Newly available court documents assert that the U.S. Environmental Protection Agency inappropriately granted Renewable Fuel Standard (RFS) compliance exemptions to certain small refineries that did not even qualify for the waivers, and that there was division within the Trump administration about its new approach to small refinery hardship exemption requests.
Specifically, the briefs and supporting documents show EPA granted disproportionate economic hardship exemptions to small refineries whose previous exemptions had fully lapsed, meaning the Agency disregarded the requirement that refiners may only obtain an "extension" of an existing exemption. The redacted briefs and other documents filed in the Tenth Circuit Court of Appeals pertain to Renewable Fuels Association et al. v. EPA, which addresses EPA's decisions to retroactively grant hardship exemptions to two refineries owned by HollyFrontier and one refinery owned by CVR's Wynnewood subsidiary.
An audio file of the oral argument was also recently made available by the Court. The exemptions, which include two granted for RFS compliance year 2016 and one for compliance year 2017, were impermissible under the statute and based on analysis that rendered EPA's actions arbitrary and capricious, according to the opening and reply briefs filed by RFA, along with the American Coalition for Ethanol, the National Corn Growers Association, and National Farmers Union.
The petitioners' briefs argue that EPA, in addition to ignoring the commonsense meaning of "extension," also misinterpreted the phrase "disproportionate economic hardship"—the statutory criteria required to extend an exemption. EPA's interpretation is also undermined by the agency's own published conclusions that RFS compliance costs are generally passed through to purchasers of fuel and are borne proportionately for small and large refineries alike.
The parties' filings also revealed what ethanol interests had suspected for quite some time – that EPA was granting full exemptions not only where the Department of Energy had recommended only a partial exemption, but even where DOE had recommended a denial of the small refinery exemption extension in its entirety.
EPA's supplemental proposed rulemaking for the 2020 RVO, while proposing an inadequate solution to the small refiner exemption problem, reveals the extent to which EPA departed from DOE's recommendations. For the 2016-2018 compliance years, DOE on average recommended that 7.6 billion gallons of gasoline and diesel from small refineries be exempted from RFS obligations; however, EPA disregarded those recommendation and actually exempted an average of 12.8 billion gallons.
Although EPA maintained that the statute gives it final say on whether to extend the exemptions, EPA's decision to grant a full exemption where DOE recommended full denial is at odds with the recently released EPA decision document for 2018 small refinery exemptions, where EPA indicated that it denied all exemption requests where DOE had recommended denials. Although the issues have been fully briefed by the parties, on October 15, RFA and the other petitioners filed a request for the Court to consider three new documents that reveal disagreement within the administration regarding its approach to small refinery exemptions.
The first document, a memo authored by Francis Brooke, Special Assistant on the President's National Economic Council, describes a 2018 proposal to resolve the differences between ethanol and oil interests in part by a "restructuring" whereby "EPA will grant future small refinery exemptions based on only true disproportionate economic hardship," implying the administration was knowingly issuing waivers to small refineries who were not truly experiencing disproportionate economic hardship. The second document details the reservations of David Schnare, one of the senior aides to Former EPA Administrator Scott Pruitt, regarding the Agency's granting of small refinery exemptions that Schnare maintained were unlawful. The third document is the EPA decision document for 2018 exemption extensions, showing inconsistencies in EPA's adherence to DOE recommendations. A decision by the court, which could impact how EPA grants other retroactive small refinery exemptions in the future, may come by early 2020.