Court Brief: EPA Strayed on RFS Waivers

OMAHA (DTN) -- The EPA broke away from Renewable Fuel Standard requirements for granting small-refinery waivers starting in May 2017 and continued to deny a congressional order regarding which refiners qualify, according to a 97-page brief filed in a federal court in Washington, D.C., on Wednesday.

The brief was filed in the U.S. Court of Appeals for the District of Columbia Circuit by attorneys on behalf of the Advanced Biofuels Association. The group sued the EPA in response to it granting 48 small-refinery waivers in 2016 and 2017.

In all, agency waivers reduced biofuel blending requirements for refiners by about 2.25 billion gallons in 2016 and 2017. Biodiesel industry officials estimate producers lost about 300 million gallons from waivers.

The partially redacted document shows the agency originally was allowed to grant temporary, two-year exemptions starting in 2005. In recent years, however, the agency granted exemption extensions beyond two years -- including a refiner that never received a prior exemption.

The EPA approved waivers for small refiners that didn't have the minimum U.S. Department of Energy score to qualify, the brief said, and improperly considered the debts of small-refiners' parent companies when examining waiver requests.

In addition, the brief showed evidence the agency considered small-refiners' operating losses whether or not they were related to RFS compliance. The agency also considered what small refiners might spend on biofuel credits, without looking at revenue they would later generate from sales of Renewable Identification Numbers, or RINs.

The Advanced Biofuels Association asked the court to declare the agency's methodology for determining disproportionate economic hardship as "unlawful."

The group asked the court to strike down the agency's disproportionate economic hardship policy, based on a small-refinery's operating losses or debts held on behalf of parent companies.

Attorneys for the group also asked the court to declare "unlawful" the agency's action to grant extensions of temporary exemptions that "were not continuously subject to a temporary exemption in all preceding years or that never received a temporary exemption."

When contacted by DTN, EPA spokesman Michael Abboud said, "We don't comment on pending litigation."

PRUITT ACTIONS

After former EPA Administrator Scott Pruitt took control of the agency, EPA said in a note on a May 4, 2017, final agency decision on a small-refinery request, that it had changed its approach, although it was not made public.

"In prior decisions, EPA considered that a small refinery could not show disproportionate economic hardship without showing an effect on 'viability,' but we are changing our approach," the brief said.

"While a showing of significant impairment of refinery operations may help establish disproportionate economic hardship, compliance with RFS obligations may impose a disproportionate economic hardship when it is disproportionately difficult for a refinery to comply with its RFS obligations -- even if the refinery's operations are not significantly impaired."

BLANKET EXEMPTIONS

Temporary blanket exemptions were recognized by Congress as possibly necessary for refiners that produce 75,000 or fewer barrels of crude oil per day and would face difficulty in complying with the RFS.

"Many small refineries did not have infrastructure to be able to blend renewable fuels into conventional fuels and would therefore need to rely on the purchase of RINs to meet their RFS obligations," the brief said.

As a result, Congress granted all small refineries in operation at the start of the RFS program a temporary blanket exemption from compliance with the RFS program through compliance year 2010.

"At the end of the temporary blanket exemption, however, small refineries would be required to meet the same renewable fuel obligations as all other refineries, unless their exemption is extended," the brief said.

Congress ordered the Department of Energy (DOE) to conduct a study on whether RFS compliance would "impose a disproportionate economic hardship on small refineries," the brief said. The temporary exemption period came about as a result of the study.

The initial temporary blanket exemption covering all 59 small refineries through 2010 then gave way to a two-year extension of the temporary exemptions to only 24 small refineries identified by the DOE, the brief said.

During compliance years 2013 to 2015, on average, just 14 small refineries asked for extensions of the temporary exemptions. During that three-year period, EPA granted 23 of the 43 petitions the agency received.

In 2017, the number of small refineries filing for exemptions retroactively for 2016 jumped from 14 the previous year to 20. The rate in which EPA granted these petitions also increased dramatically from 53% to 95%.

"While EPA at this time did not publish any information about the number of small-refinery petitions received or granted, the small-refining industry clearly got the message that the odds of receiving an exemption had dramatically increased."

To read the full brief, visit http://www.dtn.com/….

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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