Precedent exists for EPA to reject RFS waiver requests by states

By Erin Voegele | April 16, 2020

The governors of Texas, Oklahoma, Wyoming, Utah and Louisiana have sent letters to U.S. EPA Administrator Andrew Wheeler asking the agency to waive 2020 Renewable Fuel Standard blending requirements due to market impacts caused by the coronavirus crisis.

One letter, dated April 15, was signed by Texas Gov. Greg Abbott, Utah Gov. Gary Herbert, Oklahoma Gov. Kevin Stitt and Wyoming Gov. Mark Gordon. The four governors are seeking a waiver of RFS renewable volume obligations (RVOs) due to severe economic hardship.

“The macroeconomic impacts of COVID-19 have resulted in suppressed international demand for refined products, like motor fuels and diesel,” the governors wrote, citing a forecast from the International Energy Agency that is predicting the first quarter contraction of oil demand in more than 10 years. “As the world economy responds to measures adopted to contain COVID-19, demand for refined products for air transportation, global delivery of goods, and petrochemicals decline—and any rebound of necessity will occur only after containment restores predictable economic growth. In the interim, the U.S. refining sector will face real and substantial difficulty.”

The governors claim that continuing to implement the current RVOs would “severely harm the sector.”

Louisiana Gov. Bel Edwards sent a similar letter to Wheeler April 7. “Currently, significant harm to the energy economy is expected to result from depressed demand for transportation fuel,” Edwards wrote. “But the 2020 RFS compliance obligations, in their current form, risk transforming the current severe economic harm to existential harm for some of the refineries in our states.”

EPA is evaluating the waiver requests. “The agency is watching the situation closely and will make the appropriate determination at the appropriate time,” said an agency spokesperson.

Members of the biofuel industry are speaking out against the waiver petitions. Some have noted RVOs are percentage-based, not flat blend requirements. As a result, falling fuel demand means obligated parties are already required to blend fewer gallons to meet their annual RVOs.

Biomass-based diesel volumes are set more than a year in advance and a 2020 waiver would “severely harm the biodiesel industry,” stated the National Biodiesel Board. This extra time was given for the biomass-based diesel RVOs to give stakeholders time to plan and invest. “Now that EPA has translated the volume requirements into the annual percentage obligation, a waiver would provide little additional benefit to refiners but undercut the investments and plans of biodiesel producers,” NBB stated. “Texas and Louisiana are two of the top states in producing biodiesel and renewable diesel—an RFS waiver would particularly harm tens of thousands of workers in the two states.”

Nationwide, the biodiesel industry supports more than 60,000 jobs and $17 billion in economic activity, according to the NBB. “With more than 20 percent of the nation’s biomass-based diesel production capacity, Texas and Louisiana reap significant benefits from producing and using these fuels,” the organization stated. “A waiver would cost jobs and economic investment in the two states.”

Kurt Kovarik, NBB’s vice president of federal affairs, said, “NBB and its members condemn the oil industry’s attempt to use the current national emergency as an excuse to undermine the RFS. The waiver sought by the oil state governors would devastate renewable fuel producers, cost essential critical infrastructure jobs in multiple states, reduce incomes for soybean farmers, and lead to dirtier air and higher carbon emissions.”

EPA established years ago that the waiver petitions must demonstrate the RFS itself is the direct cause of severe economic harm, Kovarik said. “Federal courts have upheld that interpretation,” he explained. “The refining sector’s current economic challenges stem from state and federal stay-at-home orders related to COVID-19 along with the international crude oil price war—they have nothing to do with the RFS.”

Kovarik added that the decline in transportation fuel demand hurts refiners and biofuel producers equally. “Refiners’ RFS obligations are set as a percentage of the fossil fuel they produce or import, which means that lower fuel demand directly reduces the amount of renewable fuel they blend,” Kovarik said. “And EPA has consistently demonstrated that refiners pass through the costs of any credits they purchase.”

Biofuel groups are also stressing that COVID-19 is causing severe economic harm to the ethanol industry. Data released by the U.S. Energy Information Administration shows nearly half of U.S. ethanol production capacity was offline the week ending April 10, while ethanol stocks set a new record high.

The Renewable Fuels Association said the governors are wrong to target the RFS and rural jobs. “It’s clear they know absolutely nothing about how the Renewable Fuel Standard actually works,” Geoff Cooper, RFA president and CEO, said of the petitioning governors. “If COVID-19 causes 2020 gasoline and diesel demand to drop 15 percent, for example, the renewable fuel blending requirements drops by the exact same amount. In any event, the EPA has no authority to grant relief when the RFS itself is not the cause of the ‘severe economic harm,’ a fact that has been reconfirmed by EPA multiple times in the past when it denied similar nonsensical waiver requests.”

The American Coalition for Ethanol called the governors’ requests illegitimate and stressed the drop in fuel demand is already waiving blending volumes. Rather than approving an RFS waiver, ACE is calling on the EPA to adjust the RVO upward.

“Not only should EPA dismiss the oil-state governors’ RFS waiver request, the agency should act swiftly to increase blending obligations in 2020 because the economic fallout from COVID-19 is destroying demand for ethanol below statutory levels,” said Brian Jennings, CEO of ACE.

Growth Energy has also spoken out against the waiver requests. “This is an offensive attempt by refiners to steal markets from struggling biofuel producers and farmers,” said Emily Skor, CEO of Growth Energy. “Any move to unravel the RFS now would dim any hopes of economic recovery in rural America, where so many in the U.S. biofuel industry have been impacted by furloughs and plant closures, and millions of farmers are struggling to stay afloat. We've seen the courts reject this kind of abuse before. Even oil companies admit that biofuel credits don’t impose a real cost on refiners. We see this as a non-starter and call on this administration to focus on restoring—not destroying—rural jobs.”

 
 
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