Years of renewable fuel litigation launched under President Donald Trump will come to a head over the course of 2021.
Exemptions of Renewable Fuel Standard (RFS) mandates for the smallest US refineries carried outsized influence over the mandates under Trump. Though the Environmental Protection Agency (EPA) began a new tack on these waivers last year and will see new leadership in the next, look for their future to be settled in court.
RFS requires that refiners, importers and certain other companies each year ensure minimum volumes of renewables blend into the gasoline and diesel they add to the US transportation fuel supply. Obligated companies prove compliance by acquiring renewable identification numbers (RINs) representing each ethanol-equivalent gallon of renewable fuel mixed in.
The law included waivers for small refineries. Facilities processing less than 75,000 b/d of crude that could show EPA and the Energy Department that meeting the regulations created a hardship could have production exempted from RIN obligations. The exemption intended to extend the transition for refineries unable to competitively adopt the program requirements, often without the scale to participate in the critical blending fuel just before delivery to retail pumps.
All 59 qualifying small refineries received exemptions automatically in the first three years of the program. Facilities had to apply for exemptions in 2011.
Former president Barack Obama's administration kept such waivers rare. A federal judge determined in 2017 that they were too rare, and the criteria too restrictive, and sent back EPA's denial of an application by West Virginia small refinery Ergon. President Donald Trump's EPA had moved to grant more of these waivers even before that ruling, emails would later show.
Big trouble in small waivers
Small refineries account for just 11pc of US refining capacity. But EPA's administration of the waivers over the past three years rippled across the entire road fuel sector. Because the agency did not shift responsibility for the exempted small refinery production to other, larger refiners, the waivers effectively reduced total blending requirements for a given year. EPA shocked biofuels producers by approving 25 exemptions of 2017 requirements in April 2018 — 86pc of requests. Approvals for that compliance year alone would climb to 29, waiving requirements for 17bn USG of gasoline and diesel, or almost 10pc of the year's total mandate. EPA would later exempt 7.4pc of 2018 requirements, compared to 1.7pc in 2015.
Because RINs remain valid for two years and can be traded, the waivers generated a surprise, after-the-fact supply of credits that could be kept or sold by the small refineries to satisfy the ongoing requirements without blending fuel.
These sudden bursts of credits helped to keep obligated party compliance costs below 4¢/USG — less than half the average cost of compliance in Obama's final year — for almost half of Trump's administration. They also infuriated biofuels groups, pitching Trump into a fruitless quest to negotiate a "win-win" solution satisfying both refiners and renewable fuel producers.
EPA last year adopted a rule to estimate and shift future small refinery waivers to other obligated parties in the annual mandates. A little more than a month later, the 10th US Circuit Court of Appeals determined that any refinery that passed a year without an exemption lost eligibility, anyway. Though the ruling technically only applied in the circuit's Rocky Mountain jurisdiction, EPA would be loathe to treat obligated parties differently by geography. Only two facilities would remain eligible. R
efiners rushed to apply for unprecedented exemptions of long-passed years for which they had already complied. HollyFrontier and CVR Energy, each with qualifying small refineries losing eligibility under the decision, appealed the decision to the US Supreme Court.
Unsettled business
The Supreme Court has yet to decide whether it will take the appeal. Seven states joined HollyFrontier and CVR Energy to urge the court to review the 10th Circuit's "wholesale rewrite of the program that violated congressional intent and that will harm the nation's small refineries." Biofuel groups insisted that the decision stand as settled law.
The US Department of Justice, which will argue on behalf of EPA, asked the court to instead let the same arguments play out before the District of Columbia Court of Appeals. Biofuel groups have challenged exemptions granted for 2018 obligations on the grounds that they improperly "extended" the waivers, based on the 10th Circuit criteria. The DC Circuit's decision would apply nationally, and if in conflict with the 10th Circuit, give the Supreme Court a dispute between districts to settle. Deadlines for briefs in that case continue into May.
The DC circuit in September heard arguments on small refinery waivers as part of a wide-ranging challenge to 2019 mandates. But the three-judge panel in those arguments questioned less about the use of the waivers than whether such overarching, fundamental mechanisms could be challenged annually.
And EPA has still more unfinished small refinery business to address. A federal court in November again rejected the agency's denial of Ergon's small refinery waiver — EPA was closer, but must review the petition again.
