U.S. EPA says it agrees with court's decision casting doubt on biofuel exemptions

NEW YORK (Reuters) - The U.S. Environmental Protection Agency said on Monday it agrees with an appeals court’s decision last year that cast doubt on a program that granted oil refiners exemptions to U.S. biofuel blending laws.

FILE PHOTO: The Environmental Protection Agency headquarters is seen in Washington, D.C., U.S., January 19, 2020. REUTERS/Lucy Nicholson

The announcement signals that the agency could dramatically limit the number of exemptions given to refiners under the program going forward. The move would upset some in the oil industry who say exemptions are needed to keep small refiners afloat under pricey blending requirements but would be a huge win for the corn lobby.

The EPA, though, will not act on any pending small-refinery exemption petitions until after a Supreme Court review of the case, which is expected by July 2021, according to a source familiar with the matter.

“This conclusion ... represents a change from EPA’s position before the Tenth Circuit,” the agency said in a notice on Monday. “The change reflects the Agency’s considered assessment that the Tenth Circuit’s reasoning better reflects the statutory text and structure, as well as Congress’s intent in establishing the RFS program.”

Under the U.S. Renewable Fuel Standard, refiners must blend billions of gallons of biofuel into the nation’s fuel pool, or buy credits from those that do. Refiners can apply for exemptions if they can prove the requirements cause them financial harm.

The exemption program has been controversial. Biofuel producers and corn farmers say it hurts demand for their products, while oil refiners reject that claim.

In January 2020, the 10th U.S. Circuit Court of Appeals ruled that waivers granted to small refineries after 2010 should only be approved as extensions. Because most recipients of waivers in recent years have not continuously received them year after year, the decision threatened to upend the waiver program.

The Supreme Court is reviewing that case after oil refiners petitioned.

The EPA said in Monday’s notice that it agrees with the 10th Circuit’s assessment that an exemption must exist for the agency to be able to extend it.

The American Fuel & Petrochemical Manufacturers (AFPM), a trade group that represents refiners, said it was disappointed by EPA’s notice.

“Without a mechanism like the SRE program that helps contain soaring RFS costs, there could be more facilities that (shutter) - an outcome we should all be working to avoid,” an AFPM spokesperson said.

Meanwhile, the biofuel industry cheered the announcement.

“This announcement marks a major step forward by the Biden administration to restore the integrity of the Renewable Fuel Standard and honor the intent of Congress,” groups including the Renewable Fuels Association and National Corn Growers Association said in a joint statement.

Reporting by Stephanie Kelly; editing by Jonathan Oatis, Steve Orlofsky and Richard Pullin