GAO Hammers EPA on RFS Waiver Methods

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November 04, 2022

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by Todd Neeley (DTN Progressive Farmer) GAO Report: EPA Unable to Prove Small Refiners Pass RFS Costs to Consumers -- Not all small refineries are able to pass costs to comply with the Renewable Fuel Standard on to consumers at the pump, the Government Accountability Office said in a new report released on Thursday, calling into question EPA's method for determining whether refineries qualify for exemptions.

The GAO said EPA has not evaluated whether the pass-through idea is true and recommended the agency conduct further study.

The idea that small refineries recover costs to buy renewable identification numbers, or RINs, to comply with the RFS has been a hallmark of biofuel industry groups' contention that refiners don't experience disproportionate economic hardship from RFS compliance.

The RFS statute says refiners that produce 75,000 barrels per day or less qualify for exemptions if they can prove that compliance is an economic hardship.

The GAO report said exemption decisions for compliance years 2019 through 2021, for example, were based on an "EPA conclusion that small refineries do not experience disproportionate economic hardship from the RFS. This conclusion relies on a potentially flawed assumption -- that all parties pay and receive one price for the tradeable credits used to demonstrate compliance with the RFS."

The GAO said EPA has not analyzed whether the assumption is valid.

"GAO's analysis showed that small refineries have paid more on average for compliance credits than large refineries," GAO said. "Without reassessing its conclusion, EPA does not have assurance that its small-refinery exemption decisions are based on valid information."

2011 DOE STUDY

The U.S. Department of Energy in 2011 published a study that found small refineries might face challenges to comply with the RFS.

"For instance, the study states that small refineries tend to have less integration with other segments of the industry, such as oil production or blending and retail distribution," GAO said.

"Because of this, small refineries may have less access to capital needed to modify infrastructure in a way that would allow them to produce the renewable fuel needed to comply with the RFS. Overall, small refineries are less likely to have the infrastructure necessary to blend their own renewable fuel and are less likely to be associated with company-operated retail outlets, although small refineries are able to purchase RINs for compliance."

The GAO made seven recommendations including five to EPA and two to the DOE on how to improve the small-refinery exemption program.

That includes further studying the issue of whether small refineries can recover compliance costs through prices at the pump.

BIOFUELS INDUSTRY FURIOUS

The GAO's conclusions were met with stiff resistance from an SRE-weary biofuels industry.

From 2016 to 2020, the Trump administration granted 88 small-refinery exemptions totaling about 4.5 billion gallons in lost biofuels demand. Biofuels industry groups have fought and continue to fight in court regarding the EPA's handling of the SRE program.

...

In the summer of 2019, a bipartisan group of renewable fuel supporters in the House and Senate asked the GAO to investigate the management of the small-refinery exemption program by former EPA administrators Scott Pruitt and Andy Wheeler.

"Now, more than three years later -- and less than one week before the midterm elections -- GAO puts out a shoddy report that is friendly to oil refiners and purports to answer questions no one ever asked," (Renewable Fuels Association CEO Geoff) Cooper said.

"GAO's 'economic analysis' can only be described as a creative and obscure acrobatic routine," Cooper said. "And even after performing these high-flying gymnastics, GAO can only suggest that the cost of RFS compliance for small refiners might be 0.5% -- that's half of 1% -- higher than what larger refiners experience. In other words, GAO says small refiners -- who are raking in record profits -- can only pass on 99.5% of their RFS compliance costs."

Cooper said there is "mounting evidence" that refiners do not face disproportionate economic hardship caused by the RFS.

"All refiners -- large or small, merchant or integrated -- face the same compliance obligations and they all pass their RIN costs on to fuel blenders at the terminal. Period," Cooper said.

The GAO, however, agreed with biofuels producers that exemptions have caused harm to the industry.

"We have been saying this for years, and refiners have been claiming that SREs somehow had no impact on renewable fuel blending," Cooper said.

Growth Energy CEO Emily Skor said the GAO report "mischaracterizes" the history of RFS implementation.

"It confirms what we already know: Small refiners do not bear any disproportionate burden in complying with the RFS, and the RFS does not raise gas prices," she said in a statement.

"As written directly in the law, SREs may only be granted to refiners when RFS compliance causes 'disproportionate economic hardship.' It has been repeatedly shown that the RFS does no such thing, because refiners recover the costs of acquiring RINs."

While the GAO report is critical of EPA's conclusions about exemption requests, the GAO itself said its own analysis did not consider whether refiners face economic hardship from the RFS.

"In the past, SREs were improperly granted to refiners, not because of disproportionate economic hardship, but as a political tool to let the oil industry off the hook for its biofuel blending obligations," Skor said.

"This report does a disservice to the recent progress EPA has made since halting the abuse of SREs nationwide, in line with a key holding issued by the U.S. Court of Appeals for the 10th Circuit."

Read the GAO report here: https://www.gao.gov/…. READ MORE

Watchdog rebukes EPA, DOE over small refiner biofuel exemptions -- Congressional Republicans quickly seized on findings from the Government Accountability Office to argue the Biden administration has bungled the nation’s biofuel blending program. (Politico Pro)

Biofuel groups call GAO report on SREs shoddy, obsolete (Ethanol Producer Magazine)

RFA Calls GAO Report on SREs “Flawed and Obsolete” (Energy.AgWired.com)

EPA Rejects GAO’s Calls On RFS Refinery Waivers, Intensifying Battle (Inside EPA)

U.S. agency finds smaller oil refiners pay more for biofuel blending credits -document (Reuters)

Biofuel mandate waiver denials questioned in GAO report (Agri-Pulse)

RFA: ‘Shoddy’ GAO Report on RFS Small Refinery Exemptions a Gift to Refiners (Renewable Fuels Association)

Growth Energy Responds to GAO Report on Small Refinery Exemptions (Growth Energy)

AG AND BIOFUEL GROUPS DEFEND EPA DECISION IN COURT OVER SMALL REFINERY EXEMPTIONS (Brownfield Ag News)

US biofuel waiver denials may be 'flawed': Report (Argus Media)

RFA SLAMS GAO REPORT ON SMALL REFINERY EXEMPTIONS (Brownfield Ag News)

Biofuels industry slams GAO report on small refinery exemptions (Farm Progress)

GAO Recommends EPA and DOE Improve Decision-Making in Small Refinery Exemption Program (Bergeson & Campbell)

Excerpt from Ethanol Producer Magazine: The EPA began publishing data associated with SRE petitions in late 2018. Prior to that date, the agency made no data associated with the SRE program public. The publicly released data showed that the number of SRE approvals issued by the agency increased dramatically for compliance years 2016, 2017, and 2018. A number of those approvals were later overturned.

A dozen members of Congress in August 2019 sent a letter to GAO leadership urging the agency to examine the review and approval of SREs, including the U.S. Department of Energy’s viability scores for 40 SREs reviewed by the DOE for the 2018 RFS compliance year. The letter was prompted, in part, by then Energy Secretary Rick Perry’s acknowledgement that the U.S. EPA had approved at least one SRE waiver that conflicted with the DOE’s assessment. That assessment determined the DOE had no concerns about the refinery’s financial viability.

The GAO in January 2020 announced it would complete the requested review. The results of the review were released nearly three years later, on Nov. 3, 2022.

In its report, the GAO said its analysis determined that the EPA does not have assurance that its decisions about SREs are based on valid information. The report also claims that the EPA and DOE do not have policies and procedures specifying how they are to consult about and make exemption decisions.

The GAO is making seven specific recommendations as part it its review. First, the agency recommends that the EPA reassess its conclusion that small refineries recover their RFS compliance costs in the price of gasoline and diesel they sell. Second, the GAO recommends the DOE develop an approach for consulting on SREs that provides EPA with useful information on disproportionate economic hardship. In addition, the GAO says the EPA should identify and communicate what refineries would need to submit to demonstrate disproportionate economic hardship; develop policies and procedures for making SRE decisions; develop policies and procedures to ensure the agency meets statutory deadlines; and assess the effect of SRE decision timing on the benefit provided to small refineries, as well as the effect on fuel markets, and reconsider petition requirements. The DOE is also encouraged to develop policies and procedures for its consultation with EPA on SRE petitions. READ MORE