Small refinery waiver complicates RFS
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December 05, 2018
Small refinery waiver complicates RFS

The EPA’s use of its Clean Air Act (CAA) authority to grant waivers from Renewable Fuel Standard (RFS) obligations to small refineries has for years been a top issue of contention associated with the RFS. The Agency’s use of the waiver has continued to spark negative reactions from renewable fuel advocates following the Agency’s issuance of its final rule setting Renewable Volume Obligations (RVOs) for 2019 and 2020 (for biomass-based diesel).

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Minimum volumes

Under the CAA and the EPA’s RFS implementing regulations, refiners and importers of gasoline or diesel fuel (called Obligated Parties) must annually blend renewable fuels into transportation fuel or obtain credits (called Renewable Identification Numbers (RINs)) to meet EPA-specified RVOs.

In the current final rule, the EPA established that:

  • Conventional renewable fuel volumes, primarily met by corn ethanol, will be maintained at the implied 15-billion-gallon (gal) target set by Congress for 2019.
  • Advanced biofuel volumes for 2019 will increase by 630 million gal over the 2018 standard.
  • Cellulosic biofuel volumes for 2019 will increase by almost 130 million gal over the 2018 standard.
  • Biomass-based diesel volumes for 2020 will increase by 330 million gal over the standard for 2019.

Economic hardship

The statute and the regulations allow the Agency to grant small refineries temporary exemptions from their RVOs if they can demonstrate that compliance with the RVOs would cause the refinery to suffer disproportionate economic hardship. The EPA has granted exemptions pursuant to this process in the past. No exemptions are included in the 2019 rule because none were requested. But the Agency says it will continue to review requests for waivers from small refineries on a case-by-case basis in response to small refinery petitions.

Supporters of the RFS have raised several concerns about how the EPA handles the small refinery waiver. Some have stated that these refineries will not suffer disproportionate economic hardship if they do not receive waivers and have criticized the Agency for not fully disclosing the reasons it grants waivers. Chevron and Exxon are among the petroleum giants that have requested waivers for their smallest refineries. Others have argued that if the EPA grants a waiver, it must reallocate the waived volumes of renewable fuel to other Obligated Parties. The EPA has resisted this interpretation.

“We disagree with comments claiming that EPA is statutorily required to reallocate exempted volumes through drawing down the carryover RIN bank,” the Agency has stated. “We believe that the statute plainly grants us discretion over whether and how we consider exempted small refinery volumes and the carryover RIN bank.  Alternatively, even if the statute is ambiguous, we believe our interpretation is reasonable under Chevron v. NRDC.”

Stakeholders speak

Following are several reactions to this interpretation:

“In the final rule, EPA states that it has not received small refinery exemption petitions for 2019 and therefore estimates zero gallons of exempted fuel in its RVO formula. The Agency has estimated zero gallons every year since 2015, even though it retroactively exempted more than 24.5 billion gallons of fuel between 2015 and 2017. The Agency’s own data show that the retroactive small refinery exemptions reduced demand for biodiesel by more than 300 million gallons in 2018.”—National Biodiesel Board

“While the farm economy is truly struggling, the EPA continues to hand out RFS waivers to oil companies making billions in profits in the name of economic hardship. If the EPA would simply follow the law and implement the RFS as Congress intended, farmers, consumers, and our environment would all benefit.”—Iowa Corn Growers Association

“We urge Acting Administrator Andrew Wheeler to faithfully and strictly enforce the 15-billion-gallon conventional renewable fuel requirement in 2019, rather than allowing the standard to be eroded through the use of clandestine small refiner waivers as former Administrator Pruitt did. Mr. Pruitt issued nearly 50 refinery waivers from 2016 and 2017 RFS requirements, including bailouts to companies like Chevron and Andeavor that recorded billions of dollars in net profits in those years. As a direct result of the exemptions, America’s ethanol producers and farm families have experienced demand destruction and are now facing the most challenging economics in years.”—Renewable Fuels Association

Transparency

Regarding alleged lack of transparency in how it reviews waiver requests, the Agency states in its Response to Comments document:

“Outside of this rulemaking proceeding, we have recently taken steps to provide additional transparency on small refinery exemptions, including publishing regularly-updated information on its website as to the number of petitions it has received, the number of exemptions granted, and the volume of exempted RVOs from these exemptions.”

The Response to Comments document, the final RFS rule, and other material are available here.

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