Court faults EPA for rejecting refinery waiver

Source: Amanda Reilly, E&E News reporter • Posted: Monday, July 23, 2018

A federal court today found EPA wrongly rejected a small West Virginia refinery’s request for a reprieve from national biofuel requirements.

EPA relied on an “error-riddled analysis” from the Energy Department and failed to adequately take into account rising renewable fuel credit prices, the 4th U.S. Circuit Court of Appeals ruled.

“Because the DOE’s recommendation was clearly flawed on its face, ‘a clear error of judgment was made’ when the EPA relied without explanation on the DOE’s Report,” Judge G. Steven Agee, a President George W. Bush appointee, wrote for the panel.

Under the renewable fuel standard and in coordination with the Energy Department, EPA can grant waivers exempting small refiners that demonstrate economic hardship from meeting biofuel-blending targets. Refiners can also meet the yearly biofuel mandates by buying renewable fuel credits.

In 2016, under the Obama administration, Ergon Inc. applied for an exemption from having to show compliance with RFS requirements. The company owns a refinery in Newell, W.Va., that has a capacity of 23,000 barrels per day. It produces lubricants and transportation fuels as byproducts.

Ergon said it was at an economic disadvantage because there was no market for blending biodiesel — a biofuel made from soybean oil, used cooking grease and animal fat — in its geographic area.

But in May 2017, EPA denied the refinery’s petition for the 2016 compliance year, relying on a report and matrix produced by DOE.

Ergon filed suit, arguing that the denial was arbitrary and capricious under the law. The 4th Circuit agreed.

Agee faulted the DOE report for failing to score the acceptance of renewable fuel in Ergon’s local market, despite the fact that about two-thirds of the refinery’s fuel must be blended with biodiesel.

“Although the EPA is statutorily required to consider the DOE’s recommendation,” Agee wrote, “it may not turn a blind eye to errors and omissions apparent on the face of the report, which Ergon pointed out and the EPA did not address in any meaningful way.”

The 4th Circuit also found that EPA ignored “specific evidence” that rising renewable identification number (RIN) prices had a negative effect on the refinery. EPA gave the issue only “cursory consideration,” coming to the general conclusion that refineries can pass through high prices to consumers.

“This failure alone warrants granting Ergon’s petition for review,” Agee wrote.

Scott Segal, an attorney at Bracewell LLP representing refiners, said that the court recognized that RIN prices are “sticky.”

“They don’t automatically pass through and create quite a significant problem for some refiners,” he said in an interview.

The 4th Circuit is now the second circuit court to reject EPA denials of RFS exemptions for small refineries.

Last August, the 10th U.S. Circuit Court of Appeals rebuffed the Obama EPA over its decision to deny exemptions for two small Sinclair Oil Corp. refineries. A three-judge panel ruled that EPA exceeded its authority under the Clean Air Act when it found the company failed to show that complying with the RFS would threaten the “viability” of the Wyoming refineries (Greenwire, Aug. 16, 2017).

“It just shows another circuit court of appeals has cautioned EPA against being arbitrary in denying small refinery exemptions,” Segal said.

The biofuels industry is waging its own legal battle challenging EPA decisions to grant refinery waivers.

The Advanced Biofuels Association has filed a lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit opposing EPA’s waiver criteria, while a separate coalition of biofuel advocates has filed a suit in the 10th Circuit challenging specific exemptions for refineries in Oklahoma, Wyoming and Utah (Greenwire, May 30).

EPA’s decision to grant “a historically unparalleled number of exemptions has destabilized the national renewable fuels market,” the Advanced Biofuels Association argues in its lawsuit.

The group says it’s concerned that the number of exemptions for compliance years 2016 to 2017 doubled compared with previous years and that EPA arbitrarily changed the criteria for determining economic hardship tied to RFS requirements.

Click here to read the 4th Circuit opinion.