April 6, 2018 / 12:38 PM / 8 months ago

Exclusive: Biofuels battle - Senator moves to expand small refiner exemption

NEW YORK (Reuters) - Lawmakers spearheading efforts to reform U.S. biofuels regulations are considering a blanket waiver for all small refineries, according to four sources familiar with their draft legislation. The move would save some refiners a fortune but would outrage the powerful corn lobby.

FILE PHOTO: Clouds from Hurricane Harvey are seen in the background as smoke rises from a burn off at an oil refinery in Corpus Christi, Texas, U.S., August 26, 2017. REUTERS/Adrees Latif/File Photo

The draft bill, led by Republican Senator John Cornyn of Texas, adds fuel to a fiery dispute between refiners and corn growers over the future of the Renewable Fuel Standard (RFS) – a law that requires the refining sector to blend increasing amounts of biofuels such as corn-based ethanol into the nation’s fuel supply each year.

The Environmental Protection Agency (EPA) already has the authority to exempt small refineries of under 75,000 barrels per day (bpd) on a case-by-case basis if they can prove “disproportionate economic hardship” from the costs of RFS compliance.

Reuters reported this week that EPA had given Andeavor - one of the nation’s largest refining firms - the exemption for three of its refineries that fall under the 75,000-bpd standard.

The decision could save the firm more than $50 million in regulatory costs. Andeavor reported $1.5 billion in profit last year.

The report outraged representatives of the corn and biofuels industries, who argue giving the “small refiner” exemption to large, profitable companies is an abuse of the program that will undermine ethanol demand.

The EPA also recently gave waivers from the RFS to more than two dozen refineries for 2017 - about triple the number granted in previous years.

Such exemptions free refiners from the requirement to either blend biofuels into their refined products, or to buy EPA-awarded credits from refiners who do such blending. The cost of the credits can amount to tens of millions of dollars annually.

Cornyn’s draft legislation would seek to reduce the burden of compliance to the 2005 law by providing a blanket exemption for all U.S. oil refineries classified as small, according to the sources, who spoke on condition of anonymity.

But it is not yet clear whether small refineries operated by publicly-traded giants such as Andeavor ANDV.N, Exxon Mobil Corp (XOM.N), or Chevron (CVX.N), would be eligible for the blanket exemption, the sources said. Cornyn’s blanket exemption would mainly target small plants operated by private companies, they said.

After the Reuters report on the Andeavor exemption, a handful of biofuels groups called for a moratorium on new exemptions and greater transparency in the waiver program, which the EPA runs largely in secret to protect what it has deemed the companies’ private information.

The Renewable Fuels Association filed a formal request with the EPA this week seeking details on who got the exemptions and why.

‘BIG PRIORITY’

Cornyn’s effort represents the oil industry’s best chance for biofuels reform after efforts by President Donald Trump to broker an executive or administrative-level fix ended in dispute.

One of the sources on the draft bill said the blanket exemption was a “big priority” for the Senate Environmental and Public Works Committee, whose chairman, Wyoming Republican John Barrasso, is helping prepare the bill.

Wyoming is home to several small refineries.

Cornyn spokeswoman Ryann DuRant said the bill was “still being drafted based on stakeholder and legislative feedback.” She declined to comment directly on the waiver provision.

Environmental and Public Works Committee spokesman Mike Danylak declined to speak about the draft legislation, but said: “Chairman Barrasso believes the Renewable Fuel Standard is broken and must be fixed.”

ETHANOL VS. OIL

Cornyn’s draft would theoretically cut as much as 10 percent of America’s refining capacity out of the biofuels program - based on the combined production capacity of all U.S. refineries operating under 75,000 bpd.

Biofuels advocates worry the provision would translate into a similar reduction in the volume of biofuels that the government requires under the RFS - currently over 19 billion gallons per year, mostly in ethanol.

“We support narrow exemptions that allow some small refineries out of the program, but we vehemently oppose a blanket exemption,” said Michael McAdams, president of the Advanced Biofuels Council.

Larger refining companies, meanwhile, fear the move would instead just shift a greater burden of the blending off of small players and onto them.

The American Petroleum Institute, which represents companies operating the nation’s biggest refineries, said in a February letter to the EPA that U.S. biofuels policy must “maintain a level playing field in the marketplace, and must apply equally across the whole refining sector.”

The sources did not say how Cornyn’s proposed blanket waiver would address the overall volumes mandates.

The Cornyn draft bill also includes a slew of other measures, previously reported by Reuters, which are intended to help refiners while also helping maintain solid demand for ethanol.

Among them is the addition of a new type of compliance credit that oil companies can use to meet their requirements under the RFS; the sunsetting of requirements to blend conventional renewable fuels like ethanol after 2022, combined with an extension for advanced fuels of about three years; and a waiver that would allow a higher ethanol fuel blend to be sold in summertime months.

Reporting by Jarrett Renshaw and Chris Prentice; editing by Richard Valdmanis, Leslie Adler, and Brian Thevenot

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