March 10, 2021
The winds of change are blowing directly at EPA….and causing the agency to shift in a completely opposite direction. At the risk of speaking too soon, it looks like EPA might be returning to a pre-2016 narrower read of the regulations with respect to small refinery exemptions (SREs).
Recently , EPA announced that after “careful consideration of the 2020 decision of the U.S. Court of Appeals for the Tenth Circuit in Renewable Fuels Association et al. v. EPA, 948 F.3d 1206 (“Decision”), EPA supports that court’s interpretation of the renewable fuel standard (RFS) small-refinery provisions.” EPA’s announcement follows the decision of the United States Supreme Court to grant certiorari to hear the appeal of the 10th Circuit’s opinion.
In January of 2020, the 10th Circuit ruled on three different small refinery exemptions. Associated refineries to Wynnewood Refining and HollyFrontier were granted SREs for the years 2013 to 2016. However, each refinery had either not met the burden of being a small refinery as defined by the regulations or had failed to apply for an exemption but had applied for an extension of an exemption that had never existed. The 10th Circuit held that, since the refineries did not meet the requirements of the regulations, the SREs that had been granted should be withdrawn.
To qualify for an SREs, the applying refinery had to have a throughput of less than 75,000 barrels per day (in other words, be “small”) and had to show an undue hardship. SREs were granted as a blanket exemption under the first iteration of the Renewable Fuel Standard (RFS). Beginning in 2013 any small refinery that had received an exemption would have to apply for an extension of that exemption on an annual basis. Failure to apply or denial of an application for an SRE would forever revoke a refinery’s ability to receive an SRE in the future. For more information read Becoming the Outcast: the “What” Portion of The Small Refiner Exemption, written by yours truly.
One of the most shocking things about EPA’s recent announcement is just how completely out of character it is for the agency. Over the past 4 years, EPA has been granting SREs like it’s their job…even when it’s not. For example, in the years 2013-2015, EPA granted 7 to 8 SREs a year. However, in the year 2016, the EPA granted 19 SREs, nearly as many as the past three years combined. Since 2016, the number of SREs granted has only increased, causing an outcry in the renewable fuel industry. Between SREs, and COVID considerations, participants in the renewable fuel standard have suffered everything from falling fuel demand to dropping RIN prices. For the past four years, EPA seems to have been doing everything it can to give small refineries an advantage that other members of the renewable fuel industry simply don’t have.
So why the 180-degree turn? Great question. It could be that the United States Supreme Court is set to publish their opinion in June on the appeal of the decision of the 10th Circuit. Being called out by the Supreme Court doesn’t seem like a position that you want to be in. It could also be that the incoming Biden administration is slowly changing the landscape of EPA. It could be that EPA has finally gotten tired of being admonished by participants of the renewable fuel industry. Whatever the reason, this return to a more consistent regulatory analysis is a welcome change.
Will this shift toward a narrower reading of the regulations continue? If I had a crystal ball, I could definitively tell you…and be worth a lot more money. As you might expect, the Supreme Court decision might be the most decisive factor when determining the future course of EPA action. Depending on what the Court decides, EPA might become “stuck” in a position where it no longer has the flexibility to grant SREs with quite so much heedlessness. However, that also assumes that the Supreme Court will rule in favor of the 10th Circuit’s decision, and there is no guarantee that will happen.
Is EPA a little late to the party with their announcement? It’s been over a year since the 10th Circuit decision was published which would make it seem like EPA should have jumped on this bandwagon a long time ago. It might be important to note that EPA rarely does anything quickly, and is bound by additional factors, such as court decisions and administrative precedent. This might make EPA a little slower to the “we should really do what the regs say here” train. But I guess better late than never, right? Hopefully, this trend toward a more consistent read of the regulations continues, and the participants of the renewable fuel industry can go back to enjoying just a modicum of predictability.