In a decision that is expected to broadly impact the Environmental Protection Agency's approach to granting small refinery exemptions (SREs) under the Renewable Fuel Standard, the U.S. Court of Appeals for the Tenth Circuit late on Friday struck down three exemptions that were improperly issued by EPA.
The court ruling stems from a May 2018 challenge brought against EPA by the Renewable Fuels Association, the National Corn Growers Association, the American Coalition for Ethanol and National Farmers Union.
"We are extremely pleased with the Tenth Circuit's decision to vacate the waivers granted by EPA to three refineries owned by CVR Energy and HollyFrontier," said RFA President and CEO Geoff Cooper. "The Court has affirmed our long-held position that EPA's recent practices and policies regarding small refinery exemption extensions were completely unlawful. And while the decision addresses three specific exemptions, the statutory interpretation issues resolved by the court apply much more broadly."
Among other findings, the Court held that EPA cannot "extend" exemptions to any small refineries whose earlier, temporary exemptions had lapsed. According to the Court opinion, "the statute limits exemptions to situations involving 'extensions,' with the goal of forcing the market to accept escalating amounts of renewable fuels over time.
None of the three small refineries here consistently received an exemption in the years preceding its petition. The EPA exceeded its statutory authority in granting those petitions because there was nothing for the agency to 'extend.'" EPA's own data show that a maximum of only seven small refineries could have received continuous extensions of their previously existing exemptions. Yet, recently EPA has granted as many as 35 exemptions in a single year.
"The Court's decision is welcome news for corn growers," said National Corn Growers Association President Kevin Ross. "Ethanol is an incredibly important value-added market for corn farmers, and EPA's waivers have reduced RFS volume requirements by more than 4 billion gallons over the past three years, impacting corn demand. We are optimistic this decision will finally put an end to the demand destruction caused by waivers and keep the RFS back on track."
The Court also found that EPA abused its discretion in failing to explain how the Agency could conclude that a small refinery might suffer a disproportionate economic hardship when the Agency has simultaneously consistently maintained that costs for RFS compliance credits, or RINs, are passed through and recovered by those same refineries.
"ACE members are elated the Tenth Circuit court agreed with us that EPA overstepped its authority in granting three specific small refinery exemptions to CVR Refining and HollyFrontier," said American Coalition for Ethanol CEO Brian Jennings. "The court's ruling highlights how EPA abused the SRE provision of the Renewable Fuel Standard in broader terms to unfairly enrich the oil industry which could have far-reaching implications on the legitimacy of other refinery waivers and limit how they can be used moving forward."
According to the renewable fuels coalition, the Court's decision sends a resoundingly positive signal to the marketplace at a time when it is desperately needed.
"This ruling comes at a critical time for America's farmers and the biofuels industry," said National Farmers Union President Roger Johnson. "Due in large part to EPA's rampant and ongoing abuse of the SRE program, 2019 was one of the most challenging years in history for the agriculture and biofuel sectors. We believe this ruling will help restore the ability of the RFS to drive demand and expand markets for renewable fuels, as Congress intended, providing a badly needed shot in the arm for rural America."
The Court's opinion is available here.