(Bloomberg) -- The Biden administration is taking steps that could limit the ability of oil refineries to get exemptions from a federal biofuel-blending mandate.
The Environmental Protection Agency will announce Monday that it is effectively siding with renewable fuel producers in a case before the U.S. Supreme Court. The agency will say that it agrees with a 10th Circuit Court of Appeals ruling that concluded refineries are only eligible for those valuable waivers if they have continually received the exemptions.
“EPA agrees with the court that the exemption was intended to operate as a temporary measure,” the agency said in a statement.
The move represents President Joe Biden ’s first foray into biofuel policy, an issue that tests his allegiance to rural agricultural interests as well as blue-collar refinery workers. On the campaign trail, Biden criticized a surge in refinery waivers during the Trump administration.
The stakes are high for producers of renewable fuels -- as well as the refineries required under a 2005 federal law to blend the products into gasoline and diesel. Refiners can spend hundreds of millions of dollars annually fulfilling biofuel-blending mandate without the exemptions, and if the Supreme Court adopts the 10th Circuit’s rationale, just one facility could be eligible for the relief in the future.
Advocates of biodiesel and ethanol, meanwhile, argue widespread waivers undermine the integrity of the Renewable Fuel Standard and the rural economy that law supports.
Both industries have been battered by the coronavirus pandemic that has pared fuel demand.
Some 66 refinery exemption applications are now pending before the EPA, including 16 for 2020, but the agency does not plan to decide on them before the Supreme Court’s ruling, said Joe Goffman, the acting assistant administrator for air and radiation.
The announcement marks a shift in position for the agency, which under Trump initially defended its waivers before the 10th Circuit. However, the EPA did not appeal the 10th Circuit ruling and later discouraged the Supreme Court from taking up the case.
The Renewable Fuel Standard authorizes the EPA to exempt refineries facing a “disproportionate economic hardship,” but the 10th Circuit Court of Appeals found the agency wrongly waived three refineries from annual biofuel-blending quotas. A three-judge panel of the 10th Circuit also said refineries are only eligible for relief if they have received uninterrupted, continuous extensions of exemptions.
“Consistent with that congressional purpose, the plain meaning of the word ‘extension’ refers to continuing the status of an exemption that is already in existence,” according to the EPA statement.
Small refineries, including units of HollyFrontier Corp. and Wynnewood Refining Co., that appealed the 10th Circuit ruling, have countered that federal law says refineries may seek relief “at any time.” Waiver supporters argue Congress created the exemption program to insulate small refineries that may be hard hit by high compliance costs.
Already, the cost of tradeable credits refineries use to prove they have fulfilled annual quotas have climbed 64% since Election Day, stoked by expectations of a tougher Biden administration stance on exemptions.
EPA Administrator-designate Michael Regan told a Senate committee earlier this month the agency would conduct a “thorough review” of the entire RFS program.
“We know that the pandemic has posed significant challenges to the U.S. economy, including the oil refining industry,” Goffman said. “EPA has proposed to extend compliance deadlines and will be evaluating public comments on that proposal in the coming weeks.”
The EPA’s declaration is prompted by the Supreme Court calendar. The petitioners’ merits brief is due in the case Monday and the EPA is communicating its change in position in advance of that filing.
The Biden administration is still formulating the arguments it will make in a late March filing with the Supreme Court.
The case is HollyFrontier Cheyenne et al. v. Renewable Fuels Association et al. 20-472.
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