Retroactive RINs limited to two refiners: Update

Adds comments from Sinclair attorney.

The Environmental Protection Agency's (EPA) handling of long-expired fuel blending waivers this year will not create a wave of backdated exemptions, according to an attorney that represented the winning side in a related legal dispute.

Renewable identification number (RIN) prices swooned yesterday as the market realized that EPA earlier this year addressed exemptions from 2014 and 2015 Renewable Fuel Standard (RFS) requirements with brand new credits worth millions of dollars.

The unusual move followed Sinclair Oil's and HollyFrontier's successful appeals of an EPA decision to reject exemptions for three small refineries from RFS obligations for those years. Appellate judges last August found EPA had overstepped its authority in rejecting the applications in a decision with sweeping consequences for federal fuel blending standards.

Renewable fuels groups and industry participants worried this week that EPA administrator Scott Pruitt would overturn old rejections for more refiners.

But federal law limits the exemptions to those two companies, said Jeff Holmstead, who successfully argued Sinclair's appeal.

"Anyone who knows anything about the (Clean Air Act) would not make this claim," Holmstead said in a statement.

Holmstead was head of EPA's office of air and radiation from 2001 to 2005, before the modern RFS became law.

Parties have 60 days to appeal Clean Air Act decisions, including rejections of waivers under the Renewable Fuel Standard. Sinclair's appeals began in October 2014. HollyFrontier's appeal for 2015 obligations, made in December 2016, had lingered for years waiting on a ruling in the Sinclair case.

Other refiners rejected in those years missed their chance.

"HollyFrontier and Sinclair were uniquely situated, and no one else will be able to get RINs back from prior years," Holmstead said.

EPA had to remedy their taking of both companies RINs, Holmstead said. But obligated companies may only satisfy 20pc of their annual obligations with a previous year's RINs, meaning the credits effectively expire after two years.

The original credits, from 2014 and 2015, were worthless in 2017. RINs generated in 2016 and 2017 would also have limited value. By the time EPA decided how to move forward with a remedy, it was early 2018, he said.

"If this was a private sector issue, we could have just gotten money to make us whole," Holmstead said. "They knew that if they did not make us whole, we would have gone back into court, and I do not think that would have sat very well with the judges."

HollyFrontier early this month confirmed receiving $33.4mn worth of 2018 RINs associated with 2015 obligations at its 52,000 b/d refinery in Cheyenne, Wyoming. Sinclair has not commented on the value of RINs it received.

The actions were "narrow in scope" to address the appellate decision, EPA said yesterday.

RFS requires that refiners, importers and other companies each year ensure that minimum volumes of renewable fuels blend into the gasoline and diesel added to the US transportation supply. Companies must acquire RINs representing each gallon of this blending by physically combining the fuels or purchasing the credits from others. Refineries processing less than 75,000 b/d of crude in a year can seek hardship waivers of some or all of their obligations under the program.

The broader US refining industry still benefits both from the appellate court ruling and the newly-generated RINs. EPA approved at least 25 such waivers for 2017, a record for the program, following the appellate court decision. Because the agency has not traditionally shifted those obligations to other refiners, the waivers instead serve to reduce the total obligation for all participants in a given year.

Adding 2018 RINs to the pool further inflated the supply of credits without requiring physical renewable fuel blending.

The agency did not answer Argus questions on whether it will offer new criteria for the exemptions this year or continue to approve high numbers of exemptions going forward.