OMAHA (DTN) -- A federal court ruled EPA didn't have the authority to issue small-refinery exemption extensions to three companies that were not granted waivers originally. The ruling could affect how the agency implements the program.
In a ruling handed down by the U.S. Court of Appeals for the 10th Circuit in Denver on Friday, the court also found EPA "abused its discretion" by not explaining its conclusion that a small refinery could suffer disproportionate economic hardship while also maintaining refiners passed on RFS compliance costs to consumers at the pump.
"None of the three small refineries here consistently received an exemption in the years preceding its petition," the court said in its ruling.
The court ruling added, "The EPA exceeded its statutory authority in granting those petitions because there was nothing for the agency to 'extend.' Further, one of the EPA's reasons for granting the petitions was to address disproportionate economic hardship caused by something other than compliance with the renewable fuels mandate. That, too, was beyond the agency's statutory authority."
EPA has taken heat on how it defines "hardship" when it granted waivers. The ethanol industry and others have maintained the waivers were not designed for oil companies that report billions of dollars in profits.
"The agency has just received the opinion and is reviewing it," an EPA spokesperson told DTN.
EPA defines small refiners as those producing 75,000 barrels or less per day. Small refiners have successfully petitioned the agency for exemptions by arguing the costs to purchase renewable identification numbers, or RINs, are too much to handle financially.
The court remanded back to EPA waivers issued to refiners in Wynnewood, Oklahoma; Cheyenne, Wyoming; and Woods Cross, Utah. The Cheyenne and Woods Cross petitions were from 2017, while the Wynnewood petition was in 2018.
Congress provided a temporary exemption for small refiners that could extend beyond 2010, based on a U.S. Department of Energy study or EPA determination of disproportionate economic hardship on a case-by-case basis.
The EPA granted 85 small-refinery exemptions between 2016 and 2018, totaling more than 4 billion ethanol-equivalent gallons not blended with petroleum. The agency currently has 21 exemption requests pending for the 2019 compliance period.
The Renewable Fuels Association, National Corn Growers Association, American Coalition for Ethanol and National Farmers Union, with support of Farmers Union Enterprises, sued EPA on May 31, 2018, challenging the three exemptions granted. The groups argued the agency did not publish in the Federal Register what were final actions.
The Wynnewood refinery is owned by a subsidiary of CVR Energy, and the Cheyenne and Woods Cross refineries are owned by HollyFrontier Corporation.
CVR Energy is owned by energy billionaire Carl Icahn. For a time, Icahn served as an adviser to President Donald Trump and recommended the hiring of Scott Pruitt as EPA administrator. Icahn also sought RFS reforms when counseling the president.
COURT RULING IMPLICATIONS
Renewable Fuels Association President and CEO Geoff Cooper said in a statement the ruling could have broad implications on how the EPA implements the program.
"The court has affirmed our long-held position that EPA's recent practices and policies regarding small-refinery exemption extensions were completely unlawful," he said. "And while the decision addresses three specific exemptions, the statutory interpretation issues resolved by the court apply much more broadly."
The court ruled none of the three small refineries at issue "consistently received an exemption in the years preceding its petition."
EPA data shows a maximum of seven small refineries could have received continuous extension of previous waivers. However, EPA granted as many as 35 exemptions in 2017.
National Corn Growers Association President Kevin Ross said in a statement the industry is hopeful the court decision will lead to changes in how EPA acts.
"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," he said.
"We are optimistic this decision will finally put an end to the demand destruction caused by waivers and keep the RFS back on track."
Brian Jennings, CEO of the American Coalition for Ethanol, said, "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."
National Farmers Union President Roger Johnson said in a statement the waivers played a part in what was a tough 2019 for agriculture.
"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," he said.
The Fueling American Jobs Coalition, a group of refiners and others, said in a statement it believes the court's decision will not have a broad effect on how EPA considers exemption requests.
"The reason the 10th Circuit had the case in the first place is because it dealt with individual SREs," the group said. "If it dealt with general Clean Air policy, it would have been in the DC Circuit (court of appeals). So the decision only applies to three SREs, with certainly no greater reach than the 10th Circuit.
"This latest controversy regarding implementation of the RFS is just one more piece of evidence that the RFS and its RINs program are broken, inflicting damage on industrial workers, consumers and small retailers while doing nothing material to enhance the position of farmers or energy security."
Read the court's ruling here: https://www.ca10.uscourts.gov/…
Todd Neeley can be reached at firstname.lastname@example.org
Follow him on Twitter @toddneeleyDTN
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