Ethanol Groups Sue EPA Over Small-Refinery Exemptions

Blending obligation waivers are destroying ethanol demand: RFA

WASHINGTON -- Ethanol industry groups are suing the U.S. Environmental Protection Agency (EPA) for granting blending waivers to several refiners, which they allege have been done in secret, in excess and to the point that it is destroying ethanol demand in the United States.

The Renewable Fuels Association (RFA), National Corn Growers Association, American Coalition for Ethanol (ACE) and National Farmers Union filed the lawsuit in late May against the EPA in the U.S. Court of Appeals for the 10th Circuit. The lawsuit is challenging three specific waivers the EPA granted, including one to a refinery owned by Wynnewood Refining Co., a subsidiary of CVR Energy, which is majority-owned by Carl Icahn, former special adviser to President Donald Trump. The other two waivers cited in the lawsuit were granted to refineries in Cheyenne, Wyo., and Woods Cross, Utah, owned by HollyFrontier Corp. The exemptions have relieved Wynnewood Refining and Holly Frontier of a combined $170 million in compliance costs, according to company statements cited by the plaintiffs.

The EPA has the power to grant small refineries—defined as those with throughputs of less than 75,000 barrels per day—a temporary, two-year exemption from their blending responsibilities, and the refiners could ask for extensions if they can show these obligations cause “disproportionate economic hardship.” As of late 2017, the EPA had approved only a few exemptions each year, but so far in 2018, it has granted more than two dozen and declined to release the names of the recipients. It has done so after a federal judge ruled in August 2017 that the agency was being too strict in its criteria for denying exemptions.

“EPA left us with no choice but to challenge their systematic cuts to ethanol blending in the U.S. by distorting the intent of the law to grant secret hardship waivers to refineries which in some cases exceed the definition of ‘small’ and fall short of demonstrating ‘disproportionate economic hardship,’ ” said Brian Jennings, CEO of ACE. The plaintiffs describe the companies that own the refineries cited in the lawsuit as profitable; for example, they point out that HollyFrontier launched a $1 billion stock share repurchase program and received more than $300 million in tax cuts in 2017.

The several small-refinery exemptions granted over the past two years have cut renewable fuel blending volumes by up to 1.6 billion gallons, according to the RFA. Prices of Renewable Identification Number (RIN) credits, meanwhile, have plummeted since February 2018, when news of the exemptions first appeared, according to reports.

'A Flood of Cheap RINs'

In an analysis, the RFA determined that the volume of ethanol blended in 2018 has been less than year-ago levels for 14 of the first 21 weeks of 2018. Meanwhile, the weekly ethanol blend rate, which RFA considers a more accurate measure of ethanol demand, has been lower than year-ago levels in 17 of the first 21 weeks of 2018. The group said that last year, the weekly ethanol blend rate had pushed past 10% nine times before May 31. But this year it has risen past 10% only twice.

“In essence, the recent tidal wave of small-refiner exemptions has resulted in a flood of cheap RINs,” said Geoff Cooper, executive vice president of RFA, in a blog post. “And as a result, many U.S. refiners and blenders are reducing their use of ethanol. Refiners who received an exemption in 2016 and/or 2017 are likely confident they’ll score another bailout from 2018 compliance obligations.”

The lawsuit follows a separate legal action against the EPA by the Advanced Biofuels Association, which has asked a federal judge to review the legality of the waivers, Reuters reported.

Meanwhile, despite expressed support from the Trump administration on the year-round sale of E15, the EPA has not taken any steps yet to lift Reid vapor pressure restrictions that prohibit the fuel blend’s sale during the summer months in most markets. The regulations essentially prohibit E15’s sale to any vehicles other than flex-fuel vehicles from June 1 to Sept. 15.

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