ABFA Says EPA Made Illegal, Secret Change to SRE Process

Source: By Jeff Barber, OPIS • Posted: Wednesday, April 3, 2019

EPA in May 2017 made an unannounced and illegal change to its process for determining whether to exempt small refiners from their obligations under the Renewable Fuel Standard (RFS), a biofuels industry group that received court-ordered access to the agency’s confidential decision documents said this week.

In a Wednesday filing with the U.S. Court of Appeals for the District of Columbia Circuit, the Advanced Biofuels Association (ABFA) charged that the agency on May 4, 2017, altered its methodology to make it easier for small refiners to claim that RFS compliance was creating a disproportionate economic hardship.

ABFA sued EPA last year after it granted nearly 50 small-refinery exemptions (SREs) for the 2016 and 2017 compliance years, a new record. In January, the circuit court granted its request that EPA provide the group with the SRE decision documents under a confidentiality agreement.

That change, which was announced in a footnote to one small refiner’s request for an exemption, represented a final agency action that is reviewable by the court, ABFA said.

The biofuels group argued that under the change, EPA deviated from its past policy that required successful SRE applicants to achieve a minimum score on each of two U.S. Department of Energy screening tests that measure whether program compliance would result in disproportionate structural and economic impacts and “viability” assessment that examine whether the RFS obligation would threaten refiner’s ability to compete and remain profitable.

But in the May 4, 2017 footnote, EPA said it was changing its approach to find that the disproportionate economic hardship threshold can be met when “it is disproportionately difficult for a refiner to comply with its RFS obligations — even if a refinery’s operations are not significantly impaired.” The change allowed SRE applicants to qualify for a waiver even if they failed to meet the minimum score on each of DOE’s two tests, ABFA said.

ABFA in its brief said that while “this was a sweeping change in methodology that would eliminate hundreds of millions of dollars of compliance obligations under the RFS program — allowing small refiners to keep money they would have previously paid to AFBA members to buy renewable fuel and RINs [Renewable Identification Number credits] — it was made surreptitiously. EPA did not announce this change through notice-and-comment rulemaking or a press release, but rather tucked it into footnote 10 of an informal adjudication decision document that was sent to only one refinery and was shielded from public view under dubious claims” that it was confidential business information.

In addition, the group suggested that EPA took steps to communicate the change in policy to potential SRE applicants. “Despite taking no official steps to publicize its change, word of EPA’s favorable new methodology clearly spread among small refineries — as if delivered from a soundproof phone booth — as evidenced by the fact that dozens of small refineries began to submit petitions for extension of exemptions even though they had not pursued them in previous years.

“It cannot possibly be a coincidence that so many companies suddenly sought this economic windfall from EPA.”

While EPA has claimed that the methodology changes were applied in a case-by-case basis and did not represent an official change in policy, ABFA told the court those assertions were undercut by the fact that EPA granted additional SREs in November 2017 after employing the same rationale.

AFBA said that based on its examination of the EPA decision documents, the agency granted SREs to at least 24 refineries that received a score of zero on the viability index, adding that the agency’s “insistence that any structural disadvantage of a refinery amounts to disproportionate economic hardship warranting a full exemption from the mandates of the RFS program is an unlawful attempt to read the word ‘hardship’ out of the Clean Air Act (CAA).

“A small refinery that remains profitable and competitive despite complying with the RFS program can hardly be said to be suffering ‘hardship.'”

In its filing, the group said that while the CAA gives EPA discretion to evaluate SRE petitions and make final determinations of economic hardship, “its power is not unlimited” and the agency must “articulate a satisfactory explanation for its action that makes a “rational connection between the facts found and the choices made.”

ABFA also said that in evaluating the SRE petitions, EPA’s analysis of “other economic factors” extended to operating losses that were not attributable to the RFS. The purpose of the waiver, the group said, “is not to ensure that all small refineries make an annual profit, but to protect small refineries from disproportionate economic hard caused by compliance with the RFS program.”

In at least one instance, ABFA said, EPA “appears to have considered … the fact that a small refinery is a co-guarantor of the debts of its corporate parents and was unable to incur new debts due to the poor financial condition of its corporate parent.”

This should not have been considered, the trade group said, adding that under that practice, the agency “should likewise be able to reverse a hardship finding” in those cases where it granted an SRE to refining units owned by profitable corporate parents such as ExxonMobil and Chevron.

ABFA’s petition asked the court to find EPA’s alleged revised methodology for determining disproportionate economic hardship illegal.