Growth Energy challenges EPA’s ‘alternative compliance’ approach

By Growth Energy | June 27, 2022

Growth Energy filed petitions for review in the U.S. Court of Appeals for the D.C. Circuit challenging the U.S. EPA’s decision to excuse certain refineries from their obligations under the Renewable Fuel Standard. In a decision announced this April, EPA reversed 31 small refinery exemptions (SREs) it had previously granted for the 2018 compliance year but declined to hold affected refiners accountable for meeting any blending obligations for that year. Instead, EPA crafted a novel “alternative compliance” approach that excused these refiners from ever having to comply with their 2018 blending obligations. In June, EPA reaffirmed this approach when it excused additional refiners whose petitions for 2016 and 2017 SREs it denied for the first time.

“EPA’s ‘alternative’ approach to RFS compliance provides no actual alternatives for refineries to meet their biofuel blending obligations,” said Growth Energy CEO Emily Skor. “It’s a mistake that needlessly pulls EPA off the forward-looking path this administration set under the new 2022 renewable volume obligation (RVO). As President Biden said in Iowa, ‘you simply can’t get to net-zero by 2050 without biofuels’. To take full advantage of the carbon reductions and cost savings offered by biofuels, EPA must hold refineries accountable to their blending obligations.”

Background:

In August 2019, the Trump administration’s EPA approved an unprecedented 31 SREs for the 2018 RVO compliance year with only a cursory, two-page decision. A coalition of biofuels and ag leaders, including Growth Energy, filed a petition in the D.C. Circuit Court challenging EPA’s decision. The coalition asked the court to stay the 2018 SRE case in November 2019 pending the outcome of related litigation in both the 10th Circuit and D.C. Circuit Courts. In January 2020, the 10th Circuit ruled in Renewable Fuels Association et al. v. EPA that EPA has no power to ‘extend’ an exemption that had lapsed. The Court also held that EPA lacks the authority to grant an exemption based on hardships not caused by RFS compliance, and also found that it was arbitrary and capricious for EPA to ignore its own prior studies showing that refiners recoup RFS compliance costs.

On June 25, 2021, in HollyFrontier v. Renewable Fuels Association, the Supreme Court vacated the 10th Circuit’s holding that EPA may only ‘extend’ continuously pre-existing exemptions but the other two holdings from the 10th Circuit decision remained intact. Thus, EPA had the opportunity to apply the other two 10th Circuit precedents not challenged in the HollyFrontier case and request a remand and vacatur of the 31 SREs at issue in the D.C. Circuit. However, on August 25, 2021, EPA instead filed a motion to remand the SREs without vacatur. In response, the D.C. Circuit remanded the exemptions back to EPA, but, as a result of this biofuel coalition’s motion in opposition, required the agency to make new determinations on the contested SREs no later than April 7, 2022.

On April 7, 2022, EPA denied all 31 SREs on remand. Instead of requiring the affected refineries to blend biofuels or purchase RINs, however, EPA issued an “Alternative Compliance Demonstration Approach” document that allowed the affected refineries to “resubmit their 2018 RFS annual compliance reports with zero deficit carryforward and no additional RIN requirements,” effectively nullifying the refineries’ obligations for the 2018 compliance year, even though their SREs were denied. Rather than require these refineries to blend biofuel or purchase additional Renewable Identification Numbers (RINs) as obligated to do under the RFS, EPA’s alternative compliance simply cites a litany of unconvincing “insurmountable obstacles” to ensuring compliance.

On June 3, 2022, EPA reaffirmed its “alternative compliance demonstration approach” by granting the same relief to three refineries that had sought SREs for the 2016 and 2017 compliance years. Unlike the 31 SREs denied upon remand for the 2018 compliance year, these three refineries had never previously been granted the SREs.