Wyoming’s small oil refineries battle for hardship relief

Source: By Camille Erickson, Star Tribune • Posted: Thursday, March 12, 2020

A midsummer sunset glows behind the stacks of the Sinclair Refinery in 2017 in Sinclair, just east of Rawlins. The company is worried about a recent federal court ruling that would limit hardship relief for smaller refineries.

A federal court ruling delivered early this year has placed small oil refineries’ access to economic relief in jeopardy.

Several refineries transforming crude into fuel in Wyoming apply for annual exemptions from renewable energy standards, which often prove economically prohibitive. But that option for relief is now on the line.

In January, a panel of judges in the 10th U.S. Circuit Court of Appeals determined the federal government was overextending relief. The ruling, if upheld, would effectively invalidate exemptions from renewable energy standards for small refineries going forward.

Wyoming Sens. John Barrasso and Mike Enzi have urged the Trump administration to petition for a rehearing. The U.S. Environmental Protection Agency, a party to the case, has two weeks left to appeal, after the U.S. Department of Justice extended the deadline Monday.

“If allowed to stand, the court’s decision would effectively end hardship relief for small refineries under the Renewable Fuel Standard,” Barrasso said in a statement Friday. “In communities across the country, small refineries employ tens of thousands of Americans and support local economies. By appealing the court’s decision, the president is fighting to protect these communities.”

Why the relief?

In 2005, Congress created the Renewable Fuel Standard, a program to lower greenhouse gas emissions by requiring companies refining or importing crude oil to incorporate certain types of biofuel, such as corn ethanol, into transportation fuel supply. These days, most American drivers purchase gasoline blended with some amount of biofuel when they fill up their gas tanks.

The EPA, which is responsible for implementing the program, sets a renewable volume obligation for refineries to meet each year. To comply, oil refineries can blend biofuel into their gasoline and diesel fuel. But often that’s not enough.

“Let me say, there is no refinery in the Mountain West, and probably no refinery in the country, that can blend its way to compliance,” said Adam Suess, vice president of Government Relations for Sinclair Oil Corporation.

In addition to blending gasoline with biofuels, they also turn to the open market to purchase credits, known as “renewable identification numbers,” to meet these standards.

When establishing the mandate, some lawmakers anticipated small operations would likely be hit harder than larger ones by the requirements.

Small refineries, such as Sinclair Oil or HollyFrontier Corporation in Wyoming, can therefore apply for exemptions from the program. Parties must demonstrate that meeting the biofuel standards would cause disproportionate economic hardship.

The statute considers a small refinery as a company processing an average of less than 70,000 barrels per day. Compared to larger refining companies, Sinclair contends with resource and capital constraints, according to Suess. The company has applied for federal relief from the renewable energy standards several times — but its application for relief last year remains on the line with the recent ruling.

But critics of the exemptions say the relief delivers a blow to ethanol producers’ and farmers’ bottom line. Biofuel standards have helped prop up demand for corn.

Others, like the American Petroleum Institute, recommended the government not appeal the 10th Circuit ruling, saying the relief caused “regulatory uncertainty” for some refineries.

“We do not support the widespread use of small refinery exemptions that distort the marketplace and result in unnecessary costs,” Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute, said in a statement. The group represents bigger oil companies, which cannot obtain small refinery exemptions.

Since the court decision, the cost of some renewable identification numbers, or credits, has increased four-fold. The steep price for compliance could cripple smaller refineries, lawmakers opposing the ruling said.

“When you increase the cost of (renewable identification numbers) by three, four or five times, you’re talking about the difference between an ongoing refinery and a refinery that shuts down,” Suess said.

The DOJ extended the window for EPA to call for an appeal. The agency has until March 24 to attempt to vacate the order.