EPA quits RFS court fight while refiners seek to overturn ruling against them

The Trump administration has chosen not to fight a court ruling that denied hardship exemptions for three small refineries faced with the obligation to buy credits for the Renewable Fuel Standard (RFS).

The owners of the refineries have not given up, however, and filed court petitions Mar. 24 to continue the fight on their own. The outcome could affect many small refineries nationwide.

A ruling Jan. 24 by a three-judge panel of the US Court of Appeals for the Tenth Circuit upended the system for granting exemptions by deciding refineries could not get exemptions if they had not received them continuously, year after year. The Environmental Protection Agency (EPA) let a Mar. 24 deadline pass without taking action.

“EPA’s decision not to appeal the court’s ruling is inexcusable,” said Sen. John Barrasso (R-Wyo.) in a statement issued Mar. 25. “The court has effectively ended hardship relief for small refineries under the nation’s broken biofuel mandate. The agency’s decision to give up without a fight threatens small refineries in Wyoming and across the country.”

Chet Thompson, president of the American Fuel and Petrochemical Manufacturers (AFPM), an association including US refiners, issued a statement lamenting the EPA decision. “It’s beyond us why the president is once again trying to appease a biofuel industry that time and again has demonstrated it cannot be satisfied,” Thompson said.

The biofuel industry is concentrated in the Midwest, especially in states where corn ethanol is produced. Some of those states also may prove important to the presidential election in November.

Severe impacts feared

“For many companies the RFS requirements are one of their largest costs. This could be devastating for some of those facilities for sure,” Geoff Moody, AFPM vice president of government relations, told Oil & Gas Journal.

“If applied nationwide, only a few refineries would qualify for exemptions,” Moody said.

Owners of the three refineries in the case filed petitions for “en banc” review, or review by the full Tenth Circuit—a request that does not often succeed but possibly can result in the full court overturning the decision of the three-judge panel. The next step could be appeal to the US Supreme Court.

The case is Renewable Fuels Association v. EPA. The owners in the case are subsidiaries of HollyFrontier Corp. and CVR Refining LP. The HollyFrontier refineries are in Cheyenne, Wyo., and Woods Cross, Utah. The CVR refinery is in Wynnewood, Okla. CVR is controlled by investor Carl Icahn.

In its petition for rehearing, CVR subsidiary Wynnewood Refining Co. LLC said, “By foreclosing access to future exemptions, the Panel Decision will force Wynnewood and eleven other Tenth Circuit refineries out of business.”

Small refineries commonly buy compliance credits from biofuel producers rather than making the biofuels themselves. The credits, referred to as renewable identification numbers (RINs), jitter up and down in price as market participants anticipate shortages or surpluses.

The Jan. 24 court decision was followed by a tripling of the RIN price for conventional ethanol, Wynnewood Refining said, implying the decision created the risk of a shortage that would stem from a surge in RIN demand from small refiners. The RIN price jumped from 6 cents a gallon 20 cents between Jan. 20 and Feb. 24, according to EPA data.

Arguments over interpretation

HollyFrontier, in its petition for rehearing, said the court decision effectively eviscerated extensions of the small refinery hardship exemption by insisting the term “extension” in the Clean Air Act RFS program requires continuous year-to-year exemptions including all prior years.

The court’s interpretation of “extension” conflicts with established meanings of the term and with court precedents, HollyFrontier said. The court ignored alternative definitions of the term that did not suit its decision, the company said.

HollyFrontier and Wynnewood Refining both noted that the law governing the RFS program gave small refineries the option to request “at any time” an “extension” of an exemption. The phrase “at any time” does not confine the hardship exemption to a particular period of time, HollyFrontier said.

Wynnewood Refining said the court decision conflicts with a prior Tenth Circuit decision in Sinclair Wyoming Refining Co. v. EPA. In that 2017 decision, the court overturned EPA’s denial of two exemptions for the 2014 compliance year even though the two refineries had not received exemptions in 2013.

Wynnewood also pointed to the fact that the Clean Air Act requires to renewable fuel mandate to increase over the years, creating the possibility that a small refiner might not need an exemption in one year but might later need an exemption as the mandate increases.