UPDATE: EPA denies 36 biofuel waivers
EPA announced Thursday it was denying 36 small refinery exemptions (SREs) — 31 that had been granted and five that had been rejected (link), opting to provide “compliance flexibility” on 31 of the 36 petitions. EPA said the 36 previously granted exemptions were wrongly authorized because any economic hardship suffered by the facilities was not directly caused by the RFS program itself. EPA said the petitions were granted in error as the law specifies that granting SREs has to be based on the refiners “disproportionate economic hardship” (DEH) and the statue also authorizes EPA to grant SREs “only where RFS compliance costs are the cause of the small refinery’s hardship.”
EPA provides compliance flexibility to affected parties. As for the compliance flexibility, EPA said it took the action as there are “extenuating circumstances that warrant an alternative compliance demonstration.” After making the original determination, EPA said that the small refineries “generally” sold their Renewable Identification Numbers (RINs) and/or used some portion of them to satisfy their 2019 obligations. In an accompanying document (link), EPA went into greater detail on their reasoning for the compliance flexibility. "The compliance flexibilities we are providing to select refineries are based on a separate and distinct analysis," EPA spokesperson Nick Conger said.
EPA said in the wake of the April 7 decision, the refiners on the 31 petitions that were denied either no longer had the RINs or did not have enough to meet their obligations. EPA estimated the combined obligations would amount to over 1.4 billion RINs.
EPA said they “treating the 2018 obligations as newly imposed obligations that are added to obligations for the earliest compliance year that has not yet closed (i.e., the 2019 compliance year).” While some have seized on that statement as indicating the 2018 RINs would be rolled into 2019, EPA said that since the obligations were created by the April 2022 decision, they were not rolled over from prior compliance years. EPA said that many small refineries already used 2018 RINs to satisfy up to 20% of their 2019 obligations.
EPA said that to require the 31 small refineries to comply with their 2018 obligations “would be impossible without EPA reopening the 2018 and 2019 compliance years for all obligated parties” and the process in its entirety would be “virtually impossible in practice.” That would involve EPA reopening the process for 2018 and 2019 compliance years, including setting new Renewable Volume Obligations (RVOs) for both years, etc.
A shortage of advanced biofuel carryover RINs also factors into the matter as there are not enough to allow the small refiners to show their compliance with those obligations. Plus, EPA said relying on carryover RINs to meet the 2018 obligations “would undermine the proposed standards for 2022, likely to the point of making them unachievable.”
If all 31 of the refiners were required to come into compliance “through the retirement of 2018 and 2019 RINs, most if not all of them would be unable to achieve compliance under the existing compliance scheme.”
Further, EPA argued that if the small refiners were required to acquire and retire the RINs now, “there would be no impact on renewable fuel production or demand in the 2018 compliance year.” And requiring them to acquire and retire the RINs would have a “detrimental effect” on the RIN market and could damage the Renewable Fuel Standard (RFS) program.
“To comply using this alternative approach, these parties must resubmit their annual compliance reports for 2018 and report their actual gasoline and diesel fuel production, actual annual RVOs, and zero RIN deficit carryforward into the following compliance year,” EPA said. “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.”
Some biofuel advocates took a dim view of the decision, which they said effectively absolved refiners of the need to acquire some 1.4 billion RINs. Geoff Cooper, chief executive of the Renewable Fuels Association, called the EPA’s decision “a hollow victory for the biofuels industry… 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,” Cooper said. “The so-called alternative compliance approach issued by EPA is really a no-compliance approach.”
EPA’s position: “Limited available RINs makes it impracticable for these 31 small refineries to meet their 2018 obligations under the existing compliance scheme,” EPA said. By contrast, the agency said, a drawdown of 1.4 billion credits would seriously jeopardize the ability of refiners to satisfy future quotas and could result in “serious harmful impacts” to the entire program. The denials could provide legal support for a separate EPA proposal to reject more than 60 other refinery requests for waivers from quotas spanning 2016 to 2021, the agency said. The agency said the new rejections were consistent with a 2020 decision by the 10th Circuit U.S. Court of Appeals that previous exemptions had been improperly granted because refineries’ economic hardship wasn’t tied to the RFS.
EPA’s decision has not set well with biofuel state lawmakers like Sen. Chuck Grassley (R-Iowa), who tweeted, “Once again EPA has let Big Oil off + is not FOLLOWING THE LAW/RFS 2days action screws over our farmers &biofuel producers Biden’s EPA is letting 31 of 36 small refineries off the hook w a workaround Instead of promoting biofuels w E15 yr round theyre working against farmers/IOWA.”
