Delta-owned refinery challenges U.S. policy on bio-fuels program

Source: By David Bailey in Minneapolis and Chris Prentice in New York, Reuters • Posted: Monday, February 8, 2016

A refinery owned by Delta Air Lines is renewing a push to change a U.S. Environmental Protection Agency policy laid down as part of a national program that requires increased use of biofuels like ethanol.

The Renewable Fuel Standard program, launched in 2005, requires refiners to blend biofuels with petroleum-based transportation fuels like gasoline and diesel.

Some refiners have blending capacity but others do not. Those who lack blending capacity must buy compliance credits from other refiners or other companies that blend fuel.

Delta-owned merchant refiner Monroe Energy LLC wants the EPA to shift the compliance obligation to blenders. In a Jan. 29 filing in the District of Columbia Circuit U.S. Court of Appeals, the company asked for a review of the current regulation.

It was the latest attempt by Monroe and other refiners to shift compliance onto fuel blenders. EPA denied similar requests in 2010.

The crux of their argument is that high compliance costs for refiners have not successfully pushed more ethanol into the market, and the EPA should look at shifting compliance to fuel blenders and retailers.

The EPA has said it would consider a shift, but the larger number of fuel blenders could make oversight more challenging.

Monroe said the EPA’s release of rules late last year that set biofuels requirements through 2016 at targets below a plan Congress laid out in 2007 gave the refiner a basis to petition the appeals court over the policy.

EPA acknowledged the so-called “blend wall” oil companies have said makes it impossible to meet the targets without major changes at pumps and in vehicles.

The higher the amount of ethanol, the more costly the requirements become for oil refiners like Monroe, which meets its obligation by purchasing compliance credits, known as Renewable Identification Numbers (RINs), in an opaque market.

Those costs ballooned in the first nine months of 2015 due to higher prices of the credits.

Monroe said its petition was timely because with the new rule, the EPA decided its regulation of refiners and importers could no longer ensure transportation fuels would contain the biofuels volumes set by Congress and the agency must exercise its authority to reduce the annual requirements Congress set.

The EPA also reversed an earlier position that higher RIN prices could meaningfully impact the annual supply of biofuels in transportation fuel in the near term, the petition said.

Monroe did not respond immediately to requests for comment.