The Government Accountability Office (GAO) found that Environmental Protection Agency’s (EPA) decision to deny small oil refiners’ exemptions from the Renewable Fuel Standard (RFS) was arbitrary. In June, EPA denied 69 small refinery exemption petitions from the RFS mandate. The denial of the wavers forces small refiners to blend their products with biofuels or purchase renewable fuel credits that are costly, increasing energy costs for U.S. consumers. The Government Accountability Office’s report determined that EPA’s decision was based on potentially invalid assumptions and applied arbitrarily.
While EPA believes that small refineries do not experience “disproportionate economic hardship” due to the RFS, assuming that all parties pay and receive one price for the tradeable credits used to demonstrate compliance with the RFS, GAO found that the EPA’s data show that this assumption is incorrect. EPA’s statistics show that from 2013 to 2021, small refiners were paying more to comply with RFS when compared to larger companies as they were spending an increased amount of money to buy renewable fuel credits that the EPA requires them to obtain. GAO also stated that the EPA had also not attempted to work out whether its assumptions about RFS compliance costs were correct. This is especially noteworthy because of the large number of small refiners who have closed recently, reducing U.S. refining capacity.
GAO also found that “EPA has routinely missed the 90-day statutory deadline for issuing exemption decisions and does not have procedures to ensure that it meets these deadlines. In 5 of the 9 years GAO analyzed, EPA took more than 200 days to issue a decision for more than half of the petitions submitted. These late decisions diminish the benefit of exemptions, create market uncertainty, discourage investment, and undermine the design of the RFS more broadly.”
Small refineries produce 17 billion gallons of gasoline, diesel and other fuels each year by processing oil, and generally lack the capability to blend biofuels, forcing them to buy credits. With the United States already having lost 1 million barrels a day of refinery processing capacity due to reduced demand from COVID lockdowns, onerous regulation, and large subsidies for converting to biofuel production, placing more regulatory demands on U.S. small refiners is paramount to adding massive hardships to their operations.
The RFS Program
The Renewable Fuel Standard (RFS) was created in 2005 and expanded in 2007 under growing U.S. dependency on foreign sources for oil. The program mandates that increasing volumes of biofuels be blended into the nation’s transportation fuel supply. Under the law, the EPA sets annual quotas for conventional renewable fuel (usually corn-based ethanol), advanced ethanol alternatives made from non-edible material and biodiesel. These quotas are then translated into blending requirements for individual refiners. Companies that do not meet their blending mandates must buy credits, called Renewable Identification Numbers (RINs), to cover the difference, unless they are a small refinery that qualifies for a hardship waiver. EPA evaluates small refinery hardship waivers in consultation with the Department of Energy (DOE). While one of the stated purposes of the RFS was to reduce greenhouse gas emissions from fuel, subsequent study has found no reduction in lifecycle greenhouse gas emissions from ethanol use. U.S. dependency on foreign sources of oil has also been reduced through access to shale deposits using horizontal drilling and hydraulic fracturing.
Fuel costs for Americans are artificially inflated due to the low energy content of ethanol, and also by the high costs faced by fuel companies trying to comply with ill-conceived fuel regulations, such as the need to buy RINs if they have not blended sufficient ethanol into gasoline. The Congressional Budget Office found that raising the mandated use of corn ethanol results in higher motor-fuel prices.
GAO Recommendations
GAO made seven recommendations including that EPA reassess its conclusion that all small refineries recover their RFS compliance costs in the price of the gasoline and diesel they sell, DOE and EPA develop documented policies and procedures for making small refinery exemption decisions, and EPA develop procedures to ensure that it meets deadlines.
Conclusion
The United States has lost 1 million barrels per day of refining capacity and is dependent of the remaining refinery capacity to supply the gasoline, diesel and heating oil demand of U.S. consumers. In this time of higher energy prices, denying small refiners waivers that they have received in the past is hurting not only these refiners but Americans, who have to pay the higher cost of petroleum products due to the mandatory credit purchases.
GAO’s findings suggest that EPA is wielding its regulatory power in a completely arbitrary manner and calls into question not only EPA’s administration of the RFS program, but its decision-making processes agency-wide. Put simply, EPA appears to be handing down decisions that have massive implications for the nation’s energy supply and prices based on unfounded assumptions including those relating to environmental effects, which calls into question whether they are working for the American people that fund the agency.
