EPA Changes Course on RFS Exemptions

OMAHA (DTN) — The EPA is changing course on small-refinery exemptions to the Renewable Fuel Standard, announcing Monday it agrees with a court of appeals decision last year that the agency had mismanaged the program under the Trump administration.

With a ruling out of the 10th Circuit Court of Appeals now before the U.S. Supreme Court this spring, the EPA statement Monday means the Biden administration will not be defending the Trump administration’s stance on the small-refinery exemptions to the RFS. Monday was the deadline for EPA to file a brief with the Supreme Court over whether the Biden administration would back the previous administration’s view on refinery exemptions.

The 10th Circuit Court of Appeals, based in Denver, had ruled in January 2020 that EPA mishandled the exemptions program when it came to three small-refinery exemptions in particular. The Trump administration delayed action on the Renewable Fuel Standard to reflect the court’s decision.

From 2016 to 2020, the EPA granted 88 small-refinery exemptions (SREs). The ethanol industry made a successful challenge to the EPA’s granting of three exemptions in 2016 and 2017.

In its statement, EPA announced that, “after careful consideration” of the 10th Circuit case, “EPA supports that court’s interpretation of the Renewable Fuel Standard small-refinery provisions.”

Agency officials issued the statement even though President Joe Biden’s nominee to head EPA, Michael Regan, has not yet been confirmed by the U.S. Senate.

EPA officials added that the agency’s decision was brought about by a detailed review following the Supreme Court’s decision to grant a hearing in an appeal requested by two petroleum refiners. EPA noted, “The change reflects the agency’s considered assessment that the 10th Circuit’s reasoning better reflects the statutory text and structure, as well as Congress’ intent in establishing the RFS program.”

The 10th Circuit case was originally brought against EPA by the Renewable Fuels Association, National Corn Growers Association, American Coalition for Ethanol and National Farmers Union.

EPA said the marked increase in the number of exemptions approved over the past four years hurt the biofuels industry and rural America.

“In calendar year 2017 (largely for the 2016 RFS compliance year), EPA began granting a large number of petitions for extensions of small-refinery exemptions,” EPA said.

“By 2018, the number of SREs issued for the 2017 compliance year was more than quadruple the number issued for the 2015 compliance year. For example, for the 2015 compliance year, only 290 million renewable identification numbers were not retired due to SRE petitions granted, yet for the 2017 compliance year, that number grew to 1.82 billion non-retired RINs. The large increase in SRE petitions granted and associated unretired RINs represents a significant decline in the required use of renewable fuel volumes, which in turn decreased the incentives for the production and use of renewable fuels.”

The refiner HollyFrontier appealed the 10th Circuit decision, and the U.S. Supreme Court will hear arguments sometime this spring over whether the company was eligible for an exemption, although it had not previously received any.

Renewable Fuels Association President and CEO Geoff Cooper said EPA’s announcement was welcome news for the ethanol industry.

“We are grateful that the new leadership at EPA took the time to thoroughly review and carefully assess the 10th Circuit Court’s decision,” he said.

“This announcement marks a giant step forward by the new administration to restore the integrity of the Renewable Fuel Standard and honor the statutory intent of the program. We strongly agree with EPA’s conclusion that the small-refinery exemption was intended to be a temporary measure, and we are pleased to see the agency confirming that only previously existing exemptions may be extended.”

Emily Skor, CEO of Growth Energy, also stated the group is pleased to see signals from the Biden administration to support the 10th Circuit ruling “and repudiate the prior administration EPA’s misguided attempt to distort the plain language of the RFS to serve oil industry interests at the expense of America’s biofuel producers and farmers,” Skor said.

Republican Iowa Gov. Kim Reynolds said although the Biden administration’s decision is welcomed, she wants to see the Supreme Court uphold the RFS.

“The small-refinery exemption waivers have undermined the Renewable Fuel Standard for far too long, diminishing demand for ethanol and biofuels,” she said in a statement.

“Today’s announcement by the EPA in defense of the 10th Circuit Court’s decision to rein in these waivers is a victory for Iowa farmers, our renewable fuels industry, and our rural economy. It is an encouraging sign from the Biden administration on renewable fuel policy, but we cannot let up until the 10th Circuit’s ruling is fully upheld by the U.S. Supreme Court.”

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

Follow him on Twitter @toddneeleyDTN

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