SCOTUS biofuel waiver decision – What it means, the good news, reactions, why it isn’t over yet

June 27, 2021 |

Reactions from the Industry

Disappointment for sure, but a huge sense of optimism too. Reminds us of the Tubthumping song lyrics, “I get knocked down, but I get up again, You are never gonna keep me down” from Chumbawamba.

Let’s hear from those involved directly first. The Renewable Fuels Association sent this statement on the SCOTUS decision from the Biofuels Coalition involved in the lawsuit:

“A coalition of renewable fuel and farm groups expressed “extreme disappointment” in today’s U.S. Supreme Court decision overturning a 2020 appellate court ruling that struck down three improper small refinery exemptions granted by previous EPA administrators. However, because certain elements of the appellate court ruling were left unchallenged and were not reviewed by the Supreme Court, the groups remain optimistic that the Biden administration will discontinue the past administration’s flagrant abuse of the refinery exemption program.

“Nearly a year and a half ago, the Tenth Circuit handed down a unanimous decision that was ultimately adopted by the very agency we took to court in the first place,” coalition members said. “While we are extremely disappointed in this unfortunate decision from the Supreme Court, we will not stop fighting for America’s farmers and renewable fuel producers. Further, we are optimistic that other elements of the Tenth Circuit decision, which were not reviewed by the Supreme Court, will compel the Biden administration and EPA’s new leadership to take a far more judicious and responsible approach to the refinery exemption program than their predecessors did.”

Irrespective of today’s decision, the Biofuels Coalition thanked President Biden and EPA Administrator Regan for taking swift action to rein in the previous administration’s mismanagement of the small refinery exemption program. After carefully reviewing the issue, new EPA leadership in February reversed the agency’s previous position and announced support for the Tenth Circuit decision. In April, EPA decided to revoke three last-minute refinery exemptions granted the day before President Biden’s inauguration; and in May, EPA announced it would cooperate with a Government Accountability Office investigation into the past administration’s adjudication of small refinery exemptions.

As of today, 70 small refinery exemption petitions remain pending with EPA, for the compliance years 2011-2020.”

So what do others in the industry have to say about this?

Growth Energy CEO Emily Skor told The Digest, “The Supreme Court disagreed with the lower court’s view of extensions, but today’s decision does nothing to change the 10th Circuit’s ruling that exemptions cannot be granted when refiners cannot properly trace their hardship to compliance with the Renewable Fuel Standard (RFS),” said Skor. “In the past, the biofuel industry has looked to the courts to halt abuse. Today, new leaders at the Environmental Protection Agency have shown a willingness to defend the RFS, most recently by reversing three improperly granted exemptions. We look forward to working with the Biden administration to keep a lid on exemptions, further strengthen the RFS, and fast-track our progress toward decarbonization. Engine smart and earth kind biofuels are vital to achieving the nation’s climate goals.”

Michael McAdams, President of the Advanced Biofuels Association said, “We are greatly disappointed by the Supreme Court’s ruling to overturn the 10th Circuit decision with regard to small refinery exemptions. Frankly, the Court got this one wrong. We do not expect, however, that this decision will impact the current Administration’s view on using SREs moving forward.”

Kurt Kovarik, National Biodiesel Board’s Vice President for Federal Affairs, said, “The Supreme Court decision is dismaying because it leaves uncertainty about when EPA may offer exemptions to small refineries. These exemptions harm biodiesel and renewable diesel producers when they reduce demand for advanced biofuels. EPA has provided multiple ways for refiners to meet the Clean Air Act’s RFS requirements, including an outsized bank of reserve RIN credits. The agency must issue the 2021 RFS rules as soon as possible and ensure that RFS volumes it sets are met, with full accounting for any small refinery exemptions in plans to grant.”

Doug Durante, Executive Director, Clean Fuels Development Coalition told The Digest, “Between the courts, the oil industry, and EPA chipping away at the RFS it only underscores that we need to create new demand beyond the confines of the RFS, which frankly may continue to shrink. Ethanol’s highest value is as an octane additive and to reduce the carbon in gasoline by replacing aromatics. The pending re-write of the fuel economy rule is a perfect opportunity to do that and the ethanol industry needs to make that case, as we are doing through the High Octane Low Carbon Alliance.”

Iowa Renewable Fuels Association Executive Director Monte Shaw said, “We are extremely disappointed the Supreme Court didn’t uphold the 10th Circuit Court ruling on eligibility to request RFS refinery exemption extensions. I am not a lawyer, but it sure seems like the 10th Circuit Court got it right when they determined that a refinery can’t extend something it no longer has. However, it is important to remember this case only applied to one of the three major findings from the 10th Circuit Court. Today’s decision allows refiners to apply to extend RFS exemptions that have lapsed. But this case did not impact the 10th Circuit’s ruling that refiners must still prove economic harm directly related to compliance with the RFS. Just as importantly, the 10th Circuit also found that EPA cannot use RIN costs as a cause of economic harm while simultaneously admitting RIN costs are recovered in the refiner’s crack spread. As the Biden EPA has pledged to follow the 10th Circuit Court ruling, today’s decision allows refiners to request an RFS exemption extension, but it does not make it easier for refiners to actually receive one. We fully expect the Biden EPA to keep their commitment to the RFS and to apply the 10th Circuit Court standards relating to economic harm, and as a result, to deny the vast majority of RFS exemption extension requests that are pending or that will be submitted in the future.”

Speaking of Iowa, the Iowa Biodiesel Board’s Executive Director, Grant Kimberley, said they were “extremely disappointed” too and “We believe today’s ruling opens the door for oil refiners to intentionally circumvent the RFS. However, the Supreme Court did not consider nor overturn the economic harm arguments decided in the 10th Circuit, and the EPA is still bound by them. The only question is how many refiners can seek exemptions each year and at what point in the year—or ‘at any time’—they can be granted. The EPA must consider only whether the Renewable Fuel Standard itself causes ‘disproportionate economic harm’ to a small refinery requesting exemption; and the EPA must consider its own evidence that refineries recoup the costs of RFS compliance. As green energy becomes a national priority, we are hopeful that the Biden EPA will keep its commitment to the RFS, fulfilling the promise that a green future depends on a stable and strong biofuels industry.”

Steve Roberts, Director, Opportune LLP, told The Digest, “This is the first of two key decision points expected this summer, with the second being the RFS blending requirements for 2021 and 2022. Additionally, there is a backlog of Small Refinery Exemptions (SREs) to be reviewed and decided upon by the EPA. So, while the SCOTUS ruling provides some clarity for the Small Refiners Exemption, both the biofuel industry and oil refiners are still in a ‘wait and see’ mode, which will continue to drive volatility in the biofuel and RINs markets.”

Former Deputy Undersecretary of Agriculture and now Managing Director of Ocean Park, an Investment Bank that has advised on many biofuels transactions, John Campbell told The Digest, “All eyes will be on EPA’s rulemaking proposal for RVO’s in 2021 and 2022 now that the SRE issue has been settled by the highest court. The 2007 RFS legislation anticipated 150 billion gallons of gasoline demand with traditional corn ethanol at 10% or 15 billion gallons.  Despite gains in E-15 demand the 10% blend wall has been problematic when EPA considers the overall RVO landscape and imipact on RIN prices.  The RFS has served the biofuels industry well but the time has come to consider reform that takes into account new fuel demand realities and increasing need for decarbonization of the liquid fuel supply.”

“Today’s decision still does not resolve the question of regulatory certainty for the Renewable Fuel Standard,” Michael Newman, Chief Operating Officer of Parhelion Underwriting Inc. told The Digest. “A sudden change of policy is an unwelcome surprise in any market and the interests of policymakers, regulators, market participants and the public should be aligned in wanting a stable market with an orderly, gradually rising trend. A sudden drop in value hurts companies holding RIN assets and impacts government revenues that support sustainable projects; a spike in value is passed on to consumers at the gas pump, eroding public support for the program.”

“A possible alternative is a national clean fuel standard, along the lines of California Low Carbon Fuels Standard, to supercede the RFS at the end of 2022,” said Newman. “It is a program with flexibility for how the government’s goals are achieved – including through the purchase of carbon credits generated by electrical vehicle producers, a price cap to fix the ‘price spike’ and a focus on carbon intensity.”

Go to the next page for good news and hopeful signs for biofuels and more.

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