US EPA demonstrates new attitude toward RFS, agrees with January 2020 SRE court decision

The U.S. EPA announced that “after careful consideration” of the January 2020 Tenth Circuit Court of Appeals decision on small refinery exemptions (SREs) under the Renewable Fuel Standard, the agency agrees with the court’s interpretation, which severely limited EPA’s ability to grant SREs.

“This conclusion, prompted by a detailed review following the Supreme Court’s grant of certiorari in the case, represents a change from EPA’s position before the Tenth Circuit,” the agency stated Feb. 22. “The change reflects the agency’s considered assessment that the Tenth Circuit’s reasoning better reflects the statutory text and structure, as well as Congress’s intent in establishing the RFS program.”

After SRE approvals ramped up under EPA administrators Pruitt and Wheeler over the past several years, the situation came to a peak in August 2019 when the EPA granted 31 SRE petitions in a single day.

“For the 2015 compliance year, only 290 million renewable identification numbers (RINs) were not retired due to SRE petitions granted, yet for the 2017 compliance year, that number grew to 1.82 billion nonretired RINs,” EPA pointed out as an example. “The large increase in SRE petitions granted and associated unretired RINs represents a significant decline in the required use of renewable fuel volumes, which in turn decreased the incentives for the production and use of renewable fuels.”

In January 2020, the Tenth Circuit vacated and remanded three EPA decisions granting SRE petitions for the 2016 and 2017 RFS compliance years, which were issued in calendar years 2017 and 2018, holding that a small refinery’s petition can be granted only if the refinery can demonstrate an existing exemption already in place; or disproportionate economic hardship caused by RFS compliance.

Last month the U.S. Supreme Court granted the small refineries’ petition for a writ of certiorari asking the court to review the Tenth Circuit’s holding regarding the SRE eligibility of small refineries that lack an existing exemption.

“We appreciate EPA’s effort to restore integrity to the RFS and set consistent criteria for decisions on exemptions,” said Kurt Kovarik, vice president of federal affairs for the National Biodiesel Board. “The Tenth Circuit Court set a reasonable standard that EPA’s authority is limited to extending existing exemptions. We applaud EPA’s agreement with that interpretation.”

Gene Gebolys, CEO of World Energy, praised EPA for its change of course. “World Energy stands with environmental advocates, clean energy developers, and even the American Petroleum Institute to applaud the EPA’s action today as a clear sign that the agency once again embraces its obligation to administer the RFS as it was plainly intended,” Gebolys said, adding that this is a clear signal EPA will get back to its mission of environmental protection. “Over the past four years, the RFS has been under attack from the very EPA charged with administering it. Today, EPA turned the page. By statute, all growth in the RFS resides in the most impactful lowest carbon segment known as advanced biofuels. Advanced biofuels are cleaner replacement fuels for diesel and aviation applications, whose transition to hydrogen, electrification, or other alternatives will be the slowest. Today, advanced biofuels are the overwhelmingly most effective way to make meaningful and immediate carbon progress.”

Monte Shaw, executive director of the Iowa Renewable Fuels Association, said, “We are excited and pleased to hear EPA finally embrace the common-sense Tenth Circuit Court decision on RFS exemptions. The RFS exemption program was always intended to be a tool to provide temporary relief to truly small refineries and it has been abused for far too long. Hopefully this signals an end to the dark days of undermining the RFS through illegal exemptions and waivers, and we can look forward to the law being applied in a way that actually grows demand for ethanol and biodiesel blends as was always intended.”