EPA to Keep Exempting Refineries From Biofuel Quotas, Sources Say

(Bloomberg) -- The Trump administration has decided to keep waiving some oil refineries from U.S. biofuel mandates, despite pressure from ethanol advocates to end the practice, according to three people familiar with the matter.

The Environmental Protection Agency is weighing applications from 15 refineries for exemptions, even as regulators examine how to assess whether the facilities face a “disproportionate” economic hardship in satisfying annual biofuel blending quotas. Waivers will still be issued despite that review, which was prompted by a July federal court ruling faulting the EPA for denying a West Virginia refinery’s waiver request, said the people, who asked not to be named discussing internal policy decisions.

The decision to keep issuing waivers is a blow to ethanol producers and agricultural interests that have argued the practice undermines the 13-year-old Renewable Fuel Standard designed to encourage biofuel such as corn-based ethanol and soybean-based biodiesel. The EPA also will reject biofuel advocates’ request to redistribute waived quotas to non-exempted refineries when it issues final 2019 blending targets on Friday, according to people familiar with those plans.

“EPA continues to implement the Renewable Fuel Standard consistent with the law, including the statutory requirements laid out in the small refinery exemption program,” agency spokesman Michael Abboud said by email.

The waiver issue has emerged as a major flashpoint in the Renewable Fuel Standard program, which pits oil refiners against biofuel producers in a battle for gasoline market share. Both sides come from states that President Donald Trump won in 2016 and are crucial to his re-election prospects in 2020.

Under the fuel standard law, the government can exempt small refineries using no more than 75,000 barrels of crude oil per day from annual biofuel quotas as long as they face a significant economic hardship. Scores of refineries received the exemptions automatically until 2010, when the EPA began vetting applications individually, guided by recommendations from the Energy Department.

But recent court rulings have rebuked the EPA for denying waivers, with the Fourth Circuit Court of Appeals in Richmond, Virginia, saying in July that the agency was wrong to rely on an “error-riddled” Energy Department analysis in rejecting an exemption for Ergon West Virginia Inc.’s Newell, West Virginia, refinery. The EPA is still reviewing that decision.

Senators Chuck Grassley and Joni Ernst, both Republicans from Iowa, were set to press the issue with EPA Acting Administrator Andrew Wheeler on Wednesday.

The waiver practice also could be addressed as part of a broad EPA “reset” of the entire biofuel program -- a top-to-bottom overhaul that is likely to spur reduced annual quotas and could lead to changes to the waiver process. The EPA will effectively kick off that overhaul process when it finalizes the 2019 biofuel quotas.

In the meantime, federal law still compels the EPA to issue exemptions, said Senator John Barrasso, a Republican from Wyoming.

“The Clean Air Act requires EPA to provide relief to any small refinery that suffers disproportionate economic hardship under the Renewable Fuel Standard,” Barrasso said. “EPA must act within 90 days of receiving a petition for relief from a small refinery. That’s the law. The agency must follow the law.”

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