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Federal Appellate Court Decision, and GAO Review Highlight Biofuel Waiver Issues

In separate developments this month, a federal appellate court and the U.S. Government Accountability Office have weighed in with actions that could impact how biofuel waivers that exempt oil refineries from Renewable Fuel Standard requirements are granted.  Today’s update looks briefly at each of these issues.

U.S. Court of Appeals Decision

Reuters writer Stephanie Kelly reported last week that, “A U.S. appeals court has ruled that the Environmental Protection Agency must reconsider three of the biofuel waivers it recently granted to small oil refineries, arguing the agency’s justification for approving the exemptions was flawed.

The decision from the U.S. Court of Appeals for the 10th Circuit dated Jan. 24 came after a coalition of biofuel industry groups had challenged the 2016 exemptions for Holly Frontier’s Woods Cross and Cheyenne refineries, as well as CVR Energy’s Wynewood refinery.

“The biofuel industry has been incensed by a surge in biofuel waivers granted under President Donald Trump’s administration, which it says is hurting farmers by undermining demand for corn-based ethanol.”

“Quarterly U.S. Rural Economic Review.” CoBank Knowledge Exchange (December 2019).

The Reuters article explained that, “Under the U.S. Renewable Fuel Standard, the nation’s oil refineries are required to blend billions of gallons of biofuels such as ethanol into the fuel or buy credits from those that do. But the EPA can waive their obligations if they prove compliance would cause them financial distress.

“According to the court’s decision, the EPA overstepped its authority to grant the Holly Frontier and CVR waivers because the refineries had not received exemptions in the previous year. The court said the RFS is worded in such a way that any exemption granted to a small refinery after 2010 must take the form of an ‘extension.'”

DTN writer Todd Neeley reported on Monday that, “A federal court ruled EPA didn’t have the authority to issue small-refinery exemption extensions to three companies that were not granted waivers originally. The ruling could affect how the agency implements the program.”

The court ruling added, ‘The EPA exceeded its statutory authority in granting those petitions because there was nothing for the agency to ‘extend.’ Further, one of the EPA’s reasons for granting the petitions was to address disproportionate economic hardship caused by something other than compliance with the renewable fuels mandate. That, too, was beyond the agency’s statutory authority.’

“EPA has taken heat on how it defines ‘hardship‘ when it granted waivers. The ethanol industry and others have maintained the waivers were not designed for oil companies that report billions of dollars in profits,” the DTN article said.

The DTN article added that, “The EPA granted 85 small-refinery exemptions between 2016 and 2018, totaling more than 4 billion ethanol-equivalent gallons not blended with petroleum. The agency currently has 21 exemption requests pending for the 2019 compliance period.”

Writing on Tuesday at DTN, Todd Neeley reported that, “Sen. Charles Grassley, R-Iowa, said on Tuesday that he’s hopeful the EPA will abide by the latest ruling from the U.S. Court of Appeals for the 10th Circuit in Denver when it comes to small-refinery exemptions, holding it in as high regard as the agency has a 2017 10th Circuit opinion on exemptions.”

Mr. Neeley noted that, “You’ll recall in the 2017 Sinclair Wyoming Refining Co. v. EPA ruling the same court held the agency’s denial of a small-refinery exemption from the Renewable Fuel Standard exceeded EPA’s statutory authority.

“When former EPA Administrator Scott Pruitt stepped up dramatically the number of exemptions shortly after he was appointed by President Donald Trump, Pruitt often told agriculture interests his agency had no choice but to abide by the 10th Circuit ruling.”

The DTN article indicated that, “‘Let me tell you how simple this is for me, and I hope EPA sees it this simple,’ Grassley said during a teleconference with agriculture journalists on Tuesday.

“‘So, let’s say for two or three years they would say something like ‘well we had to do this agreement because the 10th Circuit says such and such.’ Well it looks like the 10th Circuit — I don’t want to say the 10th Circuit is reversing themselves — but the 10th Circuit is now saying that EPA has granted too many waivers. And so, the EPA ought to be coming to Chuck Grassley and saying ‘you know we were following the 10th Circuit when we did certain waivers, and now the 10th Circuit says we’ve done it wrong. We’re going to start doing it right.’

“‘I was condemning them for following the 10th Circuit and not fighting it and getting it appealed or an en banc (full circuit) review of it. But it shows that we were right all the time. In other words, EPA ought to just follow the law. And the 10th Circuit was saying that they aren’t following the law. So, the decision confirms what we’ve known and sets a precedent for future waivers, as far as I’m concerned.'”

U.S. Government Accountability Office Review

Earlier this month, Reuters writer Stephanie Kelly reported that, “The U.S. Government Accountability Office (GAO) will review the Trump administration’s use of waivers exempting oil refineries from the nation’s biofuel blending requirements, according to a letter dated [January 10th], after lawmakers called for an investigation.

“The so-called Small Refinery Exemptions are intended to protect refineries in financial distress from the cost of blending ethanol into gasoline, but the U.S. corn lobby and its representatives have accused the administration of overusing them to help oil companies at the expense of farmers.

“The GAO, a congressional watchdog unit, accepted the request from lawmakers – including Iowa Representative Abby Finkenauer, Minnesota Representative Collin Peterson and Illinois Representative Rodney Davis – to examine the administration’s handling of the waivers handed out for the 2018 compliance year.”

The Reuters article noted that, “The EPA has roughly quadrupled the number of waivers it has been granting to oil refineries since Donald Trump became president. The agency has also routinely waived higher volumes than the DOE has recommended.

“The EPA’s decision in August to grant 31 oil refiners exemptions to the rules for the 2018 compliance year prompted the latest wave of outrage from farmers and producers of the corn-based fuel.”

Meanwhile, Todd Neeley reported earlier this month at DTN that, “Starting in 2016, the agency’s practice of granting waivers seemed to have changed.

Between 2016 and 2018 the EPA granted 85 exemptions totaling more than 4 billion ethanol-equivalent gallons. During that time the agency granted an average of 28 exemptions per year. From 2013 to 2015 the average number granted was just seven.

Either way, [Iowa GOP Senator Chuck Grassley] said Trump will face a lot of questions from farmers while on the campaign trail this year.

“‘I don’t trust the EPA either,’ Grassley said. ‘I want the president to be re-elected and this issue is pretty important to farmers of the U.S. This is along the lines of the principle I’ve had that the public’s business ought to be public. Since it’s the law shouldn’t we know it’s being carried out?'”

Mr. Neeley added that, “Grassley said he spoke with EPA Administrator Andrew Wheeler by phone, asking for assurance the agency would make sure 15 billion gallons would be 15 billion gallons.”

Keith Good Photo

Keith Good is the Farm Policy News editor for the farmdoc project. He has previously worked for the USDA’s National Agricultural Statistics Service, and compiled the daily News Summary from 2003-2015. He is a graduate of Purdue University (M.S.- Agricultural Economics), and Southern Illinois University School of Law.

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