Lack of transparency over small refiner exemptions undermines RFS

By Renewable Fuels Association | January 26, 2018

There is a troubling “lack of transparency” in EPA’s management of the Renewable Fuel Standard’s small refinery exemption provisions, according to a letter sent this week to EPA Administrator Scott Pruitt by the Renewable Fuels Association. The letter from RFA President and CEO Bob Dinneen warns that “an ill-conceived and unauthorized expansion of this exemption could destabilize the market for renewable fuels and undermine Congress’s goals for the RFS program.”

EPA has the ability to exempt small refineries with crude oil throughput of no more than 75,000 barrels of crude per day from RFS obligations if they demonstrate that the program would lead to “disproportionate economic hardship.” EPA, in consultation with the Department of Energy, examines requests for the exemption on a case-by-case basis. In the past, EPA has generally exercised restraint and judiciousness in issuing exemptions for small refiners, presumably because there is little or no evidence that the RFS itself is causing disproportionate economic hardship. However, recent reports suggest EPA has received requests for exemptions from dozens of small refiners, and RFA believes the public has a right to better understand EPA’s decision-making process for granting or denying exemption requests. “Although EPA has indicated that it has evaluated a dozen petitions for exemption for 2016, we are not aware of any instance in which EPA has been willing to disclose any data about the total number of petitions it received and granted for subsequent years, including 2018,” Dinneen wrote.

“EPA recently indicated that a Congressional directive to follow the Department of Energy’s recommendations for exemptions ‘could impact how EPA evaluates small refinery hardship petitions and the number and magnitude of exemptions granted.’ It would be disappointing, to say the least, if EPA now began to increase the number and magnitude of exemptions granted, a decade after the program began,” Dinneen noted.

“As EPA reevaluates its position of what constitutes a ‘disproportionate economic hardship’ to a small refinery, we hope that EPA will remain true to its previous determination in the 2017 [RFS] Final Rule that ‘obligated parties, including small entities, are generally recovering the cost of acquiring the credits…necessary for compliance with the RFS standards through higher sales prices of the petroleum products they sell,” Dinneen continued.

In the interest of transparency and public participation, Dinneen’s letter requested that the agency provide more information on:

- Whether and how the criteria to approve an exemption request that EPA described in its Dec. 6, 2016 memorandum will be amended in light of the Sinclair Refining decision-

- Whether and to what circumstances EPA would consider departing from the Department of Energy’s recommendation on a particular exemption request;

- Whether and to what circumstances EPA would consider departing from the Department of Energy’s recommendation on a particular exemption request;

- Whether the Agency will confirm that any economic hardship asserted must be a direct result of RFS obligations and not general business factors that may impede a refinery’s profitability;

- Whether EPA’s Dec. 6, 2016 memorandum outlining financial and other information to be submitted as part of a small refinery exemption request will be updated in light of the recent developments described above;

- When EPA will publicly disclose, on an ongoing basis, the number of small refinery exemptions granted in 2016, 2017 and subsequent years, and whether each of those small refinery volume reductions were accounted for in that year’s or the subsequent year’s applicable percentages;

- The number of pending small refinery hardship exemptions that are pending before EPA for 2018;

- The total capacity represented by small refineries with pending hardship exemption requests in 2018; and

- When and how EPA intends to communicate any changes in policy to small refiners, the renewable fuels industry, or other regulated parties.

To provide greater certainty for both renewable fuel producers and obligated parties, the RFA letter also suggested EPA should establish an annual cut-off date for receiving and processing any small refinery exemption requests, and ensure that any exempted volumes are proportionally reallocated to the blending obligations for non-exempt refiners. Alternatively, the agency to continue granting hardship exemptions in the year they are received, but adjust the total gasoline and diesel percentage standards in the subsequent calendar year to offset the reductions.

“The renewable fuels industry and obligated parties deserve greater clarity on the criteria EPA will apply to small refinery petitions going forward,” Dinneen concluded.

View a copy of the letter here.