EPA denies 'gap year' biofuel blending waivers: Update

Adds detail.

The US Environmental Protection Agency (EPA) today denied dozens of refinery requests to waive past biofuel blending obligations, a move that could sharply limit the future use of exemptions that have repeatedly reduced US fuel mandates.

EPA's denial will sharply curtail the use of waivers that President Donald Trump's administration has used to abruptly reduce the annual volumes of renewable fuels that refineries, importers and other companies must ensure enter the US transportation supply. The decision avoids angering agribusiness voters in midcontinent states ahead of the November presidential election but met quick denouncements from the refining industry.

The agency rejected 68 applications filed this year by 17 refineries seeking exemptions from Renewable Fuel Standard (RFS) requirements from 2011 to 2018 that each of the sites had already met. These unusual requests, known as 'gap-year' filings, sought to preserve the future use of waivers that have reduced previous recent annual requirements by as much as 10pc. The Argus-assessed cost to comply with the mandates for this year increased by about 0.4¢/USG to around 7¢/USG after EPA confirmed the decision before ending the day at 6.89¢/USG.

The requests provided no new information that would merit approving waivers with little legal precedent and no clear financial remedy, EPA said.

"This decision follows President Trump's promise to promote domestic biofuel production, support our nation's farmer, and in turn strengthen our energy independence," EPA administrator Andrew Wheeler said.

EPA's denial means that no more than three US refineries remain eligible for future waivers based on federal appellate court criteria set in a January decision. US independent refiner HollyFrontier appealed that decision to the US Supreme Court earlier this month. The agency has yet to propose minimum blending volumes for next year.

RFS requires refineries, importers and certain other companies to each year ensure minimum volumes of renewables blend into the gasoline and diesel they add to the US transportation fuel supply. Obligated parties acquire credits called renewable identification numbers (RINs) representing each ethanol-equivalent gallon of renewable fuel physically blended into the supply.

The law includes an exemption for refineries processing fewer than 75,000 b/d of crude a year and able to persuade EPA that the obligations create a financial hardship. These exemptions surged under President Trump, waiving requirements for dozens of smaller refineries from prior obligations. Because the US historically did not shift these obligations to other obligated parties, the waivers freed up billions of RINs for other, larger refineries to purchase for their own obligations instead of increasing physical blending.

Refineries in 14 states this year asked EPA to waive past obligations to meet the January criteria that obligated parties must have received exemptions continuously to be eligible for future waivers. But the agency doubted that Congress intended EPA to waive requirements refineries had already met, the agency wrote in a memo to applicants. And though Trump's administration has adopted a far more open policy toward waivers than standards under former president Barack Obama that courts later reversed, the agency would not review past decisions.

Biofuels and farm groups praised the agency.

"Today's action lifts a cloud of uncertainty that has been hanging over America's farmers and biofuel producers since June," said Emily Skor, chief executive of ethanol trade group Growth Energy.

EPA has made other, more recent changes to the standards that refineries will now press to review. The agency last year adopted a system to estimate and offset future waivers of the requirements based on the surge of recent exemptions awarded under the previous criteria. The American Fuel and Petrochemical Manufacturers (AFPM) has already sued, challenging the legality of those offsets.

"Telling ethanol interests everything they want to hear in a press release is not going to increase the amount of ethanol that gasoline can absorb or do anything to help farmers and ethanol producers," AFPM chief executive Chet Thompson said.

By Elliott Blackburn