Court Opinion

ID: 9384931
Source: CourtListenerOpinion
Date Created: 2023-04-05 17:00:32.92706+00
Date Added: 2024-06-11T17:17:57.968501
License: Public Domain

PRECEDENTIAL

    UNITED STATES COURT OF APPEALS
         FOR THE THIRD CIRCUIT

           _______________________

                 No. 21-3218
           _______________________

        UNITED REFINING COMPANY,
                  Petitioner

                        v.

UNITED STATES ENVIRONMENTAL PROTECTION
                 AGENCY
          _______________________

    On Petition for Review of a Decision of the
        Environmental Protection Agency
         __________________________

           Argued December 14, 2022

    Before: RESTREPO, McKEE, and SMITH,
                Circuit Judges

              (Filed April 5, 2023)
Mark W. DeLaquil [Argued]
Baker & Hostetler
1050 Connecticut Avenue, N.W.
Suite 1100
Washington, DC 20036
       Counsel for Petitioner

Patrick R. Jacobi [Argued]
United States Department of Justice
Environmental Defense Section
999 18th Street
South Terrace, Suite 370
Denver, CO 80202
       Counsel for Respondent

              __________________________

                OPINION OF THE COURT
              __________________________

SMITH, Circuit Judge.

      Petitioner United Refining Co. (“United”) challenges
the Environmental Protection Agency’s (“EPA”) denial of
United’s request for a hardship exemption from EPA’s
Renewable Fuel Standard program. United chiefly argues that
EPA arbitrarily relied on what United characterizes as an
“accounting trick” that artificially inflated United’s running
average net refining margin and thus led EPA to deny United’s
                              2
exemption request. We are not persuaded that this
discretionary agency decision—or any other aspect of EPA’s
decision-making process that United now challenges on
review—provides a basis for setting aside EPA’s denial of
United’s exemption request. We will, therefore, deny United’s
petition for review.

I.     Background

       A. Statutory and Regulatory Framework

        The Renewable Fuel Standard (“RFS”) program
requires gasoline and diesel fuel refiners, blenders, and
importers (“obligated parties”) to ensure that a certain portion
of their annual transportation fuel production consists of
renewable fuels. Congress authorized the creation of the RFS
program in 2005 with the long term goal of shifting the United
States toward greater reliance on sustainable domestically-
produced energy. See Energy Policy Act of 2005, Pub. L. No.
109–58, § 1501, 119 Stat 594, 1067–76 (2005) (codified at 42
U.S.C. § 7545(o)). The statute set out annual target volumes of
renewable fuel production for each year through 2022. 42
U.S.C. § 7545(o)(2)(B)(i). For the purpose of the statute, the
category of renewable fuels includes biodiesel, biogas, ethanol,
and certain other fuels produced from biomass. Id. §
7545(o)(1)(B)–(F). Congress tasked EPA with enacting
regulations to bring about a gradual increase in the volume of
renewable transportation fuel sold in the continental United
States. Id. § 7545(o)(2)(A)(i).

                               3
          1. How the RFS program works

        Under the RFS program, EPA annually sets standards
dictating, in percentage terms, what component of each
obligated party’s transportation fuel production must consist of
renewable fuels. Id. § 7545(o)(3). For example, EPA’s 2019
standards required renewable fuels to comprise 10.97 percent
of each obligated party’s transportation fuel output. See
Renewable Fuel Standard Program: Standards for 2019 and
Biomass-Based Diesel Volume for 2020, 83 Fed. Reg. 63,740–
41 (Dec. 11, 2018). All obligated parties must meet the same
percentage threshold.

        EPA has created a credit-trading system to track
compliance with the RFS program using Renewable
Identification Numbers (“RINs”). See 40 C.F.R. § 80.1401; 42
U.S.C. § 7545(o)(5)(A) (authorizing creation of credit trading
program). A RIN is a unique serial number assigned to each
gallon of renewable fuel that is produced in or imported to the
United States. 40 C.F.R. § 80.1426. Each RIN remains
associated with a discrete gallon of renewable fuel until the
fuel’s owner “separates” the RIN from the fuel. Id. § 80.1429.
Once a RIN is separated from the fuel, it becomes a fungible
credit that an obligated party may redeem with EPA (or, in the
agency’s parlance, “retire”) or transfer to another private party.
Id. §§ 80.1427, 80.1429(c)–(e); 42 U.S.C. § 7545(o)(5)(A).

        An obligated party demonstrates compliance with the
RFS program by annually redeeming a quantity of RINs equal
to its renewable fuel obligations under the RFS program. 40
C.F.R. § 80.1427, 80.1451. An obligated party may generate
enough RINs to satisfy its RFS obligations simply by
                                4
producing renewable fuels or by purchasing and blending
renewable fuels into conventional transportation fuel. An
obligated party also may purchase additional RINs on the
market. If an obligated party produces or purchases more RINs
than it needs, it may sell the excess RINs to other private
parties. But RINs are time-limited, and “may only be used to
demonstrate [RFS] compliance . . . for the calendar year in
which they were generated or the following calendar year.” Id.
§ 80.1427(a)(6)(i).

          2. Exemptions for small refineries

       Recognizing that refineries with limited production
capacity lack economies of scale and so would face additional
hurdles in complying with the RFS program, Congress
authorized EPA to waive the requirements of the RFS program
for small refineries. 42 U.S.C. § 7545(o)(9). The statute defines
“small refinery” to mean any refinery with a maximum
production capacity of 75,000 or fewer barrels per day. Id. §
7545(o)(1)(K). Congress initially exempted all small refineries
from their RFS compliance obligations until 2011. Id.
§ 7545(o)(9)(A)(i). Congress tasked the Department of Energy
(“DOE”) with studying “whether compliance with [the RFS
program] would impose a disproportionate economic hardship
on small refineries.” Id. § 7545(o)(9)(A)(ii)(I). Congress
instructed EPA to consider the results of DOE’s study and, if
the agency identified potential disproportionate hardships on
small refineries, to extend the small refinery exemption beyond
2011. Id. § 7545(o)(9)(A)(ii)(II). In the alternative, Congress
authorized EPA to grant temporary discretionary exemptions
to any small refineries for whom compliance with the RFS

                               5
program would present a “disproportionate economic
hardship.” Id. § 7545(o)(9)(B)(i). During the period at issue
here, EPA had allowed the blanket exemption for all small
refineries to lapse and considered each individual refinery’s
hardship exemption petition on a case-by-case basis.

        The practical effect of a hardship exemption is that the
exempt refinery need not comply with EPA’s renewable fuel
standards for the year of exemption and so need not redeem
any RINs for that year. If a refinery has produced or purchased
RINs while its exemption petition is pending before the
agency, the exemption enables it to sell those unneeded RINs
to other parties. On the flip side, if a refinery has not produced
or purchased any RINs or has produced or purchased too few
RINs to meet its compliance obligations, the exemption spares
it the expense of purchasing RINs. In either event, a hardship
exemption represents a significant benefit to the refinery.

          3. How EPA evaluates small refinery exemption
             petitions

        To receive a hardship exemption, a small refinery must
submit to EPA a petition demonstrating “disproportionate
economic hardship.” 40 C.F.R. § 80.1441(e)(2). The petition
“must specify the factors that demonstrate a disproportionate
economic hardship and must provide a detailed discussion
regarding the hardship the refinery would face” if it were
forced to comply with the RFS program. Id. § 80.1441(e)(2)(i).
EPA regulations thus require the refinery to provide all
relevant data to the agency. But the regulations do not require
the refinery to support its petition with legal arguments, nor do

                                6
they prescribe any additional actions that the refinery may take
after submitting the exemption petition.

        EPA evaluates hardship petitions “in consultation with
the Secretary of Energy” and considers DOE’s research on the
economic hardships faced by small refineries as well as “other
economic factors.” 42 U.S.C. § 7545(o)(9)(B). EPA refers each
exemption petition to DOE, which in turn scores the petition
on a matrix (the “DOE Matrix”). The DOE Matrix aims to
capture DOE’s aforementioned findings on the RFS program’s
economic effects on small refineries. The DOE Matrix scores
a refinery along several different metrics, such as the refinery’s
production capacity, its financial condition, its access to capital
and other lines of business, the effect of state regulations on its
operations, and the effect of the RFS program on the refinery’s
operations and competitiveness. DOE scores each metric
between 0 and 10 and then aggregates the scores to yield two
overarching indices: one index designed to capture the
disproportionate structural impact of regulation on the refinery
and one index designed to capture the refinery’s business
viability. DOE recommends that EPA grant a full exemption to
refineries earning a score greater than 1 on both indices, a 50
percent exemption to refineries earning a score greater than 1
on one index, or no exemption to refineries that earn a score
less than 1 on both indices. After reviewing DOE’s
recommendation, EPA decides whether to grant the exemption
petition and then notifies the refinery of its decision. Unlike
DOE, EPA has construed § 7545 to authorize only a full
exemption or no exemption and thus does not grant 50 percent
exemptions even when DOE recommends that it do so. For
example, in the 2018 compliance year, EPA granted full

                                7
exemptions to all refineries for which DOE recommended a 50
percent exemption.

        Of particular relevance to this case, one metric that DOE
considers when evaluating hardship petitions is the refinery’s
“relative refining margin.” This metric compares the refinery’s
average net profit per barrel for the previous three compliance
years against the industry average net profit per barrel over the
same period. A refinery whose net profit per barrel was above
the industry average receives a score of 0; a refinery whose net
profit per barrel was positive but below the industry average
receives a score of 5; and a refinery whose net profit per barrel
was negative receives a score of 10.

       B. United’s Petition

       United operates a small refinery in Pennsylvania and
produces fuel that it sells in Pennsylvania, New York, and
Ohio. United has periodically sought and received hardship
exemptions since the creation of the RFS program, most
recently in the 2017 and 2018 compliance years. United
acquired 2017 and 2018 RINs before EPA granted its
exemption petitions for those years. EPA delayed granting the
2017 and 2018 exemption petitions, and United retained its
RINs while its petitions were under review. EPA eventually
granted United’s 2017 and 2018 exemption petitions in early
2019. United then sold its 2017 and 2018 RINs.

       In 2019, as in previous years, United sought an
exemption from the requirements of the RFS program. But
rather than accepting the data in United’s petition at face
value—as it apparently had done in previous years—EPA
                               8
responded by asking United to “let [EPA] know how United
[had] accounted for the financial benefit of its 2018 RFS
exemption.” J.A. 249. Specifically, EPA asked United to
explain whether it sold “any 2017 or 2018 RINs that were
[subject to] the [2018] exemption, and if so, where in the
margin spreadsheet were the sale proceeds included.” J.A. 249.

       In response, United submitted an amended financial
statement which explained that revenue from RINs generated
in a particular year was included in net revenues for that year,
even if the RINs in fact were sold in a later calendar year. The
revised financial statement listed United’s proceeds from the
sale of 2017 and 2018 RINs as separate line items in the
financial statements for 2017 and 2018, respectively. United’s
updated accounting resulted in higher net refining margins for
2017 and 2018 as compared to United’s originally submitted
financial statement, but a lower net refining margin for 2019.

       Notably, the DOE Matrix considers a refinery’s average
refining margin for the three years before the year of the
petition, which in this case meant looking to United’s (high)
margins from 2016 through 2018 and disregarding its (low)
2019 margin. As a result, United’s amended figures showed a
three-year refining margin that was higher than the margin in
United’s original submission and, crucially, higher than the
industry average for that period.

       EPA referred United’s amended submission to DOE,
which evaluated United’s submission under the DOE Matrix.
Three of DOE’s scoring determinations are relevant to this
appeal. First, DOE found that United’s amended financial
statements placed its three-year refining margin above the
                               9
industry average and therefore warranted a score of 0 for that
metric. Second, DOE assigned United scores of 0 for the access
to capital and other lines of business metrics because United is
a direct subsidiary of Red Apple Group, a large private
corporation with diversified business activities. Finally, DOE
assigned United a score of 0 for the state regulations metric
because United is located in Pennsylvania, a state that does not
impose exceptionally restrictive regulations on refineries.
Based on these scores and United’s scores on the rest of the
DOE Matrix, DOE at first recommended that United not
receive a hardship exemption.

      DOE subsequently changed its recommendation to
account for the effects of COVID-19. Recognizing that the
pandemic caused widespread disruption to global energy
markets, DOE updated its recommendation and suggested that
United receive a 50 percent exemption for the 2019 compliance
year.

       EPA was less forgiving—it denied United any
exemption. Though EPA noted that DOE’s updated
recommendation accounted for the effects of COVID-19, EPA
declined to consider events “that did not emerge until 2020, the
year after the petition in question.” J.A. 11 n.3 (emphasis in
original). EPA accepted the rest of DOE’s recommendation
and determined that United was not entitled to a hardship
exemption for the 2019 compliance year.

II.    Jurisdiction

        United timely filed its petition for review. We have
jurisdiction to review EPA’s order pursuant to 42 U.S.C. §
                              10
7607(b)(1). Venue is proper because EPA’s order pertained to
United’s refinery in Pennsylvania. See 42 U.S.C. § 7607(b)(1).

III.   Discussion

       We review EPA’s action applying the Administrative
Procedure Act (“APA”), under which we will set aside EPA’s
order if it was “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).
Under this standard, we ask whether the agency has “failed to
consider an important aspect of the problem,” whether the
agency’s decision is “unreasoned,” or whether the agency has
“relied on factors which Congress has not intended it to
consider.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). We also ask
whether the agency’s decision is supported by sufficient
“relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.” Biestek v. Berryhill, 139 S.
Ct. 1148, 1154 (2019) (cleaned up). But we may not “substitute
[our] judgment for that of the agency,” and will uphold the
agency’s decision so long as it was reasonable. Citizens to
Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971).
Here, none of United’s challenges to the denial of its 2019
exemption petition is persuasive under the APA’s narrow
standard of review.

       A. EPA reasonably attributed RIN sale revenue to
          the year of generation rather than the year of
          sale.

     The gravamen of United’s petition for review is that
EPA acted arbitrarily and capriciously by attributing United’s
                               11
proceeds from selling 2017 and 2018 RINs to the years in
which the RINs were generated even though United sold the
RINs in 2019. On review before this Court, EPA argues that
United forfeited this challenge by failing to object to EPA’s
accounting methodology during the proceeding before the
agency. We reject EPA’s forfeiture argument and so consider
United’s objection on the merits. But on the merits, United’s
challenge fails.

            1. United did not forfeit its objection to EPA’s
               accounting method.

        To start, United did not forfeit its objection to EPA’s
decision to attribute RIN sale revenue to the year of generation
because RFS exemption petitions do not require issue
exhaustion. As a general matter, “federal appellate courts do
not consider issues that have not been passed on by the
agency,” as it would be unfair to force the agency to litigate
issues that it did not have the opportunity to address in the first
instance. Sw. Pa. Growth All. v. Browner, 121 F.3d 106, 112
(3d Cir. 1997) (cleaned up). But this is only a “general rule.”
United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37
(1952). Most “requirements of administrative issue exhaustion
are . . . creatures of statute” or agency regulations. Sims v.
Apfel, 530 U.S. 103, 107 (2000). And where, as here, there is
no statutory or regulatory requirement that a litigant raise an
issue in front of the agency before seeking judicial review of
that issue, the decision of whether to impose an issue
exhaustion requirement “is a matter of sound judicial
discretion.” Cerro Metal Prods. v. Marshall, 620 F.2d 964, 970
(3d Cir. 1980).

                               12
        When deciding whether to impose an issue exhaustion
requirement in the absence of a statutory directive, we look to
“the nature of the claim presented,” the “characteristics of the
particular administrative procedure” at issue, and the
competing individual and governmental interests at play. Cirko
ex rel. Cirko v. Comm’r of Soc. Sec., 948 F.3d 148, 153 (3d
Cir. 2020) (cleaned up). But we do not weigh these factors
equally, and Supreme Court precedent teaches that the
characteristics of the proceeding—that is, whether the
proceeding is more like a common law adversarial proceeding
or a civil law inquisitorial proceeding—predominate. See Carr
v. Saul, 141 S. Ct. 1352, 1360 (2021) (treating the
characteristics of the proceeding as dispositive). This stands to
reason, as “[t]he basis for a judicially imposed issue-
exhaustion requirement is an analogy to the rule that appellate
courts will not consider arguments not raised before trial
courts.” Sims, 530 U.S. at 109. And “[t]he critical feature that
distinguishes adversarial proceedings from inquisitorial ones is
whether claimants bear the responsibility to develop issues for
adjudicators’ consideration.” Carr, 141 S. Ct. at 1358.

       Here, the character of the hardship exemption
proceeding tilts decidedly against imposing an issue
exhaustion requirement, as a refinery petitioning for RFS
exemption bears no responsibility—indeed, has no
opportunity—to develop legal issues in front of the agency. A
refinery bears the initial burden of submitting a petition that
“specif[ies] the factors that demonstrate a disproportionate
economic hardship” under the DOE Matrix and discusses “the
hardship the refinery would face in” complying with the RFS
program. See 40 C.F.R. § 80.1441(e)(2)(i). But this

                               13
information is purely factual, and a refinery need not submit
any legal arguments in support of its petition. After the refinery
has submitted the petition, the ball is in EPA’s court: EPA
develops the administrative record, coordinates with DOE to
assess the submission under the DOE Matrix, reviews DOE’s
recommendation, and decides whether to grant or deny the
requested exemption. At no point in the proceeding does EPA
ask for oral or written arguments on whether the refinery ought
to be exempt from the RFS program. Indeed, United avers that
it was unaware of EPA’s choice of accounting methodology
until EPA issued a final decision denying United’s exemption
petition.

        In this respect, RFS exemption petitions are similar to
the Social Security ALJ proceedings that the Supreme Court,
like this Court, determined to be non-adversarial. Like a small
refinery seeking exemption from the RFS program, a Social
Security claimant bears the initial burden of submitting a form
that articulates the basis for relief. Carr, 141 S. Ct. at 1359.
And as with an RFS exemption petition, the rest of a Social
Security appeal is “driven by the agency rather than the
claimant” insofar as the agency adjudicator bears the burden of
developing issues. Cirko, 948 F.3d at 156. To be sure, an RFS
exemption request is longer and more factually complex than
the “roughly three lines” available for a Social Security
claimant to state his case. Carr, 141 S. Ct. at 1359. But length
alone does not alter the fundamental balance between a
petitioner who is responsible for providing initial data and an
agency that is, thereafter, responsible for everything else. Thus,
RFS exemption petitions, no less than Social Security appeals,

                               14
are inquisitorial in character and do not give rise to an issue
exhaustion requirement.

          To be sure, certain other factors counsel for requiring
issue exhaustion in the RFS exemption petition context. Most
notably, the nature of United’s claim—an APA challenge to
the reasonableness of the agency’s action—is of the sort that
EPA ought to pass on in the first instance. While “agency
adjudications are generally ill suited to address structural
constitutional challenges,” Carr, 141 S. Ct. at 1360, they are
generally well suited to address challenges to agency actions
that “involve[] exercise of the agency’s discretionary power or
. . . allow the agency to apply its special expertise,” McCarthy
v. Madigan, 503 U.S. 140, 145 (1992). Nor would it have been
futile for United to challenge EPA’s accounting methodology
in the context of the agency proceeding, as it is well within
EPA’s authority to reconsider its approach to adjudicating RFS
exemption petitions. See Carr, 141 S. Ct. at 1361 (noting that
“futility exception to exhaustion requirements” applies when
adjudicator is “powerless to grant the relief requested”). In a
different context, these factors might “tip the scales” in favor
of imposing an exhaustion requirement. Id. at 1360. But they
do not overcome the basic unfairness of preventing a regulated
party from litigating an issue that it had neither the obligation
nor the opportunity to raise during the agency proceeding.

        We therefore hold that United has not forfeited its
ability to challenge EPA’s method of accounting for RIN sale
proceeds.

                               15
           2. Attributing RIN sales to the year of generation
              was reasonable.

        As a threshold matter, we are not convinced that EPA
ever decided to attribute United’s RIN sale revenue to the year
of generation rather than the year of sale. EPA merely asked
United to explain “how United [had] accounted for the
financial benefit of its 2018 RFS exemption,” including
whether United sold “any 2017 or 2018 RINs” and “where in
the margin spreadsheet” it had accounted for proceeds from
those sales. J.A. 249. Rather than provide narrow clarifying
answers to the questions posed, United chose to respond to this
request for explanation by submitting an updated financial
statement. And it was this amended financial statement that,
for the first time, “assume[d] that RINS associated with” a
given calendar year “were sold and included in net revenue in”
that year. J.A. 415. Thus it was United, not EPA, that decided
to attribute RIN sale proceeds to the year of generation. In this
respect, EPA’s reliance on United’s recalculated financial
statement seems less a choice of accounting methodology than
a decision to take the refinery’s most up-to-date submission at
face value.

        In any event, it was reasonable to determine that
attributing RIN sale revenue to the year of generation would
provide the best picture of a refinery’s economic situation. As
our sister circuits have recognized, “EPA retains substantial
discretion to decide how to evaluate hardship petitions.”
Hermes Consol., LLC v. E.P.A., 787 F.3d 568, 575 (D.C.
Cir. 2015); see also Lion Oil Co. v. E.P.A., 792 F.3d 978, 983
(8th Cir. 2015). EPA faced a choice between attributing RIN

                               16
sale proceeds to the year in which the RINs were sold or the
year in which the RINs were generated. The former accounting
method provides a more accurate depiction of a refinery’s
actual annual cash flows. But the latter accounting method,
which generally attributes the income from RIN sales to the
same year in which the refinery incurred costs to generate those
RINs, provides a more accurate depiction of the refinery’s
financial health if it were excluded from the RFS program in
the first instance. Either insight strikes us as a defensible way
to determine whether compliance with the RFS program
“would impose a disproportionate economic hardship” on the
refinery, 42 U.S.C. § 7545(o)(9)(A)(ii)(I), as the statute
instructs EPA to do, id. § 7545(o)(9)(B)(ii). And “it is the
agency’s prerogative to choose between two competing,
justifiable . . . considerations.” Stardyne, Inc. v. N.L.R.B., 41
F.3d 141, 148 n.6 (3d Cir. 1994).

        At bottom, United’s argument hinges on an assumption
that the original financial statement that it submitted to EPA—
which attributed RIN sale revenues to the year of sale rather
than the year of generation—represented the refinery’s
authentic financial situation without agency meddling. But one
could equally argue that the opposite is true. United’s original
financial statement reflected the fact that United used some of
its 2017 and 2018 income to purchase RINs—themselves a
creature of EPA regulations—and that United then realized
income from selling those RINs in 2019. In this respect, even
United’s original financial statement reflected the effect of
EPA regulations on the firm’s financial situation. By contrast,
United’s updated financial statement reallocated certain line
items to approximate the refinery’s balance sheet in the

                               17
absence of the RFS program and thereby provided an insight
into the refinery’s financial situation in a pre-regulation state
of nature. At the very least, United’s updated financial
statement was no less authentic a depiction of the refinery’s
financial health than was its original financial statement.

       EPA’s approach also enabled “apples-to-apples”
comparisons among small refineries. Broadly speaking, a small
refinery must choose between two strategies for RFS
compliance. On the one hand, the refinery can produce or
purchase RINs throughout the year with the plan of selling
those RINs if and when EPA grants its exemption petition. On
the other hand, the refinery can hold off on producing or
purchasing RINs and hope to purchase any necessary RINs if
and when EPA denies its exemption petition. A refinery
adopting this latter strategy would have comparatively higher
margins in earlier years due to its lack of RFS compliance costs
and lower margins in subsequent years due to its lack of
income from RIN sales. A fair and consistent outcome requires
EPA to adopt some sort of methodology to standardize profits
between otherwise similarly situated small refineries that
happen to have adopted divergent compliance strategies. In
allocating United’s RIN sale proceeds to the year of
generation, EPA has done just that.

       Nor did attributing RIN sales to the year of generation
prevent a fair comparison between United’s margins and the
overall industry average. To be sure, most refineries are not
exempt from the RFS program and so must bear the full cost
of RFS compliance each year. Like those non-exempt
refineries, United incurred RFS compliance costs during 2017

                               18
and 2018. But unlike those refineries, United was able to offset
its compliance costs by selling 2017 and 2018 RINs after
receiving RFS exemptions for those years. EPA reasonably
viewed this benefit as a relevant consideration when assessing
how United’s refining margin—a heuristic for the refinery’s
overall financial stability—stacked up against the competition.

        To the extent that EPA’s request for United to account
for its proceeds from RIN sales represented a change in agency
practice, any such change was permissible. EPA has never
promulgated a rule on how to account for RIN sales in
calculating refining margins. Nor was EPA obligated to issue
such a rule or guidance in advance, as agencies retain “the
informed discretion” to implement policy via discrete
adjudications rather than broad-based rulemaking. Sec. &
Exch. Comm’n v. Chenery Corp., 332 U.S. 194, 203 (1947).

       EPA faced a decision between two possible methods of
carrying out its statutory directive to safeguard small refineries
from any “disproportionate economic hardship” imposed by
the RFS program. 42 U.S.C. § 7545(o)(9)(A)(ii)(I). The
agency’s choice—to attribute United’s RIN sale proceeds to
the year in which the RINs were generated—was a reasonable
means of accomplishing that task. We ask no more of an
agency charged with administering a broad and complex
statutory program, and will not disturb EPA’s decision.

                               19
      B. EPA’s denial of United’s exemption petition was
         not otherwise arbitrary or capricious.

           1. EPA need not have considered the effect of the
              COVID-19 pandemic.

       As the D.C. Circuit has explained, “EPA retains broad
discretion to choose which economic factors it will (and will
not) consider” in evaluating an RFS exemption petition.
Hermes, 787 F.3d at 577 (cleaned up). And here, EPA
reasonably exercised that discretion by declining to consider
an economic factor that postdated the compliance year in
question.

        Nor did EPA act arbitrarily in declining to follow
DOE’s recommendation to consider the effect of the COVID-
19 pandemic. To be sure, Congress instructed EPA to
“consult[]” with DOE when evaluating RFS exemption
petitions. 42 U.S.C. § 7545(o)(9)(B)(ii). But as our sister
circuits have recognized, EPA need not “blindly adopt” DOE’s
recommendations. Ergon-W. Va., Inc. v. E.P.A., 896 F.3d 600,
610 (4th Cir. 2018) (quoting City of Tacoma v. FERC, 460 F.3d
53, 76 (D.C. Cir. 2006)).

          2. EPA reasonably relied on DOE’s evaluation of
             United’s hardship petition.

       United argues that EPA mistakenly relied on DOE’s
analysis of United’s business viability. Because this action
proceeds against EPA and not against DOE, our review is
limited to whether EPA’s reliance on DOE’s evaluation was
arbitrary or capricious, not whether DOE’s evaluation of
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United’s hardship petition was itself arbitrary or capricious.
See Ergon-W. Va., 896 F.3d at 610. In any event, “the two
inquiries overlap” given that the reasonableness of DOE’s
recommendation necessarily informs our analysis of whether
EPA reasonably relied on that recommendation. City of
Tacoma, 460 F.3d at 75.

        United specifically challenges EPA’s reliance on three
of DOE’s determinations. First, United argues that, because it
sells fuel in New York and Ohio and not just in Pennsylvania,
the agencies should have considered how consumer
preferences and fuel regulations in New York and Ohio impact
United’s business. Second, United argues that the agencies
should have given more weight to certain expenses that United
incurred from ongoing maintenance projects and an
unanticipated shutdown of operations. Third, United objects to
the agencies’ decision to attribute to United the capital
characteristics and business diversification of United’s parent
corporation.

       These arguments are unpersuasive. United does not
argue that EPA or DOE “entirely failed to consider” the effect
of neighboring state regulations or unexpected business events
on a refinery’s profits, nor that the capital characteristics of a
refinery’s parent corporation are a “factor[] which Congress
has not intended [EPA] to consider.” State Farm, 463 U.S. at
43. Rather, United objects to the manner in which the agencies
chose to evaluate those factors when considering United’s
exemption petition. But we may not “substitute [our] judgment
for that of the agency” and instead may ask only whether the
agency’s decision was reasonable. Citizens to Pres. Overton

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Park, 401 U.S. at 416. And all of the agency decisions that
United challenges satisfy that deferential standard.

       First, EPA reasonably ignored the effect of New York
and Ohio market preferences and regulations on United’s
business. DOE has chosen to limit its consideration of state
regulations and market preferences to those of the state in
which the refinery is located. This decision hardly strikes us as
contestable given the administrative complexity that inevitably
would ensue if DOE and EPA were to consider the regulations
and market preferences of every state in which a refinery’s
products are sold.

       Nor was it unreasonable for DOE and EPA to disregard
United’s 2019 expenses associated with a capital project and
an unplanned shutdown. DOE reasonably determined that
United’s ongoing upgrades and maintenance were not the sort
of short-term crisis that ought to bear on whether a refinery
receives an RFS exemption. And DOE justifiably declined to
consider the losses from United’s brief unplanned shutdown
in 2019 after determining that those losses were immaterial.
EPA’s reliance on these assessments likewise was reasonable.

        Lastly, EPA reasonably considered the capital
characteristics and business diversification of United’s parent
corporation when evaluating United’s access to capital and
lines of business. United is a direct subsidiary of a large private
refining company that owns several gas stations, produces
other types of fuel along with transportation fuel, and ranks
among the largest privately held corporations in the country.
Because United “does not have a public debt rating” of its own,
DOE sensibly looked to the parent company’s credit rating and
                               22
access to capital. J.A. 421. And because United’s parent
company has several diversified lines of business, DOE treated
United as having access to upstream and downstream lines of
business and further determined that United was not “solely
dependent on transportation fuel margins.” J.A. 422. In short,
it was reasonable for DOE and EPA to treat a wholly owned
subsidiary as having the capital characteristics and diversified
business of its parent company.

IV.    Conclusion

       For the foregoing reasons, we will deny United’s
petition for review.

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