Advanced BioFuels USA – Renewable Fuels Program Hobbled by Small Refinery Exemptions

by William C. Schillaci (EHS Daily Advisor) The EPA’s implementation of the small refinery exemption is one of the more disputed aspects of the federal Renewable Fuel Standard (RFS) program. The major question associated with the exemption appears to be how does the Agency make decisions to approve or deny applications for exemptions?

Under President Donald Trump, the EPA has been exceedingly generous in approving exemptions that temporarily remove small refineries from the Renewable Volume Obligations (RVO) with which other refineries must comply.

The exemptions effectively remove a large amount of renewable fuel from the market and have major repercussions for the nation’s farmers, according to the head of one ethanol association.

The CAA (Clean Air Act) also allows the EPA to waive the RFS volume requirements based on an Agency determination that severe economic or environmental harm is occurring or based on inadequate domestic supply. Over the years, the waiver has been used by small refineries that make the economic hardship claim.

Congress defines small refineries as those with an average crude oil throughput of 75,000 barrels or less per day.

Congress also directed the Department of Energy (DOE) to conduct a study to determine when a small refinery could be said to suffer disproportionate economic hardship if it was made to comply with the RFS. In 2011, the DOE issued its Small Refinery Exemption Study, which included a scoring matrix designed to evaluate the full impact of disproportionate economic hardship imposed by the RFS program on small refiners. The matrix comprises two major sections. One section combines scoring for disproportionate structural and economic weightings and uses factors that include access to capital/credit and business lines other than petroleum. The second section rates the impact of compliance with the RFS program on the economic viability of the firm and uses factors that include relative refining margin and the amount of renewable fuel blending occurring in the refinery. If application of the methodology results in a score of 1.0 or more for a small refinery, the DOE concludes that the refinery will suffer a disproportionate economic impact if made to comply with the RFS.

The CAA indicates that the DOE must convey the results of its evaluations to the EPA, and the two agencies must then consult on the hardship applications and the scores the DOE reached for hardship applicants. However, the statute also states that the EPA alone has the authority to grant a waiver from the RFS. EPA Administrator Andrew Wheeler has stated that the EPA simply follows the DOE’s recommendations on waiver requests.

Here’s where the developments get murky. According to a complaint against the EPA the Advanced Biofuels Association (ABFA) filed in court, the Agency has “blatantly disregarded DOE’s methodology, Congressional directives, and its own historic practice on May 4, 2017, when it unveiled a policy under which a small refinery can be found to suffer disproportionate economic hardship on the basis of adverse structural conditions alone without evidence that compliance with the RFS Program is adversely affecting the economic viability of a small refinery so that it is no longer profitable or competitive.”

The ABFA contends that of the 48 EPA decision documents for compliance years 2016 and 2017, the Agency granted exemptions to at least 24 small refineries that received a DOE score of 0.0, indicating that RFS program compliance costs have no impact on the small refinery’s ability to stay competitive and profitable.

“EPA’s insistence that any structural disadvantage of a refinery amounts to disproportionate economic hardship warranting a full exemption from the mandates of the RFS Program is an unlawful attempt to read the word ‘hardship’ out of the CAA,” the ABA asserted. “A small refinery that remains profitable and competitive despite complying with the RFS Program can hardly be said to be suffering ‘hardship.’”

Prior to EPA’s change of methodology on May 4, 2017, its decision documents routinely exceeded 20 pages in length and contained a detailed summary of DOE’s analysis of each small refinery seeking an exemption followed by several pages of independent analysis of the small refinery’s hardship petition. After May 4, 2017, however, most of EPA’s decision documents are only five pages and, after setting aside boilerplate language, contain only a short paragraph—often a single sentence—justifying a full exemption, over DOE’s recommendation, to small refineries that are profitable and competitive.”

DOE’s Recommendations
Another view is that the DOE may be sending recommendations to the EPA that are not based on the results of its scoring matrix.

RIN prices have recently reached “historic lows,” Jeff Cooper, president and the CEO of the Renewable Fuels Association, told AgriTalk. That would seem to discourage any wholesale approval of exemption requests. In an interview with Reuters, EPA Administrator Andrew Wheeler ventured that the low RIN prices “may” lead to fewer exemption approvals.

“EPA is misusing this provision, stretching the definition of ‘disproportionate economic hardship’ to lower RIN prices for the benefit of a small number of merchant refiners that have refused to invest in RFS compliance over the last 10 years. As RFS compliance costs were already passed along to consumers through the crack spread, EPA’s actions allow a small number of companies to profit off of American consumers—not to mention endangering renewable fuel blending in 2018 and 2019 because of the new carry-over RINs.”
–Michael McAdams, President, Advanced Biofuels Association READ MORE