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Small refinery waivers to biofuel mandate could trickle after US EPA skips appeal

Highlights

Ethanol RINs trade higher after EPA misses court deadline

Washington — Small US refineries could have a harder time securing exemptions to the federal biofuel mandate after the Environmental Protection Agency decided this week not to appeal a court decision challenging the Trump administration's widespread use of the waivers.

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Biofuel groups cheered the decision Wednesday, but it comes as the industry is reeling from plunging demand and trade disruptions from the coronavirus pandemic.

D6 ethanol RINs for 2020 compliance traded at 29 cents/RIN Wednesday morning after news of EPA missing the deadline, up 2.25 cents/RIN from Tuesday's close.

EPA had until Tuesday to appeal a January 24 ruling by the US Court of Appeals for the 10th Circuit, which said the agency "abused its discretion" when issuing the hardship waivers to refineries that process less than 75,000 b/d.

If EPA follows the ruling, virtually all but a handful of exemptions would be invalidated, according to S&P Global Platts Analytics. That would mark a major development for both the biofuels market and the RINs market.

S&P Global Platts assessed D6 RINs for 2020 compliance at 26.75 cents/RIN Tuesday, down 1 cent/RIN from Monday. D4 biodiesel RINs for 2020 compliance were assessed at 48.50 cents/RIN, also 1 cent/RIN lower.

RINs are tradable credits the EPA issues to track production and use of alternative transportation fuels. For corn-based ethanol, one gallon of ethanol yields one RIN.

Falling demand

The National Biodiesel Board said Wednesday that the widespread small refinery waivers have destroyed demand for hundreds of millions of gallons of biodiesel and renewable diesel in the past three years.

"Producers are still struggling to regain momentum and growth; a handful of facilities remain closed after shutting down last year," said Kurt Kovarik, NBB's vice president of federal affairs. "The industry is also facing the economic impacts of the coronavirus and the threat to US energy security from foreign countries flooding the markets with cheap oil. Applying the Court's ruling nationwide would eliminate an unnecessary ongoing challenge for the industry."

While EPA did not appeal the 10th Circuit decision, four refineries involved in the case asked for a rehearing before the full court: Wynnewood Refining, HollyFrontier Cheyenne Refining, HollyFrontier Refining and Marketing, and HollyFrontier Woods Crossing Refining.

The refiners argue the court's ruling in January eviscerates the provision in the federal Renewable Fuel Standard that allows small refineries to be exempted from meeting biofuels blending mandates that cause economic hardship.

"The panel decision virtually eliminates those exemptions, and it does so by misconstruing the text and structure of the RFS," HollyFrontier said.

The court's order vacated exemptions that EPA granted to the four refineries, finding the waivers could only be granted to refineries that received them in the previous year.

Wynnewood Refining's petition says the ruling is "a death knell" because the refinery is subject to the whims of the RINs market.