EPA Exempts Small Refineries from Renewable Fuel Standards

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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--The U.S. Environmental Protection Agency (EPA) said it has exempted several small refineries from renewable fuel blending standards to remove an eight-year backlog of exemption petitions.

The agency said it acted on a backlog of 175 petitions from 38 small refineries for exemptions to renewable fuel blending standards for the years 2016-2024. It granted 63 full and 77 partial exemptions. It denied 28 petitions and determined that seven were ineligible for the exemption.

The EPA said in an August 22 press release it was "reaffirming the policy it set during the first Trump administration through the 2020 Renewable Volume Obligation Rulemaking, granting partial relief (a 50% exemption) where a small refinery has demonstrated that it faces partial hardship."

The Small Refinery Exemption (SRE) applies to refineries with less than 75,000 barrels per day (BBL/d) of crude oil throughput.

Saying the exemption had essentially been removed by a 2011 Department of Energy (DOE) ruling, the EPA stated, "With today's action, EPA is getting the SRE program back on track with an approach that recognizes some small refineries are impacted more significantly than others and that EPA's relief should reflect those differences."

Among the unique challenges faced by small refineries as opposed to larger ones are limited financial resources, lack of biofuel blending infrastructure and challenges in buying Renewable Identification Number (RIN) credits, whose costs are generally high and may fluctuate significantly.

The decision also paves the way for setting future quotas.

The EPA said it "will also be providing updated information on how the agency intends to project SREs for 2026 and 2027 in the context of establishing percentage standards for those years." Standards for those years will take into account the SREs granted for 2023 and 2024, along with SREs projected to be granted from 2025 through 2027, the agency indicated.

How this will affect renewable fuels markets remains to be seen. Many biofuels groups were cautiously optimistic, saying in essence this ruling was not perfect, but dealing with the backlog at all constituted at least some progress.

Paul Winters, director of public affairs for Clean Fuels Alliance America was among those with mixed reactions. "The exemptions apply to more than 7 billion RIN gallons from prior years," he said. "However, EPA is indicating that it's only returning RINs for 2023 and 2024, which is about 1.4 billion RINs. Those RINs would still be valid to meet the 2024 RFS volume requirements."

Among the renewable fuels manufacturers that were pleased with receiving an SRE is Calumet Incorporated (Indianapolis, Indiana). It operates 12 facilities across North America. In receiving full or partial exemptions from 2019 to 2024, "...the company's prior 2019-2024 RIN balance sheet accrued liability of 396 million RINs is expected to be reduced to 89 million RINs, of which 57 million are of 2022 and 2023 vintage, and 32 million are 2024. We are studying the decision details and will seek additional information from the EPA regarding this residual."

How the EPA will dispose of residual RINs is in question. The agency said it "does not plan to propose reallocation of any of the exempted volumes for SREs from 2016 to 2022 in light of the limitation on their potential use."

Some Background and Definitions
Allocation of SREs falls under the Renewable Fuel Standard (RFS) program. They allow small petroleum refineries (under 75,000 BBL/d crude oil throughput) to receive temporary waivers from the obligation to blend biofuels or purchase renewable credits, or Renewable Identification Numbers (RINs) if compliance would cause disproportionate economic hardship. These waivers reduce the demand for RINs, which can significantly impact their price and the market for biofuels, though the exact effect is a subject of ongoing debate and legal challenges.

The stated purpose of the RFS was to reduce reliance on oil imports by replacing a percentage (usually 10%) of gasoline with U.S.-produced renewable fuels, such as ethanol. It was created by the Energy Policy Act of 2005 and expanded by the Energy Independence and Security Act of 2007. It uses RINs to enforce the mandates.

An RIN is assigned to each gallon of renewable fuel as it's produced or imported, allowing for tracking its movement through the supply chain. It represents one gallon of renewable fuel, as a credit that fuel companies must accumulate to meet their annual renewable fuel obligations (RFOs).

Somewhat like carbon credits in some areas, RINs can be traded between parties, which provides a market-based mechanism to achieve compliance with the RFS. Companies that produce or import renewable fuels and other involved parties must register with the EPA and comply with RIN record-keeping and reporting requirements.

Effects on market prices for RINs and for the fuels themselves are a subject of great interest and debate. The ripple effects will be closely watched in future weeks as the EPA issues further guidance.

"The market is waiting to see if the exempted volumes will be reallocated, which would increase RIN cost burden on large refiners," said IIR Senior Director, Energy Market Intelligence Hillary Stevenson.

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