(Reuters) - The U.S. Environmental Protection Agency must reconsider its denial of small West Virginia refinery Ergon’s application for an exemption from U.S. biofuel laws after it relied on an “error-riddled” analysis, an appeals court ruled on Friday.
The EPA relied on a recommendation from the Department of Energy that, among other things, failed to take into account that Ergon produced high levels of diesel that may not easily be blended and sold into the local market, according to the 4th U.S. Circuit Court of Appeals in Maryland.
The decision will likely bolster supporters of the EPA’s expansion of the small refinery waiver program under President Donald Trump, many of whom argue that President Barack Obama’s EPA had been too stingy with exemptions.
The biofuel industry, meanwhile, has criticized the expansion of the program under Trump, saying it undercuts the U.S. Renewable Fuel Standard (RFS).
The RFS requires refiners to blend biofuels like ethanol into the fuel pool or buy compliance credits from those who do - a measure aimed at helping corn farmers and cutting foreign imports of petroleum. But refineries up to 75,000 barrels per day can seek exemptions from the law each year if they can prove compliance would cause them financial hardship.
Ergon operates a small refinery (23,500 barrels per day) in Newell, West Virginia that produces specialty lube oils and diesel.
“We are pleased to see the 4th Circuit Court ruling which recognizes the significant and disproportionate hardship that RFS places on small refineries,” said Ergon-West Virginia Inc President Kris Patrick.
The EPA did not immediately respond to requests for comment.
Former EPA administrator Scott Pruitt, who resigned earlier this month following a slew of ethics controversies, oversaw a surge in small refinery waivers.
The EPA put out data last week that said it granted 48 such waivers for the years 2016 and 2017, representing some 2.25 billion gallons of biofuels.
The EPA is required to consult with the Department of Energy on the applications. Under Pruitt, the EPA consistently ignored recommendations from the Energy Department to reject or limit waivers to oil refiners seeking exemptions from biofuels laws.
The panel of appellate judges ruled that the DOE’s analysis was flawed because it did not take into the account the regional market for biodiesel and also separated the plant’s lube oil production in part of application and included in other areas.
“Although the EPA is statutorily required to consider the DOE’s recommendation, it may not turn a blind eye to errors and omissions apparent on the face of the report, which Ergon pointed out and the EPA did not address in any meaningful way,” the judges wrote.
In a previous case, the 10th Circuit Court overturned the EPA’s denial of Sinclair Oil’s exemption applications last year, arguing the agency was using too narrow of a test when evaluating the applications. The EPA remedied the reversal by granting Sinclair 2018 compliance credits related to its 2014 and 2015 obligations.
Reporting by Jarrett Renshaw; editing by Jonathan Oatis and Grant McCool