API asks EPA to deny states, small refiners' biofuel waiver requests

The American Petroleum Institute asked the US Environmental Protection Agency to deny petitions by small refiners and four states for waivers from the 2018 biofuel quotas the agency issued under the federal Renewable Fuel Standard (OGJ Online, Dec. 1, 2017). "The ongoing issues with the RFS program are structural in nature, apply to all regulated parties, and need to be addressed on a nationwide basis," API Downstream and Industry Operations Director Frank J. Macchiarola said in a Feb. 12 filing.

Between Nov. 1, 2017, and Jan. 30, governors from Pennsylvania, New Mexico, Texas, and Delaware cited volatile markets for renewable fuel credits as they sought waivers for refiners in their states. EPA Administrator E. Scott Pruitt requested additional information on how the agency could implement the law's waiver provision better from all but Delaware Gov. John Carney (D) on Jan. 31.

Independent refiners have reported problems in obtaining the credits, called Renewable Identification Numbers, for years. They were part of a coalition that included retailers and labor unions that called on the Trump administration last fall to move ahead with a review of biofuel quotas under the RFS despite opposition from renewable fuels organizations and two US senators from Great Plains states (OGJ Online, Oct. 31, 2017).

Kim Nibarger, the United Steelworkers' national oil bargaining chairman, urged EPA to track RIN imbalances more closely a week after Philadelphia Energy Solutions LLC announced that it was seeking federal bankruptcy protection because of excessively high RIN costs (OGJ Online, Jan. 30, 2018).

In API's filing, Macchiarola said adverse economic impacts resulting from excessively high renewable fuel quotas are felt across the marketplace. "Granting state, region, or refinery specific RFS exemptions creates uncertainty and distorts the level playing field, resulting in harm for the nonexempted obligated parties," he said.

Macchiarola noted that when EPA denied petitions to move the RFS quota obligation point farther downstream in November, it found that while a merchant refiner directly pays for RINs it buys on the open market, it passes the cost along, meaning that it is not at a competitive disadvantage to larger integrated refiners.

Exemptions aren't appropriate

"As the size of a refinery alone does not determine operational competitiveness in the marketplace, it is not appropriate for EPA to grant small refiner exemptions to the RFS program," Macchiarola said. "Similarly, it is not appropriate to grant state petitions to waive the RFS program that are based on the premise that RIN acquisition adversely impacts small or merchant refiners, or to otherwise relieve these obligated parties of their obligations."

EPA's best available remedy would be to use its waiver authority to establish annual renewable fuel quotas that are reasonable, achievable, and fair for all RFS stakeholders, Macchiarola said. "Granting individual requests for relief creates a distortion in the marketplace and threatens the integrity of the RFS program," he suggested.

API's request came the same day that the American Fuel & Petrochemical Manufacturers petitioned EPA to reduce mandated volumes of what the trade association said are non-existent cellulosic biofuels. "EPA's data demonstrate that domestic cellulosic biofuel production in 2017 fell short of the 311 million ethanol-equivalent gal mandate by approximately 83.6 million ethanol-equivalent gal," the filing said.

"Year after year, the cellulosic biofuel industry fails to produce the volumes mandated under the RFS, forcing refiners to pay a de facto phantom fuel tax to comply with EPA's unrealistic predictions," AFPM General Counsel Rich Moskowitz said in a separate statement. "Refiners should not be penalized for the cellulosic biofuel industry's deficiency, and EPA must take action to adjust these unrealistic volume mandates."

In a Feb. 13 letter to EPA Assistant Administrator William Wehrum, AFPM Pres. Chet Thompson said the trade association supports the four governors' waiver petitions. "AFPM has long maintained that the RFS disadvantages consumers and harms US energy security. The limits of the fuel distribution system to accommodate increasing ethanol volumes are well documented, and have increased compliance costs for the program," he said.

"Likewise, EPA's continued insistence on utilizing foreign imports for the purpose of calculating volume obligations is compelling consumers to purchase higher-priced biodiesel and has simultaneously displaced US-produced diesel with foreign fuels," Thompson said.