was put in in 1977, some major amendments of Clean Air Act that added a new option for basically allowing EPA to channel certain local or regionally applicable actions to the D.C. Circuit. And it says, for local originally applicable actions, if such action is based on a determination of nationwide scope or effect, and if EPA, when the agency takes that action, finds that that is in fact applicable, then you have to go to the D.C. Circuit. So it's basically a way for EPA, so long as an action is based on a determination of scope or effect, to channel something that would normally be heard in a regional circuit to the D.C. Circuit. And there's a lot of different reasons why EPA might want to do that, particularly in the context of an air pollution statute, given that, as the Supreme Court has recognized in other cases, air does not obey state boundaries very well. Why you would want to get kind of a uniform nationwide decision on some matters and not have that patch work, and so this third provision gives this opportunity for the EPA to channel things into the D.C. Circuit.
So with that context in mind, this Supreme Court case — it was actually a pair of Supreme Court cases — had some interesting procedural background. And I'm going to throw it to Susan to explain what was that issue in the Renewable Fuels Standard case Calumet.
Susan Lafferty: Great, thanks, Zach. Yeah, we'll go all the way back to November 2023 when the U.S. Court of Appeals for the Fifth Circuit ruled against EPA regarding its April and June 2022 small refinery exemption denials for six small refineries in Calumet Shreveport Refining v. EPA. We will also refer to small refinery exemptions by the acronym SREs. Six refineries challenged EPA's denials that applied to compliance years from 2016 to 2021, and the court ruled mostly for the small refineries. First, the Fifth Circuit ruled that the challenged SRE denials were locally or regionally applicable, what Zach was just discussing. Therefore, the court concluded that correct venue was actually in the Fifth Circuit rather than being transferred to the D.C. Circuit where EPA was arguing that jurisdiction should lay. The court said it took EPA at its word when the agency said it considered each of the small refinery petitions on the merits and looked at individual refinery information in issuing the denials. And therefore, EPA's denials relied on refinery-specific determinations rather than determinations of nationwide scope or effect.
Second, after the venue question, the Fifth Circuit went to the merits, and the court examined the EPA SRE policy that had been articulated in late 2021 and then in April and June of 2022 when EPA issued the blanket SRE denials on a new statutory interpretation that number one, a small refinery's quote-unquote, "Disproportionate economic hardship must solely be caused by RFS compliance" — in other words, the RINs that are purchased for compliance purposes. And then second, that the price of RINs necessary to purchase for compliance purposes is not borne by a refiner, or ultimately borne by the refiner, but instead is passed through to each subsequent purchaser of the fuel until the fuel is actually dispensed at the pump. Therefore, EPA concluded that no small refiner could suffer the statutory requirement for disproportionate economic hardship. And that is the standard by which the Clean Air Act allows a small refiner, a small refinery, to qualify for an exemption.
So in ruling that EPA's denials were arbitrary and capricious, the court stated that EPA's rent price pass-through policy is, quote unquote, "so implausible as applied to petitioners that it cannot be ascribed to a difference in viewer agency expertise." The court went on to find that small refineries had justifiable reliance on the decades-long EPA practice of how they reviewed SREs. They relied upon the Department of Energy's scoring matrix as well as they found that there was a protectable property interest in the statutory right to an exemption if the small refinery could demonstrate disproportionate economic hardship. So the venue part of this case is what was appealed to the Supreme Court. So Zach, why don't you give us some background on the Oklahoma case?
Zach Pilchen: Thanks Susan. So the Clean Air Act creates, for air quality purposes, this program that primarily relies on state plans to implement federal National Ambient Air Quality Standards. And whenever EPA revises those federal National Ambient Air Quality Standards —or NAAQS, we call them — that kicks off a whole round of state submissions and deadlines for how those standards are going to be implemented in those states. And one of the requirements is that states prevent emissions from their state from significantly contributing to air quality problems in downwind states. We call this the interstate air pollution, interstate transport or Good Neighbor program under the Clean Air Act. And each state has a responsibility, in the first instance, to submit something that EPA can review to determine whether it actually is eliminating that upwind air quality problem. In 2015, EPA triggered that SIP process when it strengthened the NAAQS for ozone. And it received a number of state implementation plan submissions, and it looked at them and disapproved 21 states' plans simultaneously in one Federal Register notice for failing to comply with that Good Neighbor provision. That allowed the agency to then establish its own federal implementation plan for how to address ozone pollution, ozone transport under the new NAAQS.
Now, EPA aggregated all of these plans together in one Federal Register notice, and they applied this consistent four-step framework for how they looked at each of those 21 state plans. But there's a lot of technical analysis that's involved, a lot of modeling, a lot of very detailed information that has to be evaluated by the agency in making that decision. The agency, in simultaneously denying all 21 states' plans, said that these disapprovals would only be challenged in the D.C. Circuit.
And the agency actually took two arguments for why the D.C. Circuit was where the case had to be. They first said that this simultaneous action was a nationally applicable action in its own right and, therefore, the D.C. Circuit venue is mandatory. Alternatively, they said that if someone deemed any of this to be a local or regionally applicable action, then it nevertheless fell into that exception, which they were invoking, that it had nationwide scope or effect. EPA pointed to the consistent four-step framework that it used to help substantiate that. There was litigation that happened pretty quickly all over the country. A lot of people challenging that venue decision by suing in their local circuits rather than in the D.C. Circuit. And actually four out of five circuits held that EPA was incorrect, that these were local or regionally applicable actions. Only one circuit, the Tenth, agreed with EPA. And, you know, the court there held that the action was a single, nationally applicable action. You know, the agency, it looked at the action as the entire Federal Register package that was published on one single day. And because the agency had grouped all these individual state disapprovals into a single rule, that was the action. It had a broad geographic reach because it applied to so many states. The analysis that was used was consistent across states in terms of that four-step framework for determining disapproval or approval of the state plans, and accordingly held that venue actually should go in those challenges to the D.C. Circuit. And that's when the Supreme [Court] granted certiorari.
Andy, so you've heard all the background about the RFS case and the interstate transport case. What happened once this provision actually got to the Supreme Court?
Andy Kriha: Right, so as has been discussed fairly extensively already, this is a two-step process, right? Step one, is this a locally or regionally applicable action, or is this a nationally applicable action? And in both cases, the Supreme Court seemed relatively unbothered by this question. It thought that both were clearly locally or regionally applicable actions. And that makes sense to a certain extent, right? These are decisions that are acting on submissions of individual states or submissions of individual refineries. And they fundamentally apply to these individual entities that have made these applications. So then the court moved on to the second step of whether or not these actions are based on a determination of nationwide scope or effect. And so first, the court looked at the scope or effect language, and it found that a nationwide scope is something that applies throughout the entire country as a legal matter. Something that has nationwide effect is something that applies throughout the country as a practical matter. But what we really need to look at here is the "based on" language. And what was the basis of the determination? If this basis varied across these entities all over the country, then it's going to look a lot less nationwide, right? And if the basis of the determination is the same for all of these entities, then it starts to look a little bit more like a nationwide determination.
And so what the court really did in both cases was look into the methodology that EPA used and the factors that went into EPA's decision in each case. And if, you know, this was a single methodology that used a single set of inputs that applied to everybody equally, then it's a nationwide determination. Our case is going to the D.C. Circuit. Even if it's a single brand-new nationwide methodology, but you're inputting a lot of site-specific factors to actually make the determination of yes or no to a specific petition, then the court tells us that actually, this is not a nationwide action. This belongs in the regional circuit. And so what we saw was a divergence between the two different cases that kind of helps us draw where this line is. We saw on the example of Calumet where there was just this single determination that compliance costs are the only input and compliance costs, no matter where you're located, can always be passed through, because it's a national market. That's a nationwide determination. We're going to the D.C. Circuit. If we have these state plans where we're applying a single methodology, but now we input multiple factors, state-specific factors into those methodologies, then just because EPA grouped them all together and decided them at the same time doesn't make that a national action, right? There were still individual factors that each of these individual determinations are based on. And so we're going to end up going to the regional circuits.
And so Zach, can you tell us a little bit more then, with that framework in mind, how this applies to the state implementation plans that were at issue in the Oklahoma case and what happens next with that case?
Zach Pilchen: In Oklahoma, the Supreme Court unanimously held that EPA's coordinated disapprovals of all of those interstate transport SIPs, those were actually a big set of locally or regionally applicable actions. And that those individual actions were not based on a determination of nationwide scope or effect. The court rejected EPA's first argument that they were nationally applicable, and EPA had framed these as, you know, this is one big action affecting many states across many circuits. And the court said that, "Hey, I hear you, but Section 307 specifically lists SIP approvals as local actions." And this is just, you know, each of these individual actions is local and that disapproval is just the opposite side of the same coin as an approval. So these are local or regionally applicable actions. The fact that you packaged them all together and did them all simultaneously under one heading, that's not the appropriate unit for us to analyze. And the court also rejected the Tenth Circuit's proposition that these were nationally applicable actions because there had been this uniform statutory interpretation and four-step framework applied, and the court just explained that no, for determining at the outset whether something is national versus local or regional, you're looking at the geographic scope, not the reasoning. The reasoning is something that you kick in at the second step for local and regional about whether it was reasoning-wise, nevertheless based on something nationwide.
So having determined that these were local or regional actions, the court next looked at the EPA's backup: Are these nevertheless based on a determination of nationwide scope or effect such that, you know, EPA can shuttle these into the D.C. Circuit? And here, again, the court looked at EPA's reasoning for each action and somewhat contrasted it with the reasoning in Calumet. Whereas Calumet had a single legal theory or a couple of them and an economic theory that were essentially outcome-determinative, EPA here did have a single framework for evaluating SIPs, but there was this intensely factual detailed analysis that the EPA undertook to actually apply that framework, looking at modeling results, looking at cost of controls, looking at really complex state-specific, fact-specific issues. And because there was no big abstract legal or economic theory that was primarily driving the outcome, and instead it was ultimately turning on the facts that were relevant to each state, the court held that this was not quote-unquote, "based on a determination of nationwide scope or effect," even though there were some nationwide frameworks and considerations that were providing the skeleton for the analysis.
Susan, do you want to talk about how that test applied in the Calumet case?
Susan Lafferty: Yeah, sure. I'll first mention that there was also a circuit split for the small refinery exemption cases where several courts did send their cases directly to the D.C. Circuit and the D.C. Circuit also received some cases just directly. And in August 2024, six or eight months after the Fifth Circuit case, they ruled in a case called Sinclair Wyoming Refining Company LLC v. EPA. And they essentially came out with the same outcome on the merits, that the RIN pass-through policy was arbitrary and capricious and the court impermissibly narrowed the Clean Air Act authority that they had been given. So then the Fifth Circuit, the venue, cert was granted. And in the Calumet case, the Supreme Court ruled — it was a 7-2 decision — as Andy said, concluding that EPA's published finding of nationwide scope or effect for its SRE denials was proper because the local SRE petition denials were based on determinations of nationwide scope or effect.
So, you know, again, as was indicated earlier, the EPA's RIN pass-through policy was really seen to be this sort of one policy that was applied consistently nationwide. And there really wasn't significant reliance on the facility-specific factual issues. And so the court did say, yes, these are individual refineries and individual circuit jurisdictions, but the way EPA came up with this policy and applied its policy and just the policy itself was really, was such that it was applicable on a nationwide scope. So that means that the Fifth Circuit case is now vacated and EPA's denials are no longer in effect. And this is now remanded back to the Fifth Circuit. It will, you know, it could be, now, since we have the D.C. Circuit case that I just mentioned, it's not clear exactly procedurally how the cases will be determined from there, but clearly, if it's now sent over to the D.C. Circuit, the D.C. Circuit has already decided RIN pass-through policy from the Biden EPA is arbitrary and capricious, which means that ultimately all these petitions end up back at EPA to be reconsidered. And we find ourselves with, you know, the Trump EPA being basically told you've got to come up with a new, a new way of looking at all of these pending SREs, at least for all of the cases that were remanded, because of these two court hearings, court determinations. And that was, that's mostly the petitions from 2021 and earlier that were at, at issue here.
We think that, you know, EPA could still deny some or even all of the petitions, but they certainly couldn't do it based on the RIN pass-through policy. They will need to consider RFS compliance costs, which certainly largely, or maybe solely, will be based on the price of obtaining RINs to retire for your compliance costs. But the court, D.C. Circuit court, also said EPA should have looked more at the other statutory requirement to consider other economic factors, said that that is definitely broader than just mere RIN costs. So we will need to see what EPA decides to count as other economic factors.
One thing that the D.C. Circuit did not do that the Fifth Circuit did, was the D.C. Circuit said they, because they had determined that the policy was arbitrary and capricious, they were not going to look at the issue of whether or not the denials were impermissibly retroactive. So the Fifth Circuit had looked at that and said, yes, they are. So in theory, EPA could decide, at least again for these 2021 and earlier petitions that are at issue, they could decide to use some approach that is different from the DOE matrix that was in place when these small refiner petitions were filed. But if they use something other than the DOE matrix, and the small refiners don't like the outcome, i.e., they're denied again, we think there's a really high chance that they're going to end up in court. And one of the arguments would be that there was reliance upon the fact that when the small refinery submitted their petition, the DOE matrix was in practice and was the way that EPA would evaluate whether the small refinery was suffering disproportionate economic harm and deserved a waiver or not from rent obligations.
So we think EPA is certainly considering all of those factors and will most likely, we expect, this is speculation, but my expectation — we can see what Andy thinks — is that EPA would like to clear these petitions in the next few months. And whether or not they really take pains to keep it in the D.C. Circuit, so take pains to try and make sure their approach appears to satisfy that box for nationwide scope and effect. Or are they going to take the position, which is certainly what most small refiners would like, that each are literally individual adjudications, and while they're all looking at whether or not there's disproportionate economic harm, it's going to be a bit more bespoke, at least in all of the information going into whether it's the DOE matrix or another more generic methodology. And that could mean that any lawsuits that follow are filed in individual circuit courts rather than the D.C. Circuit. So EPA's got a lot to sort of wrestle with, I think, in the SRE cases because, while this one came out that D.C. Circuit was the proper venue, I don't think that that's a slam dunk for future actions. So, Andy, tell me where I went wrong.
Andy Kriha: No, I generally agree with that. I'll note on the timing issue, there are a lot of other factors at play as well that could each be their own podcast. So we won't go any deeper into them other than to say there's still some five-year-old litigation hanging out in the D.C. Circuit about how SRE petitions get factored into setting volume obligations under the RVO. That could be decided potentially by the end of the year, early next year. Obviously, EPA is going through the middle of a volume obligation rulemaking right now that also makes a handful of other small changes to the RFS. And so all that plays into timing, but I think at the end of the day I agree with you. They probably want to get these decisions on these backlogged SREs out sooner rather than later.
And yeah, in terms of what it means for SREs going forward, I think it is going to be a lot harder in the future for EPA to get SRE decisions into the D.C. Circuit if that's where they want them. I think historically, again, that probably is where they've wanted them, but different administrations may have different views. Just because the D.C. Circuit did note that there are several other factors other than RFS compliance costs that need to play into these decisions, that some of these factors are inherently going to be local market factors or highly likely to be local market factors. And so it's, I think it's going to be a tall order for EPA to shoehorn some of these decisions into something that looks like it's based on a determination of nationwide scope or effect. And I think that's true fairly broadly as we now transition into the impacts of this, beyond just these particular cases. I think this entire class of actions, things, you know, like SIPs, like SRE determinations, anything that's a petition where you're making determinations about individual entities, individual states, things like that, are going to be much harder to get into the D.C. Circuit going forward, notwithstanding this decision in Calumet. But, you never know. We'll see how EPA acts, and we'll see if possibly I'm wrong.
But Zach, I know you want to jump in. You definitely have thoughts about the broader implications of these cases as well.
Zach Pilchen: Well, I just want to stay on that RFS thing because that's a very interesting concept, that, you know, EPA makes this based on a determination of nationwide scope or effect, ends up in the D.C. Circuit, which tells it that it has to take a more particularized approach. Then I suppose on remand to the agency, it takes that particularized approach, and now it can't get back into the D.C. Circuit that told it needed to take that more particularized approach. That's just kind of an interesting quirk there on the RFS side.
Andy Kriha: Yeah, absolutely. And, you know, we'll see how it goes. I think this administration more than others might be OK with that, just on where we think they might come out on some of these determinations, but all remains to be seen.
Zach Pilchen: Yeah, I mean, you know, that's, I think something worth emphasizing here, is that, you know, there was some restrictions on EPA in this decision. You know, there was no, of course, without deference, there was no deference to the agency's interpretation at all on how to read the venue provision. In fact, if anything, there was an extreme amount of dictionary definitions in this case. I think six or seven different nouns and adjectives getting just interpreted pursuant to various dictionary definitions, which is kind of its own interesting view of this court's turn towards relying very heavily on textualism. But for EPA, even despite those limits, the agency still remains very much in the catbird's seat in terms of being able to somewhat at least control where its actions are challenged. So this whole D.C. Circuit exception that the court is talking about and whether something is based on a determination of nationwide scope or effect, that still relies on the agency to invoke that exception. So even local and regional actions that are based on the determination of nationwide scope or effect, if EPA doesn't choose to flip the lever, those still go to the local circuits. And in many cases, perhaps EPA will want to do that and prefer that as compared to some of the D.C. Circuit precedent.
At the same time, to the extent that the agency has some control that hasn't been cabined by courts over how it approaches some of these issues, it can also structure its determinations to either be nationally applicable or regionally applicable actions. And so I'll give you, you know, there are lots of examples. And, you know, in the last Trump Administration, for example, there was an action that was being challenged in the D.C. Circuit affecting many states that the court was prepared to hear oral arguments. And as part of the repeal efforts, these were startup/shutdown malfunction provisions in state plans, the first Trump Administration repealed them somewhat in piecemeal. Even though the legal theory was consistent throughout, the Trump Administration repealed just as to a few states here and there of creating somewhat smaller, cleaner, local or regionally applicable — clearly locally and regionally — applicable actions that nevertheless might have been based on nationwide determinations, but that weren't being invoked. And then you got those decisions in the Fifth Circuit and Eighth Circuit, I think.
This administration is embarking on a pretty ambitious deregulatory agenda. The administrator announced 31 deregulatory actions, although some of those actions are multiple actions. And close to half of those are things under the Clean Air Act. And so as they decide what they're doing and how they're doing it, they are likely to be thinking very much about this decision and down the road — where are these actions going to be challenged? And structuring some of their actions to account for that to the extent that they can.
Andy Kriha: Well, great. This was a fantastic discussion, and I know we'll all be following this closely as we see it play out and as more actions get challenged. And we'll keep you updated with more written alerts and more of these podcasts. So thanks for listening.
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