Energy, Regulatory Developments

RFS Small Refinery Exemptions Vacated by Court

The ethanol industry, as well as the agricultural sectors that provide the raw materials for the production of ethanol, welcomed an opinion by a panel of the U.S. Court of Appeals for the 10th Circuit that vacated decisions by the EPA to extend exemptions to renewable fuel obligations to three small refineries. The panel’s basic reasoning is that under the Clean Air Act’s (CAA) Renewable Fuel Standard (RFS), the extensions should not have been granted because the three refineries were not already in possession of exemptions.

Renewable fuel standard, biofuel, corn

Jim Barber / Shutterstock.com

“The EPA exceeded its statutory authority in granting those petitions because there was nothing for the agency to ‘extend,’” said the panel.

Furthermore, the CAA allows the EPA to provide small refinery exemptions (SREs) if, by complying with the RFS, the small refineries would suffer disproportionate economic hardship. However, the panel found that the Agency had considered factors other than regulatory compliance when granting the exemptions, which, the panel said, was outside the scope of the EPA’s statutory authority.

Carryover RINs

The RFS allows small refineries with a crude-oil throughput of less than 75,000 barrels per day to petition the EPA for a temporary extension after expiration of a 2-year initial exemption from their renewable volume obligations (RVOs) for a given year if they can show that compliance would impose a disproportionate economic impact on them. While the Obama EPA was somewhat parsimonious in granting SREs, the Trump EPA has been far more accommodating.

SREs reduce the nation’s RFS annual RVOs, which in turn reduce the demand for ethanol. Small refineries are able to meet their upcoming RVOs by carrying over their renewable identification numbers (RINs) instead of by adding ethanol to their conventional fuels. (An RIN is attached to each gallon of renewable fuel produced; obligated parties obtain and then ultimately retire RINs for compliance.)

Economy Forcing

Among their arguments, defendants EPA and the three small refineries said that in recent pronouncements, Congress placed substantial importance on the breadth of the SRE. The court’s own interpretation is that once a small refinery no longer needs an exemption—that is, the refinery is able to comply with its RFS obligations—it should be able to continue to do so going forward. The panel also noted that Congress wrote the RFS to be “market forcing” and, accordingly, gave small refineries a “substantial amount of time to adapt, commencing the RFS program with a blanket exemption that for some refineries ended up lasting seven years.”

The court remanded the three vacated extensions to the EPA for further proceedings consistent with the opinion.

Winners Respond

Following are reactions from the four plaintiff organizations in the 10th Circuit case:

  • “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.”
  • “We are extremely pleased with the 10th Circuit’s decision to vacate the waivers granted by EPA to three refineries owned by CVR Energy and HollyFrontier,” said Renewable Fuels Association 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.”
  • “ACE members are elated the 10th 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.”
  • “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.”