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EPA Says No to Moving Renewable-Fuel Point of Obligation

Agency denies petitions to shift compliance burden downstream

WASHINGTON -- The looming threat that fuel marketers might have to shoulder new burdens under the Renewable Fuel Standard (RFS) is gone, thanks to a recent decision by the U.S. Environmental Protection Agency (EPA) to deny petitions to redefine the point of obligation and specifically to move it downstream.

In recent years, refiners including Valero Energy and CVR Refining, along with groups such as the American Fuel and Petrochemical Manufacturers (AFPM), have filed petitions asking the EPA to reconsider its definition of obligated party—the entity responsible for meeting biofuel blending quotas under the RFS. In particular, they called for shifting the point of obligation from refiners and importers downstream to anyone from fuel blenders to distributors.

In November 2016, the EPA under the Obama administration proposed to deny the petitions. But the Trump administration appeared more amenable to considering a shift in the point of obligation, counseled by Carl Icahn, majority owner of CVR Refining and a former special regulatory adviser to the president.

Since then, EPA Administrator Scott Pruitt has met with influential legislators from Corn Belt states, as well as representatives from the biofuels and fuel marketing industries, urging him to maintain the current obligatory-party definition. Based on the EPA’s reasoning in its response to the petitions, it’s clear that many of the legislators' arguments were accepted.

“In evaluating this matter, EPA’s primary consideration was whether or not a change in the point of obligation would improve the effectiveness of the program to achieve Congress’ goals,” the notice says. “EPA does not believe the petitioners or commenters on the matter have demonstrated that this would be the case.

“At the same time, EPA believes that a change in the point of obligation would unnecessarily increase the complexity of the program and undermine the success of the RFS program, especially in the short term, as a result of increasing instability and uncertainty in programmatic obligations.”

The EPA statement also said that the current structure of the RFS is incentivizing the production, distribution and use of renewable fuels per Congress’ intent, and that obligated parties have several ways to comply with their obligations. The agency also said that changing the point of obligation could trigger a restructuring of the fuels marketplace as many of the newly defined obligated parties would change their business practices to avoid compliance costs.

“We believe these changes would have no beneficial impact on the RFS program or renewable-fuel volumes and would decrease competition among parties that buy and sell transportation fuels at the rack, potentially increasing fuel prices for consumers and profit margins for refiners, especially those not involved in fuel marketing,” the response says.

Several fueling and ethanol industry groups praised the decision to deny the petitions, including a group of associations led by NATSO, SIGMA and NACS.

"Since the RFS program was established, EPA correctly set the point of obligation where it belongs: on importers and refiners, the entities that control the composition of petroleum products, and we applaud the agency's decision to keep the point of obligation where it belongs," said Eva Rigamonti, counsel to NACS and SIGMA, in a statement. "This is the best possible outcome to ensure the continued integrity of the RFS program, and we thank EPA for continuing to act in the best interest of the U.S. fuels market and American consumers."

Main Street Energy Alliance (MSEA), a group that represents some of the c-store industry’s largest retailers and fuel brands—7-Eleven, QuikTrip, Sheetz, Kum & Go, RaceTrac and Murphy USA, among others—also lauded the move.

"The EPA made the right decision," said spokesman Michael Steel. "Keeping the point of obligation where it is avoided burdening small businesses and raising fuel prices on consumers. We're glad the EPA listened to them rather than a small group of special interests."

Biofuels groups also praised the decision as they continue to push for a greater rollout of higher ethanol blends such as E15, the 15% ethanol blend, against heavy opposition from the oil industry.

“We commend the EPA for laying to rest a year of attempts from a small group of oil refiners who have been using every trick in the book to change the established rules for tracking compliance with the Renewable Fuel Standard,” said Emily Skor, CEO of biofuels trade association Growth Energy. “This one-sided handout would have added regulatory red tape, created havoc in the marketplace and denied consumers access to more affordable fuels with higher blends of biofuels like E15.”

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