NEW YORK (Reuters) - The U.S. Environmental Protection Agency said on Friday it cannot make large oil refineries blend additional biofuels into their gasoline to make up for volumes waived under the small refinery hardship waiver program unless Congress authorizes it.
The agency’s decision was certain to anger the powerful U.S. corn lobby and Congressional members from farming states.
EPA has issued a record number of waivers freeing small refineries from the U.S. Renewable Fuel Standard (RFS) in the past year, drawing criticism from the biofuel industry and its legislative backers that the program undermines demand for corn-based ethanol.
Lawmakers like Republican Senator Chuck Grassley of Iowa have demanded that other refiners take on bigger obligations to compensate for the volumes exempted under the program, as a way for President Donald Trump’s administration to keep its promise to protect the 15-billion-gallon biofuel mandate.
The U.S. Renewable Fuel Standard requires refiners to blend specific volumes of biofuels like corn-based ethanol into the fuel supply each year and prove compliance by acquiring credits called RINs that can be either earned or purchased. The law has helped farmers by creating a big market for ethanol, but refining companies have complained it costs them a fortune.
The EPA, under Administrator Scott Pruitt, has issued more than two dozen small refinery exemptions from the RFS for 2017, including waivers to plants owned by some the largest U.S. refining companies. Refiners have until early 2019 to comply with all or a portion of the 2017 obligation.
The biofuel industry says the waivers have cut the 15 billion gallon mandate to roughly 13.5 billion and have asked the EPA to reallocate the waived volumes to the remaining refineries who must comply.
“Law says 15b gallons & Congress intended 15b gallons & Trump promised 15b gallons / why can’t Pruitt do 15b gallons? Poor excuses killing ethanol/Midwest farmers,” Iowa Senator Chuck Grassley, a Republican, said on Twitter on Friday.
While the EPA said there is a path to reallocation, it is a near impossible one.
“Our regulations only allow reallocation of an exempted refinery’s RIN obligations for a given year if the exemption is granted before we finalize the volumes for that year,” EPA spokeswoman Molly Block said.
That is impossible because hardship waivers are not granted until after the annual volumes are set.
“Binding precedent holds that agencies can only impose retroactive obligations if Congress has given them the authority to do so,” Block explained.
Scott Segal, an attorney at Bracewell who works with refiners, including Valero, said the EPA is correct about retroactively, calling it a staple of administrative law.
“If the ethanol industry would like to open the renewable fuel standard in a comprehensive way, I am sure that many parties – fuel makers, environmentalists, consumer groups and others – would be very happy to join in,” Segal said.
The biofuels industry did not like the message.
“That certainly contradicts what EPA has stated before. The Agency has admitted in past RFS rulemakings that its decision not to reallocate exempted volumes is an interpretive decision made by EPA, not one directed by the statute,” Renewable Fuels Association Executive Vice President Geoff Cooper said on Friday.
Reporting by Jarrett Renshaw; Editing by David Gregorio and Phil Berlowitz