Tenth Circuit Court Strikes Down EPA Small Refinery Exemptions

January 27, 2020

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(Renewable Fuels Association) In a decision that is expected to broadly impact the Environmental Protection Agency’s approach to granting small refinery exemptions (SREs) under the Renewable Fuel Standard, the U.S. Court of Appeals for the Tenth Circuit late on Friday struck down three exemptions that were improperly issued by EPA.

The court ruling stems from a May 2018 challenge brought against EPA by the Renewable Fuels Association, the National Corn Growers Association, the American Coalition for Ethanol and National Farmers Union.

“We are extremely pleased with the Tenth Circuit’s decision to vacate the waivers granted by EPA to three refineries owned by CVR Energy and HollyFrontier,” said RFA President and CEO Geoff Cooper. “The Court has affirmed our long-held position that EPA’s recent practices and policies regarding small refinery exemption extensions were completely unlawful. And while the decision addresses three specific exemptions, the statutory interpretation issues resolved by the court apply much more broadly.”

Among other findings, the Court held that EPA cannot “extend” exemptions to any small refineries whose earlier, temporary exemptions had lapsed. According to the Court opinion, “the statute limits exemptions to situations involving ‘extensions,’ with the goal of forcing the market to accept escalating amounts of renewable fuels over time. None of the three small refineries here consistently received an exemption in the years preceding its petition. The EPA exceeded its statutory authority in granting those petitions because there was nothing for the agency to ‘extend.’” EPA’s own data show that a maximum of only seven small refineries could have received continuous extensions of their previously existing exemptions. Yet, recently EPA has granted as many as 35 exemptions in a single year.

“The Court’s decision is welcome news for corn growers,” said National Corn Growers Association President Kevin Ross. “Ethanol is an incredibly important value-added market for corn farmers, and EPA’s waivers have reduced RFS volume requirements by more than 4 billion gallons over the past three years, impacting corn demand. We are optimistic this decision will finally put an end to the demand destruction caused by waivers and keep the RFS back on track.”

The Court also found that EPA abused its discretion in failing to explain how the Agency could conclude that a small refinery might suffer a disproportionate economic hardship when the Agency has simultaneously consistently maintained that costs for RFS compliance credits, or RINs, are passed through and recovered by those same refineries.

“ACE members are elated the Tenth Circuit court agreed with us that EPA overstepped its authority in granting three specific small refinery exemptions to CVR Refining and HollyFrontier,” said American Coalition for Ethanol CEO Brian Jennings. “The court’s ruling highlights how EPA abused the SRE provision of the Renewable Fuel Standard in broader terms to unfairly enrich the oil industry which could have far-reaching implications on the legitimacy of other refinery waivers and limit how they can be used moving forward.”

According to the renewable fuels coalition, the Court’s decision sends a resoundingly positive signal to the marketplace at a time when it is desperately needed.

“This ruling comes at a critical time for America’s farmers and the biofuels industry,” said National Farmers Union President Roger Johnson. “Due in large part to EPA’s rampant and ongoing abuse of the SRE program, 2019 was one of the most challenging years in history for the agriculture and biofuel sectors. We believe this ruling will help restore the ability of the RFS to drive demand and expand markets for renewable fuels, as Congress intended, providing a badly needed shot in the arm for rural America.”

The Court’s opinion is available here. READ MORE

REFINERY RECKONING: (Politico's Morning Energy)

Court forces U.S. EPA to reconsider three refinery biofuel waivers (Reuters)

Clint Sampson: Refinery exemptions must be equitable (LaCrosse Tribune)

EPA Damaging Economy, Environment (Emmetsburg Reporter/Democrat)

Hardship Relief: Tenth Circuit strikes down three small oil refinery waivers in win for renewable fuels (Biofuels Digest)

Court Strikes Down Three RFS Waivers: Ag, Biofuel Groups Score Judicial Victory in Federal Appeals Court (DTN Progressive Farmer)

COURT FAULTS TRUMP FOR RFS EXEMPTIONS: (Washington Examiner)

Appeals court orders the U.S. Environmental Protection Agency to revisit blending exemptions issued to small refineries in OK, Wyoming and Utah (The Oklahoman)

Court rules against EPA on small refinery waivers (Capital Press)

US court strikes down EPA small refinery exemptions in win for biofuels industry (Biofuels International)

10th Circ. Tosses Small-Refinery Renewable Fuel Exemptions (Law 360)

Court Strikes Down EPA Small Refinery Exemptions (Energy.AgWired.com)

Federal court strikes down three waivers that exempted refineries from using ethanol (UPI)

Farm groups say court decision on ethanol waivers will benefit farmers (Grand Forks Herald)

Court Decision May Bring Some Relief To Ethanol Industry (Iowa Public Radio)

RIN prices rise after court strikes down some SREs (S&P Global)

NDFU applauds court decision on ethanol production waivers (Jamestown Sun)

Biofuels groups laud court ruling striking down SREs (AgWeek)

Court strikes down 3 SREs approved by EPA (Ethanol Producer Magazine)

Court decision casts doubt on dozens of U.S. refinery biofuel waivers (Reuters)

Ethanol Blog: Grassley: 10th Circuit Ruling on RFS Exemptions Sets Precedent (DTN Progressive Farmer)

Minn. officials, ag leaders applaud ruling voiding refinery waivers (AgWeek)

Federal appeals court orders EPA to review biofuel waivers granted to three oil refineries (Jurist)

Signal to Noise: Does SRE Court Ruling Open Door for RFS Fix? (Farm Journal/AgWeb; includes AUDIO)

EPA Small Refinery Exemptions (KDHL Radio)

Dave Gneiser: America's farmers need action from EPA (Madison.com)

A CURVE BALL FOR ETHANOL: (Politico's Morning Energy)

Wheeler: Court Decision Could Change Small Refinery Program (Energy.AgWired.com; includes AUDIO)

U.S. renewable fuel credits double since court decision on refinery waivers (Reuters)

US renewable fuels prices double up after court decision (Power Technology)

Biodiesel Blending Interest Soars With Tax Break Restored (Freight Waves/Benzinga)

Ruling casts doubt on dozens of U.S. refinery biofuel waivers (Manitoba Cooperator)

Iowa deserves answers on EPA biofuel policies (Des Moines Register)

EPA consulting White House over biofuel waiver program: source (Reuters)

Biofuels industry, RIN prices buoyed after court ruling (Agri-Pulse)

NCGA President Filled With Ethanol Pride (Energy.AgWired.com; includes AUDIO)

Potential Game-Changer For RINs “Waivers” (BioCycle Magazine)

Lawyer: EPA Faces Decision on Waivers -- Tenth Circuit Court Ruling Affects About One-Third of Small-Refinery Capacity (DTN Progressive Farmer)

A Closer Look At The Court Decision On HollyFrontier’s Biofuels Exemptions (Governors' Biofuels Coalition/Seeking Alpha)

Implications of the 10th Circuit Court’s SRE Decision (Energy.AgWired.com)

EPA Discussing Court Case Impact on RFS with White House (DTN Progressive Farmer)

Trump to Pare Biofuel Waivers for Oil Refineries on Court Ruling (Bloomberg/Transportation Topics)

EPA TO REDUCE RFS REFINERY EXEMPTIONS: (Politico's Morning Energy)

AFPM Statement on EPA Review of SREs (American Fuel and Petrochemical Manufacturers)

U.S. renewable fuel prices climb 25% after report on small refinery waiver program (Reuters)

U.S. EPA has not decided on response to court ruling on refinery waivers (Reuters)

RIN prices soar after report about refinery exemptions (S&P Global Platts)

Senators Claim Court Decision Jeopardizes Refineries (Energy.AgWired.com)

Putting more refineries under federal ethanol rule could impact rails, trucking (Freight Waves)

Ethanol Industry Anxiously Awaits EPA Decision on SREs (Energy.AgWired.com; includes AUDIO)

Oil-State Senators Push Trump on Biofuel Waivers Near Deadline (Bloomberg)

PERDUE THINKS SRE RULING SHOULD BE APPLIED NATIONWIDE (Brownfield Ag News)

Here We Go Again: Senate Letter Plagued by Myths and Mistruths about RINs (Renewable Fuels Association)

Excerpt from Politico's Morning Energy: REFINERY RECKONING: A federal court late Friday ruled that EPA exceeded its authority in exempting three oil refineries from the Renewable Fuel Standard — a potentially far-reaching decision that may force the Trump administration to reevaluate its expanded use of the exemptions, as Pro's Eric Wolff reports. The 10th Circuit U.S. Court of Appeals ruled EPA could only extend exemptions granted to a handful of refineries in 2011, but not create new ones. And the court faulted EPA for considering factors beyond the RFS in determining refineries deserve the exemptions on "economic hardship" grounds. EPA has issued 85 exemptions from the biofuels mandate since President Donald Trump took office, and another 21 applications for new waivers are pending at the agency.

The decision Friday applied to three refineries, two owned by HollyFrontier and one owned by Carl Icahn's CVR Refining, but its conclusions likely will fuel challenges to other exemptions. Joe Kakesh, general counsel for Growth Energy, which was not a part of the case but has a similar case in the D.C. Circuit, told ME the case "shows many of the SREs are invalid." The Fueling American Jobs Coalition, which is backed by refiners and gas station owners, downplayed the ruling in a statement, saying, "Any actual implications are a ways off." READ MORE

Excerpt from Biofuels Digest: The Documents

The Biofuels Coalition original 55-page submission to the Court can be found here.

The Court’s 99-page ruling can be found here.

The Bottom Line

It’s three refineries, but expect that more action will flow from the 10th Circuit’s opinion, and also expect that the oil industry will appeal this ruling to the Supreme Court although a grant of certorari to the highest court could be considered unlikely given the lack of controversy between various Courts of Appeal on the issue at this point. READ MORE

Excerpt from Reuters: That spells uncertainty for a handful of independent refiners that secured lucrative waivers from the Trump administration, and could fire up prices for the biofuel blending credits those facilities need to comply with the nation’s biofuel law.

“The potential ramifications are huge,” said James Stock, an economist and professor at Harvard University who has researched biofuel policy.

...

According to EPA data here the agency granted seven biofuel waivers in 2015. That number rose to 35 in 2017 – meaning 28 waivers were given without having been given in a previous year. The EPA does not name the refineries that receive the waivers, arguing the information is confidential, but Reuters has reported here that some have gone to small facilities owned by large companies like Exxon Mobil and Chevron Corp.

Harvard’s Stock said the case threatens to hit small oil refineries hard if it means the waivers will be rescinded and they must comply with the RFS.

“All of a sudden there would be vast amounts of past obligations due, combined with the prospect of very limited (waivers) going forward,” he said.

Prices of blending compliance credits, known as Renewable Identification Numbers (RINs), are up about 20% since the court decision to one-month highs.

Ericka Perryman, a spokeswoman for the American Fuel and Petrochemical Manufacturers refining industry group, said AFPM was “carefully reviewing the opinion and potential implications.” READ MORE

Excerpt from Politico's Morning Energy: A CURVE BALL FOR ETHANOL: A recent 10th Circuit Court of Appeals ruling could upend a deal struck by Trump last year that was intended to ameliorate farmers' outrage over EPA's expanded use of small refinery exemptions under the Renewable Fuel Standard, Pro's Eric Wolff reports this morning.

The 10th Circuit ruling last month invalidated three small refinery exemptions EPA granted to facilities in Wyoming and Oklahoma. While it might not be directly applicable to other exemptions EPA has issued, the D.C. Circuit is set to hear a similar lawsuit this spring. For its part, EPA is still evaluating how to proceed in the wake of the 10th Circuit decision. The agency may still be able to revise the 2020 volumes in light of the ruling, but biofuels advocates are pushing the agency to enforce the existing rule — which could give them a volume boost. EPA could also take a narrower view.

In the meantime, refiners worry that EPA will grant fewer exemptions, upending a key assumption EPA baked into the biofuel blending requirements refiners will have to meet this year. EPA's 2020 blending rule requires an additional 770 million gallons of biofuel to be blended into the nation's fuel supply to compensate for the volumes EPA assumed would be lost to exempted refineries. If the courts or EPA end those exemptions, refiners may still be on the hook for those additional gallons, which industry sources say is enough to substantially increase compliance costs.

"Now you know what keeps me up at night," said one oil industry source, requesting anonymity to discuss sensitive business decisions. "That's a kind of worst case scenario — I don't know that's a likely outcome. Some potential for some havoc there with how this all gets structured." READ MORE

Excerpt from Politico's Morning Energy: EPA TO REDUCE RFS REFINERY EXEMPTIONS: EPA will drastically reduce the number of exemptions it grants to small refineries looking to reduce their 2020 ethanol blending requirements under the Renewable Fuel Standard, Pro's Eric Wolff reports. The agency will apply across the nation a 10th Circuit Court ruling from January that voided three previous EPA exemptions. The court said only refineries that had exemptions continuously since 2011 could apply for new ones.

While EPA does not disclose the names of the refiners that received waivers, biofuels and oil industry sources have said the number of eligible small refineries could be as few as three. The agency, which declined comment, is now reviewing 23 petitions for exemptions, and it appears most of those will be rejected, one person in the oil industry and another person familiar with the decision said.

In response, Iowa Sen. Chuck Grassley tweeted that he was glad to see Wheeler "seems 2b taking farmer concerns seriously This wld be a major promise kept by Pres @realDonaldTrump &help him in Iowa+the Midwest." Chet Thompson, president and CEO of the American Fuel and Petrochemical Manufacturers, released a statement calling the issue unsettled, and said Trump and his EPA should fight the ruling and limit its impact. "If President Trump is serious about his promise to protect small refineries and the women, men, and communities that rely on them, he would appeal this decision," he said. READ MORE

Excerpt from American Fuel and Petrochemical Manufacturers: ... AFPM President and CEO Chet Thompson issued the following statement on EPA's review of small refinery exemptions.

"This issue is not settled. The 10^th Circuit absolutely got the decision wrong, and President Trump and his EPA can and should fight the ruling and limit its impact until the appeals process is complete. Since the court ruled in January, the cost of compliance credits has more than doubled, casting doubt on the viability of small refineries all across the country.

"If President Trump is serious about his promise to protect small refineries and the women, men, and communities that rely on them, he would appeal this decision. The ethanol industry has not lost a gallon of demand due to SREs. More of their product is being blended now than ever." READ MORE