Ethanol Blog

Is Budget Report Language Cause of RFS Waivers?

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Sen. Charles Grassley, R-Iowa, mentioned on Tuesday he wants to change language in recent appropriations bills approved by Congress in the past three years.

Grassley told agricultural journalists the language may be one of the reasons why the EPA has expanded the number of Renewable Fuel Standard waivers granted to small refiners in recent years. In addition, oil interests have pointed to an opinion issued by the 10th Circuit Court of Appeals last year that indicated EPA was not following the law in how it should be issuing exemptions.

Grassley said he wants to change the appropriations language that has been reported with budget bills dating back a few years, but that may not happen until next summer or fall.

Here is the language Grassley would like to change:

"Small Refinery Exemption.-Under section 21 l(o)(9)(B) of the Clean Air Act, a small refinery may petition the Environmental Protection Agency (EPA) administrator for an exemption from the Renewable Fuel Standard (RFS) on the basis that the refinery experiences a disproportionate economic hardship under the RFS. When evaluating a petition, the administrator consults with the secretary of energy to determine whether disproportionate economic hardship exists.

"According to the department's March 2011 Small Refinery Exemption Study, disproportionate economic hardship must encompass two broad components: a high cost of compliance relative to the industry average disproportionate impacts, and an effect sufficient to cause a significant impairment of the refinery operations' viability.

"If the secretary finds that either of these two components exists, the secretary is directed to recommend to the EPA administrator at least a 50% waiver of RFS requirements for the petitioner. The secretary also is directed to score all of the metrics in the study and to score the metrics according to the 2011 study scoring criteria and not any later addendum to the study.

"The secretary is directed to seek small refinery comment before making changes to its scoring metrics for small refinery petitions for RFS waivers and to notify the committees on appropriations of both houses of Congress prior to making any final changes to scoring metrics. Only the impact on the small refinery's transportation fuel margins is pertinent to measuring RFS impacts on relative refining margins. The conference report accompanying the Energy and Water Development and Related Agencies Appropriations Act, 2010, addressed similar issues and directed the secretary to redo an earlier study done to evaluate whether the RFS program imposes a disproportionate economic hardship on small refineries.

"In calling for the secretary to redo the study, the conference report cited the lack of small refinery input into the earlier study, concerns about regional RFS compliance cost disparities, small refinery dependence on the purchase of renewable fuel credits (RINs), and increasing RIN costs. Since then, the dramatic rise in RIN prices has amplified RFS compliance and competitive disparities, especially where unique regional factors exist, including high diesel demand production, no export access, and limited biodiesel infrastructure and production.

"In response to petitions in prior years, the secretary determined that the RFS program would impose a disproportionate economic and structural impact on several small refineries. Despite this determination, the secretary did not recommend, and EPA did not provide, any RFS relief because it determined the refineries were profitable enough to afford the cost of RFS compliance without substantially impacting their viability. The secretary is reminded that the RFS program may impose a disproportionate economic hardship on a small refinery even if the refinery makes enough profit to cover the cost of complying with the program.

"Small refinery profitability does not justify a disproportionate regulatory burden where Congress has explicitly given EPA authority, in consultation with the secretary, to reduce or eliminate this burden. In lieu of Senate direction, the department is directed to provide to the committees on appropriations of both houses of Congress a quarterly report on the status of projects approved under 42 U.S.C. 16421, with the first such report to be provided not later than 30 days after the enactment of this act."

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

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