OMAHA (DTN) -- In 2017, an EPA staff member warned then EPA Administrator Scott Pruitt not to change course on granting small-refinery waivers, but Pruitt ignored that advice, according to new documents released through the Freedom of Information Act request and posted to the FOIA website.
In addition, the documents, which were requested by the Renewable Fuels Association, show the EPA has a fair amount of flexibility when deciding to issue or not to issue small-refinery waivers to the Renewable Fuel Standard.
In an email to EPA communications staff on July 31, 2017, now former EPA adviser David Schnare said he urged Pruitt to tread carefully on the waivers issue -- only to see Pruitt overrule him.
"I advised him on the agency's options and he rejected them all," Schnare wrote. "Mr. Pruitt then ordered a different course of action, one I firmly believe is not permitted under law."
Since 2016, the EPA has approved nearly all of the waiver applications it received. In total, an estimated 2.61 billion ethanol-equivalent gallons were not blended in gasoline as a result of the waivers, according to EPA's own estimates.
The agency has 39 waiver applications pending for 2018, and is expected to make a decision on those requests in the coming months.
Schnare talked about a March 8, 2017, daily morning senior staff meeting during which he advised Pruitt on the waivers issue.
"The small-refiner renewable fuels exemptions were a 'sensitive issue,' in part because of Mr. Pruitt's long-standing campaign support from the refinery industry," Schnare wrote, "and, because the requests for exemption from the standard for four of the 11 small refineries were clearly without merit, granting those exemptions would have two adverse effects."
Schnare said the agency has "no discretion" if a small refiner does not meet the "statutory and regulatory" criteria for an exemption.
"To grant the exemptions would be a clear violation of Mr. Pruitt's oath of office," Schnare wrote. "Second, granting improper exemptions would look like a quid pro quo to the refinery industry -- something that could only harm the reputation of both the agency and Mr. Pruitt.
"When I raised the RFS issue during the March 8 (2017) meeting, Mr. Pruitt instantly rejected the staff's intent to deny the exemptions. I suggested he would benefit from a briefing on the issue. He said, 'Well then, brief me.' I handed him a five-page brief that I had distributed to senior staff the previous day. He read the top page and then indicated he was not going to deny the exemptions. I then suggested that we could change the exemption criteria in order to carry out his intent. Mr. Pruitt instantly rejected that idea stating, 'We aren't going to do that. It would take 18 months.'"
Schnare said in the email that he asked Pruitt on what basis he would like to grant the exemptions.
"He stated: 'Chevron deference,'" Schnare wrote. "I then explained that it is black letter administrative law that we would still have to use a notice and comment regulatory process to employ that deference, again requiring about 18 months to accomplish.
"At that point Mr. Pruitt turned to face me and stated, 'Dave, who is going to sue me?' It was instantly obvious that Mr. Pruitt believed he need not 'faithfully discharge the duties of (his) office' unless it was likely he would be caught."
Chevron deference is an administrative law principle that compels federal courts to defer to a federal agency's interpretation of an ambiguous or unclear statute.
Schnare said it would be a felony for Pruitt to violate his oath of office.
"After I resigned, I check in with a senior career official in the air office and that person confirmed that Mr. Pruitt, through a third party, directed granting the exemptions, in direct violation of the agency's rules," Schnare said.
Sen. Charles Grassley, R-Iowa, said in a statement on Friday that the released documents show EPA has discretion in issuing waivers.
"Following the law isn't a bargaining chip to be used in negotiations," he said. "But these documents prove that EPA believes how the agency issues so-called hardship exemptions is a matter of considerable discretion and it could easily go back to granting exemptions only based on true economic hardship.
"EPA should choose to uphold President Trump's promise to Iowa, Midwest farmers and the country by following the law as intended by Congress and stop giving away handouts to billion-dollar big oil companies. Doing anything less would be a betrayal to the president and the American people."
TRUMP PLANNED WAIVERS CHANGES
Additional documents released by the EPA under FOIA show President Donald Trump was set to make changes to the waivers program.
A June 1, 2018, decision memorandum for the president outlined an agreement to change the RFS after Trump met with federal lawmakers, ethanol industry and other industry representatives in the spring of 2018 in an attempt to reach common ground.
It was reported at the time that the administration was about to announce an agreement to benefit all sides.
The agreement was in a single rulemaking from EPA that would have allowed year-round E15 sales; attached Renewable Identification Numbers, or RINs, to ethanol exports; and restructured the waivers program.
The White House later scrapped the agreement after receiving pressure from refining interests.
The waivers program portion of that agreement was, as follows:
"Restructuring of small-refinery exemptions: EPA will grant future small-refinery exemptions based only on true disproportionate economic hardship. EPA will also propose a rule, in consultation with the USDA and DOE, to restructure the timing of small-refinery exemption applications so that all future exemption applications will have to be submitted before EPA sets the RVO for the following year. This rule will also set forth that EPA will reallocate future small-refinery exemptions to the RVO."
After Pruitt was sworn into office, it was clear to the refining industry that the new administrator would have a sympathetic ear for the industry.
On May 23, 2018, attorney Stephen F. McLaughlin, a lawyer representing a refining company, emailed Pruitt, asking the EPA administrator about the potential for his client to receive a small-refinery waiver. The catch: The refinery hadn't even been built at the time.
"I am working with a client who seeks to construct a new small refinery (throughput of 55,000 bpd [barrels per day]) in Texas," McLaughlin wrote.
"However, the client has been advised by his financial advisors (which include the world's second-largest funder of oil and gas infrastructure investments worldwide) that the refinery's expected return on investment is so low that the proposed refinery cannot be financed.
"I am writing to inquire whether it is possible to obtain any sort of advance ruling regarding the proposed refinery's qualifying for the small-refinery hardship exemption, given that such would thereby enable the refinery to actually obtain funding, be constructed, and commence operations. Obviously the inability to even finance a refinery and commence operations would seem to qualify as a definite hardship."
Email exchanges released under FOIA do not show if Pruitt responded to the inquiry.
Todd Neeley can be reached at email@example.com
Follow him on Twitter @toddneeleyDTN
Copyright 2019 DTN/The Progressive Farmer. All rights reserved.