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Ethanol coalition sues EPA over small refinery exemptions

RFA, NCGA, ACE and NFU challenge three exemptions for subsidiary of CVR Energy and Holly Frontier Corp.

Ethanol industry groups filed suit in the U.S. Court of Appeals for the 10th Circuit to challenge several waivers from the Renewable Fuel Standard (RFS) that the U.S. Environmental Protection Agency granted in secret to profitable refining companies.

The Renewable Fuels Assn. (RFA), National Corn Growers Assn. (NCGA), American Coalition for Ethanol (ACE) and National Farmers Union (NFU), with the support of Farmers Union Enterprises, are challenging three EPA decisions -- made under unusually clandestine proceedings -- to exempt refineries in Wynnewood, Okla.; Cheyenne, Wyo., and Woods Cross, Utah, from the RFS requirements of the Clean Air Act.

The Wynnewood refinery is owned by Wynnewood Refining Co., a subsidiary of CVR Energy, and the Cheyenne and Woods Cross refineries are owned by Holly Frontier Corp. The companies have since estimated in financial disclosures that the exemptions have saved them a collective $170 million in compliance costs.

When Congress enacted the RFS program a decade ago, it sought to protect certain small refineries from the law’s impacts temporarily by providing an exemption for refineries with no more than 75,000 barrels per day (bpd) of crude oil throughput. After a two-year blanket exemption expired, Congress also allowed those same refineries to ask for extensions of the temporary exemption if they could show that compliance with the RFS program was causing that particular facility a “disproportionate economic hardship.”

Until late last year, EPA granted only a handful of exemptions per year. EPA denied many extension requests, presumably because the refineries failed to meet one or more of these requirements for an extension. In recent months, however, EPA has granted more than two dozen exemptions — including the ones currently challenged — without providing any basis for the reversal, the groups noted.

“EPA is trying to undermine the RFS program under the cover of night, and there’s a reason it has been done in secret: It’s because EPA is acting in contravention of the statute and its own regulations, methodically destroying the demand for renewable fuels,” RFA chief executive officer and president Bob Dinneen said. “With the little information we’ve been able to piece together through secondary sources, it’s clear that EPA has been extending these exemptions to refineries that didn’t qualify for them.”

Although EPA typically publishes its proposed actions and final decisions in the Federal Register, EPA has not followed those protocols for small refineries; nor has EPA even informed the public through any means that it had received or acted on such carve-out requests. Instead, the petitioners said they learned of the unprecedented number of exemptions secondhand, through media reports and secondary sources.

“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,’” ACE CEO Brian Jennings said. “We cannot sit by and allow EPA to violate the RFS, which requires increasing the use of renewable fuels in the U.S.”

The petition also notes that EPA has consistently rejected all attempts to bring greater transparency to the small refinery exemption extension process. EPA has refused to provide even the most basic information in Freedom of Information Act requests from RFA and other parties. More surprising, the agency has also ignored demands from members of Congress for the same essential facts.

“EPA’s improper handling of the RFS has significantly cut demand for biofuels grown and produced by American family farmers and their communities. The success of the law lies in the requirement that certain amounts of renewable fuel be blended into our transportation sector. Yet, EPA has unlawfully allowed massive refineries to skirt compliance with these requirements, effectively reducing the amount of renewable fuels blended into the transportation sector by more than 1 billion gal. These actions must be reversed immediately,” according to NFU president Roger Johnson.

The petitioners are not challenging EPA’s underlying authority to exempt certain small refineries; rather, they are challenging three granted exemptions as abuses of EPA’s authority. They claim that EPA should be forced to explain why an otherwise profitable refinery faces disproportionate hardship from compliance with the RFS.

“We want EPA to explain why it is reasonable for HollyFrontier, which apparently could not afford to comply with the RFS, could nonetheless afford to undertake a $1 billion stock share repurchase program during the same time — and that’s before the company received over $300 million in tax cuts last year,” a joint statement said. Likewise, the petitioners would like to understand how EPA could find hardship at CVR Energy, which reported a $23 million profit in the biofuel credit market in the first quarter of 2018 due to what it called a lower RFS obligation.

“With their rapidly rising profits, it’s difficult to see what economic hardship these refineries are facing. The apparent lack of hardship raises serious questions of why EPA granted these exemptions, which is compounded by the fact that there is zero transparency in EPA’s small refinery exemption process,” NCGA president Kevin Skunes said. “America’s corn farmers, who are expecting their fifth consecutive year of low commodity prices and who are experiencing the lowest net farm incomes since 2006, understand economic challenges. When refineries are reporting profit increases and repurchasing stock shares, we expect EPA to explain why these refineries were granted exemptions from their RFS volume obligations.”

In practice, EPA is attempting to use the small refinery exemptions to waive a significant part of the annual volumes of renewable fuel that are otherwise required to be blended into transportation fuel. Based on EPA data, RFA estimates that small refinery exemptions granted for the past two years have effectively reduced volumes of renewable fuels by as much as 1.6 billion gal. In enacting the RFS program, however, Congress did not envision that the small refinery exemption process would be abused in such a way.

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