I’m Shook! EPA Denies 36 Small Refinery Exemptions for the Compliance Year 2018

April 13, 2022

It seems like I’ve written a lot of articles on Small Refinery Exemptions (SREs). In my defense, there’s been a lot of material there. For example, last week EPA denied 36 petitions for SREs the 2018 compliance year.

For a quick refresher, an SRE is a little bit of a “safe harbor” provision within the Renewable Fuel Standard (RFS) regulations that excuses or waives the compliance obligations for a small refinery so long as certain criteria are met. First, the petitioning refinery (the refinery asking for the petition) must qualify as small under the regulations. Second, the refinery must have demonstrated a disproportionate economic hardship (DEH) in complying with the regulations. This requirement was further defined by 2020 10th Circuit court decision and the 2021 U.S. Supreme Court decision to state that the DEH must be a direct result of RFS compliance.

Now, let’s get to the significance of EPA’s denial of the 2018 SREs. In 2019, EPA granted 36 SREs for the 2018 compliance year. This decision came prior to either the 10th Circuit or the SCOTUS decision. So, when the case was decided, EPA had to go back and re-do what they had already done. This means, that when EPA granted those SREs for 2018, 31 of the originally-granted 36 had to be reviewed by EPA in order for those SREs to be in line with the court holdings. This is significant because EPA had already granted those SREs.

Wait, what? Since those SREs already granted, weren’t they “safe” from EPA review? Well, sometimes that’s not how that works. When a court reviews something and then remands, or gives back to EPA, that thing has to be re-reviewed by EPA against the court’s most recent decision. This is why you’re seeing 2018 SREs being re-decided even though they had already been granted. Doesn’t this set a terrible precedent so that all SREs are never final? Well, no, not really. Keep in mind, the point here, is to maintain legal consistency and EPA, while a government agency, is not the court system and is subject to the same legal procedures as the rest of us schmucks.

Alright, so what happens now? Well, in theory, these small refiners would be on the hook to find RINs and retire them against any incurred 2018 obligation. But 2018 was so pre-COVID? Right, and the regulations require that all incurred obligations be fulfilled with RINs that were either generated (created) in the same year that the obligation was incurred or the year immediately prior. Essentially, small refineries would be madly searching for 2017 and 2018 RINs.

But like, that sounds pretty impossible? Do RINs even stick around on  the marketplace that long? Uhhh, no, not really. So what’s a small refinery to do? EPA provided an answer to that. EPA has provided the impacted small refineries with an alternative compliance mechanism which would allow them to complete their compliance reporting obligations for the year 2018 but negates the need to purchase and retire RINs against that obligation.

Now, before you get all up in arms about this, let’s talk logistics here. It’s difficult to find RINs from 2020, let alone pre-COVID RINs. Further, the enforcement of the obligation itself isn’t really the point here. The point, rather, is that EPA is now using a different, arguably more accurate, review analysis which could lead to more consistent, predictable results. The over-arching victory is EPA’s implementation of the court decision. Providing an alternative mechanism for compliance so that small refiners can comply with obligations incurred in 2018 is, admittedly, not the best outcome, but it certainly is not the worst and it is understandable. Ok, so, EPA has denied SREs for the year 2018, what do you think EPA’s going to do for 2016, 2017, and 2019-2021? If I had a crystal ball, I could at least pay back my student loans. Sadly, no crystal ball means I cannot answer that question…nor pay off my student loans…