RFS Waivers Challenged in Federal Court

OMAHA (DTN) -- A biofuels interest group argues EPA is overstepping its authority and has asked a federal court to review EPA's actions granting an increasing number of Renewable Fuel Standard waivers to small refiners.

The Advanced Biofuels Association petitioned the U.S. Court of Appeals for the District of Columbia Circuit on Tuesday, asking for a review of those waivers.

"We have seen reports that the number of small refinery exemptions recently granted for compliance years 2016 and 2017 have doubled compared to previous years," Michael McAdams, president of ABFA, said in a statement to DTN. "ABFA members are concerned that Administrator (Scott) Pruitt is granting these exemptions in an arbitrary and capricious manner to undisclosed parties behind closed doors with no accountability for its decision-making process.

"The news reports about these exemptions have had immediate and significant market impacts on the prices of Renewable Identification Numbers (RINs) for the biomass-based diesel (D4) and overall renewable fuel (D6) pools. Dropping RIN prices dis-incentivize blending, causing economic harm to ABFA's members and posing a threat to the integrity of the RFS program at large," said McAdams.

The EPA has drawn fire for a lack of transparency on waivers dating back to 2016, including declining to provide details about the companies receiving waivers and the amount of biofuel blending excluded.

The agency granted nearly 40 RFS waivers to so-called small refiners since 2016, including about 25 in 2017 alone. Included in last year's total is a request by Andeavor, which posted a $1.5 billion profit last year. Also, the New York Times reported that oil giants Exxon and Chevron have requested waivers for 2018.

Though biofuels interest groups and media outlets including DTN have requested additional information about the waivers, the EPA has not responded to Freedom of Information Act requests on the issue.

In the petition, the Advanced Biofuels Association alleges EPA made a decision to "modify the criteria or lower the threshold" for determining which refiners experience "disproportionate economic hardship" in complying with the RFS.

"This modified criteria or lowered threshold was applied to exempt an unknown, but reportedly historically high, number of refineries from their 2016 and 2017 obligations to participate in the RFS program by either blending their share of renewable fuel or purchasing renewable fuel credits on the market," the petition said.

"Upon information and belief, EPA has granted exemptions to an unprecedentedly large number of refineries. However, EPA has thus far refused to provide, even upon receiving requests from members of Congress, basic information about the refineries that receive exemptions or the agency's rationale for granting individual exemptions due to alleged protections for confidential business information."

On April 12, Sen. Charles Grassley, R-Iowa, and other senators sent a letter to Pruitt requesting details about the exemptions. Grassley told agriculture journalists on Tuesday the EPA has "stonewalled" the request and has not responded. In addition, Grassley said he would like to change report language attached to appropriations bills in 2015 and 2016 that is said to allow the expansion of those waivers.

The Advanced Biofuels Association said in the petition the EPA's actions to retroactively grant waivers has "destabilized the national renewable fuels market, economically harmed ABFA's members, and has undermined Congress's goals" for the RFS program.

"A change of this magnitude in the number of exemptions granted is implausible and cannot be ascribed to year-to-year changes in the renewable fuels market," the petition said, "but can only be attributable to a decision by EPA to modify the criteria or lower the threshold by which it evaluates and grants exemptions in a manner that is arbitrary and capricious, an abuse of discretion, and otherwise not in accordance with the law."

Waivers granted to small refineries in 2016 and 2017 may have prevented about 1.6 billion gallons of biofuels from entering the fuel supply, according to an analysis of EPA data performed by the Renewable Fuels Association.

Scott Segal, an attorney who works with the refining industry, said the petition represents "a fundamental misunderstanding" on the hardship exemption. The 10th Circuit Court of Appeals last year ruled the hardship waiver was not a limited exemption only available to refineries forced to close if they have to comply with the RFS.

"Language in the opinion says that EPA must compare a small refinery's cost of compliance to the industry average, and if the small refinery's cost is significantly higher, it faces a disproportionate economic hardship," Segal said. "The granting of the waiver thereafter simply is not discretionary."

Segal said all 59 small refineries were exempt from the RFS during the first four years of the program from 2007 to 2010. Then at least 13 such refineries were exempted in 2011 and 2012.

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

Follow him on Twitter @toddneeleyDTN

(CC/ES)