Key Takeaways
The D.C. Court of Appeals has told the Biden-Harris Administration’s EPA to revisit their decision to deny small refiners legal waivers under the Renewable Fuels Standard program.
Small refiners have been struggling to stay open while paying for ever-increasing costs of buying credits for biofuels required by EPA.
EPA estimated consumers will pay an additional $23 billion over 3 years under this program, with refiners passing on the cost of compliance.
The amount of required corn-based ethanol in gasoline has remained steady, but EPA is increasing the requirements for all other kinds of biofuels, many of which are considerably more expensive.
A federal appeals court in Washington D.C. rejected the Environmental Protection Agency’s (EPA’s) decision in 2022 to deny small oil refineries temporary waivers from the nation’s biofuels blending program and sent the matter back to the agency for review. The Renewable Fuel Standard (RFS) provides a provision where EPA can award exemptions to small refiners if they prove the obligations cause them undue harm. But, in 2022, the EPA rejected a slew of their requests, triggering the legal battle that was led by the Sinclair Wyoming Refining Company and joined in by small refineries.
Small refineries have been opposed to federal requirements under the RFS, forcing them to add biofuels such as corn-based ethanol into the nation’s petroleum or buy tradable credits from those that do, and they have requested waivers from the EPA permitted under the program. The RFS was designed to reduce U.S. petroleum imports by helping farmers and biofuel producers, but according to smaller independent refineries, the program imposes costs that put their businesses at risk. The United States lost a number of petroleum refineries when demand was reduced during the COVID lockdowns and the current U.S. refinery capacity is producing at high rates to provide the petroleum products that American consumers need.
Without the waiver, some refiners are on the hook for hundreds of millions of dollars as renewable fuel credits for the 2023 compliance year were around $1.50 per gallon. The costs that refiners must pay increase the prices of gasoline and diesel for consumers. The small refiners believe EPA’s decision to reject waivers was arbitrary, capricious, and contrary to law that allows for the exemptions in such cases.
The biofuel industry and their industry advocates (e.g. Renewable Fuels Association, Growth Energy and the American Coalition for Ethanol) have long fought the small refinery waiver program, arguing that it has been overused, helping the refining industry but hurting American farmers.
This is the second time that an appeals court has struck down the Biden-Harris EPA’s denial of small refinery waivers. Last November, a U.S. appeals court struck down the EPA’s 2023 blanket denials of small refinery exemptions. The U.S. Court of Appeals for the Fifth Circuit found in favor of refineries that challenged the EPA’s decision, including Ergon, Calumet Shreveport and Placid.
The EPA under Biden-Harris has not extended any waivers to any refineries, reversing the policy of former President Donald Trump, whose administration granted 34 exemptions to oil refiners for the 2017 compliance year. In December 2021, the Biden-Harris EPA released a proposal to reject all pending exemption requests. The Trump administration had approved more than 80 small-refinery exemption requests.
Background
The RFS program was established in 2005 and vastly expanded under the Energy Independence and Security Act of 2007, which specified mandatory volumes of renewable liquid fuel use through 2022 and required EPA to set levels after that. When determining renewable volume obligations for years after 2022, EPA must consider a variety of factors specified in the statute, including costs, air quality, climate change, implementation of the program to date, energy security, infrastructure issues, commodity prices, water quality and supply.
The Biden-Harris administration increased the amount of biofuels that must be blended into the nation’s fuel supplies for 2022, 2023, and 2024, holding production totals steady for corn-based ethanol at 15 billion gallons for all three years. The Environmental Protection Agency set biofuel blending volumes at 20.94 billion gallons in 2023, 21.54 billion gallons in 2024 and 22.33 billion gallons in 2025 covering cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel. The totals are higher than levels set for 2022 and earlier years. The final rule increases total renewable fuel volumes in 2025 by 1.7 billion gallons, or 8 percent, from 2022, including an increase of 310 million gallons in 2023, another 600-million-gallon increase in 2024, and an increase of 790 million gallons in 2025. The proposal also includes new incentives to encourage use of biogas from farms and landfills, and renewable biomass such as wood.
According to EPA’s cost analysis, “The biofuel costs are higher than the costs of the gasoline, diesel, and natural gas that they displace,” and thus the mandated usage of such fuels leads to higher overall fuel costs. EPA estimates that, over the three-year period, the rule will cost consumers about $23 billion. Oil refiners call the mandates pricey, while biofuel proponents such as ethanol producers and corn farmers like the obligations because the government is ordering an increased market for their products.
Most gasoline sold in the United States contains 10 percent ethanol, mostly produced from corn. About 40 percent of corn produced in the United States is used to make ethanol. Earlier this year, the Biden-Harris EPA approved a higher blend of ethanol throughout the year for eight Midwestern states. The biofuels industry and farming groups, with support of Midwest governors, sought the end of a summertime ban on sales of gasoline blended with 15 percent ethanol. The higher blend was prohibited because of concerns it could worsen smog during warm weather. The higher sales of ethanol could mean greater profits for corn farmers. The rule, which takes effect in April 2025, will apply in Illinois, Iowa, Minnesota, Missouri, Nebraska, Ohio, South Dakota and Wisconsin. Those states grow the bulk of the U.S. corn crop and are home to much of the nation’s ethanol production.
Conclusion
U.S. refiners have long argued that the nation’s ethanol mandates impose unfair costs on fuel producers, and can threaten the viability of small plants. Regardless, the Biden-Harris EPA denied waivers requested by many small refiners in 2022 and 2023, which prompted the refiners in question to take court action, with the appeals court ruling in their favor. With air pollution already much reduced and increased domestic production of oil achieved, the original goals of the RFS have been met and exceeded, but a government program once begun is difficult to halt.
