On court remand, US EPA denies 36 RFS exemptions for small refineries

The Environmental Protection Agency April 7 reversed a batch of Trump-era decisions on economic hardship exemptions from biofuel blending mandates, denying 36 small refinery exemptions for the 2018 Renewable Fuel Standard compliance year, of which 31 had previously been granted.

The announcement follows a Dec. 8 order from the US Court of Appeals for the District of Columbia Circuit that ended litigation biofuel stakeholders and refiners brought upon the EPA's request for voluntary remand and directed the agency to "reconsider its positions" on the 2018 petitions and potentially offer "a more robust explanation for the decisions" (Sinclair Wyoming Refining v. EPA, 19-1196).

"Today's decision changes and remedies EPA's prior approach to SRE decisions, under which EPA found basis to grant hardship exemptions where no hardship from RFS compliance existed," the EPA said.

The agency said it relied on an updated interpretation of its Clean Air Act authority pertaining to SREs, consistent with a 2020 10th Circuit ruling.

While the Supreme Court last year reversed the 10th Circuit's finding that small refineries that had not claimed an SRE continuously since 2010 were ineligible to receive one now, the high court did not address the lower court's holding that refiners had to demonstrate that RFS compliance was the cause of their hardship.

"After reviewing more than a decade of RFS market data, public comments on a proposal EPA issued in December 2021, and confidential information submitted by petitioners, EPA concluded that none of the 36 2018 SRE petitions demonstrated hardship caused by compliance with the RFS program," the agency said.

SREs were created under the RFS as a safety valve for refineries with a capacity of less than 75,000 b/d, allowing them to apply for waivers to the RFS if meeting the biofuel-blending requirements would create disproportionate financial hardship.

Alternate compliance approach

Citing "extenuating circumstances," including that 31 of the SRE petitions at issue were granted in August 2019, the EPA announced an alternate compliance approach for the 31 affected small refineries.

That approach, the agency said, will allow those refineries to "meet their new 2018 compliance obligations without purchasing or redeeming additional RFS credits," called RINs.

Specifically, "this alternative approach allows the 31 small refineries to resubmit their 2018 RFS annual compliance reports with zero deficit carryforward and no additional RIN retirements," the agency explained in supplemental materials. "EPA recognizes that this will create the appearance of a RIN shortfall in the annual RFS compliance data EPA compiles and EPA will explain this on its website. Through this compliance action, that shortfall is satisfied, and no further action will be required by the 31 small refineries."

Prices of D6 2022 ethanol RINs were assessed by S&P Global Commodity Insights at $1.2250/RIN ahead of the news and were trading at $1.16/RIN afterward. Similarly, D4 2022 biodiesel RINs fell 4.75 cents after the news to $1.56/RIN, S&P Global data shows.

Renewable Fuels Association President and CEO Geoff Cooper called EPA's actions on the 2018 petitions a "hollow victory," as he said the alternative compliance approach EPA offered would be better termed a "no-compliance approach.

"Unfortunately, this action does nothing to replace the 1.4 billion gallons of RFS blending requirements that were ripped away by the Trump administration's reckless refinery waivers," Cooper said in a statement. "EPA admits that those exemptions never should have been granted in the first place, but now is sweeping them under the rug and letting the refiners who got these exemptions off the hook."

Adhering to the courts

Washington insiders expect the analysis the EPA put into the court remand to bolster prospects that the agency holds to its Dec. 7 proposal to deny 65 pending SRE applications. The agency's website currently denotes a total of 69 pending applications, dating back to 2016 but with the bulk stemming from 2019 and 2020.

Pressed a day earlier by lawmakers about providing RFS compliance relief to help rein in high gasoline prices, EPA Administrator Michael Regan pushed back on assertions that the RFS program was adding between 30 cents/gal and 50 cents/gal to prices at the pump.

Noting the 10th Circuit's ruling on SRE eligibility, Regan April 6 said "the agency has taken a very close look at SREs, what flexibilities we have and what we've learned from the past in terms of what the courts have told us we can and cannot do."

Small oil refineries have argued that they are not on the same footing in terms of RFS compliance as large, integrated oil companies that can export fuel to avoid the RFS altogether or generate excess RFS compliance credits, called RINs, by blending others' fuel and selling those excess RINs in the unregulated $30 billion RIN market. Without SREs, they contend they could go bankrupt or may have to shut down to stay on the right side of the law.

Refining group American Fuel & Petrochemical Manufacturers stressed that RINs for 2018 simply don't exist and that the EPA should not take any action that contributes to a further emptying of the RIN bank.

"EPA's blanket denial of relief for small refineries is a political decision that contradicts Congress's design for the RFS," AFPM Vice President of Government Relations Geoff Moody said in a statement. "We are deeply disappointed in this and in the precedent it sets for small refineries experiencing hardship and the communities and regions that rely on these facilities for energy security."

Biofuel advocates, on the other hand, accused the Trump administration of being overly generous with doling out waivers to the oil industry at the expense of farmers. They have regarded refiners' claims as overhyped and assert that any hardships tied to RFS compliance were of those companies' own doing.