EPA misleads on reason for SRE policy change

By Erin Voegele | May 16, 2019

The U.S. EPA reportedly changed its small refinery exemption (SRE) evaluation process before May 4, 2017. The changes, which made it easier for refineries to qualify for waivers, came at least four months before a 2017 court ruling the agency often cites as the reason for its changed policy on SREs.  

Data published by the EPA shows the number of SRE petitions filed by small refineries—and the approved by the agency—increased significantly during the Trump administration. In 2015, the agency received 14 such petitions, approving only seven. Those seven petitions waived approximately 290 million gallons in blending obligations. The following year, SRE petitions grew to 20, with 19 approved and one still pending. Together, those petitions resulted in 790 million gallons of blending obligations being waived. For the 2017 compliance year, 37 SRE petitions were filed, with 35 approved and one still pending. To date, 1.82 billion gallons of 2017 blending obligations have been waived. EPA data shows 40 SRE applications have been submitted to date for compliance year 2018, with 39 still pending and one declared ineligible or withdrawn.

The EPA has cited an August 2017 decision handed by the U.S. Court of Appeals for the Tenth Circuit for the reason behind the recent uptick in approved SRE applications. In that case, the court found the agency used too strict a standard for “disproportionate economic hardship” when it denied an SRE application filed by Sinclair Oil. Two similar court cases followed. 

However, documents associated with an ongoing lawsuit filed against the EPA by the Advanced Biofuels Association show the agency changed its policy with regard to the review of SRE applications at least four months before the Court of Appeals handed down its decision in the Sinclair case.

Those documents show the EPA issued a final decision to an SRE petition on May 4, 2017. “EPA used this document, which was not publicly available, to announce a new policy whereby a small refinery is considered to suffer ‘disproportionate economic hardship’ based on adverse structural conditions alone without evidence that RFS Program compliance impacts refinery profitability or competitiveness,” wrote the ABFA in an April 24 filing with the court.

The document goes on state the “EPA has unfailing applied its new methodology since May 4, 2017, repeatedly issuing full exemptions—contrary to DOE’s recommendations—to small refineries with DOE Viability Index scores below 1.0. EPA’s new policy disregards DOE’s methodology, applicable RFS Program statutory language, and its own historic practice.”

“EPA’s change in methodology allowed exempted refineries to avoid purchasing billions of dollars of RINs,” the court documents state. “Despite the enormity of this change, it was made surreptitiously. Rather than announce this change through a rulemaking or a guidance document, EPA slipped it into a footnote of an informal adjudication decision sent to a single refinery and fiercely shielded from public view under the dubious claim that it contained confidential business information.”

The document goes on to explain EPA’s only attempted explanation for its methodology change come via boilerplate in its exemption decisions since May 4, 2017. That boilerplate language reads “EPA has determined that [disproportionate economic hardship] can exist on the basis of adverse structural conditions alone. A difficult year may exacerbate economic problems for small refineries that face disproportionate impacts, resulting in tangible effects including diminished refining margins, reduced profitability, cash flow limitations that can hinder its ability to acquire renewable fuel credits (Renewable Identification Numbers, or RINs) for compliance, and the potential to impair refinery operations. In addition, small refineries sometimes lack access to capital or credit that can also be necessary to achieve compliance.”

In the court filing, ABFA argues the EPA’s authority to grant temporary small refinery exemptions is limited to situations in which compliance with the RFS imposes “disproportionate economic hardship.” According to the ABFA, EPA has provided no legal justification for its policy that small refineries facing structural obstacles compared to larger refineries, yet scoring a 0.0 on DOE’s viability index, suffer from economic hardship. According to ABFA, EPA has exempted 24 small refineries with viability index scores of 0.0, indicating that RFS program compliance did not impact competitiveness and profitability.

The ABFA’s filing also notes that before the EPA’s policy change in May 2017, SRE decision documents exceeded 20 pages and contained a detailed summary of DOE’s analysis of the small refinery, followed by several pages of independent analysis of the hardship petition. Following the policy change, ABFA said EPA’s decision documents are “barely five boilerplate-filled pages and contain only a paragraph—or a single sentence—justifying the issuance of full exemptions to profitable and competitive small refineries over DOE’s recommendations.”

Sen. Chuck Grassley, R-Iowa, has weighed in on the change in SRE policy and news reports that EPA “made it easier for oil refineries to get waivers from the nation’s biofuel law at least four months before a 2017 court decision it often cites to justify the move to the corn lobby, and the move was motivated by a desire to save the oil industry money.”

“EPA repeatedly told Congress its hands were tied and blamed the courts. That appears to have been a lie. EPA also said it was following Department of Energy recommendations. We also know that’s bunk. I’m going to get to the bottom of this,” Grassley said. “I’ve asked EPA more times than I can count about how it makes its decisions to grant exemptions, and now that its excuses have turned out to be untrue, I’m going to demand answers. Hardship waivers should be the exception, not the rule. Executive branch agencies don’t make law, they implement law as intended by Congress. Former Administrator Pruitt’s use of the waiver process as a backdoor means to help the entire oil industry is in direct violation of a plain reading of the law. Congress has a clear oversight responsibility to see that EPA implements the law as intended. The time for stonewalling is over. After two years of dishonesty, Midwest farmers and biofuels workers deserve the truth.”

On April 24, the ABFA filed a motion for a preliminary injunction to prevent the EPA from granting an additional SREs until the resolution of its pending lawsuit. Final briefs in the ABFA’s lawsuit against the EPA are due June 25.