U.S. Supreme Court Hears Arguments On Validity Of Small Refinery Exemptions From The RFS
The U.S. Supreme Court heard arguments last week to determine whether small refineries can claim they are exempt from ethanol and biodiesel blending mandates under the Renewable Fuels Standard (RFS).
The case involves an appeal by small refiners of a lower federal court ruling last year that invalidated 3 small refinery exemptions (SREs) issued by the Trump administration.
In that case, the 10th Circuit U.S. Court of Appeals ruled the SREs were improperly issued because the EPA lacked the authority to “extend” exemptions to any small refineries whose earlier, temporary exemptions had expired.
SREs could only be extended if they were held continually without lapsing since originally issued. All but a handful of the Trump era waivers would pass the court’s continuity test.
The issue is important to energy marketers because if the Supreme Court upholds the lower court ruling, most small refiner exemptions will end permanently. If that happens small refiners will be forced to buy blending credits on the RINS market to comply with EPA’s annual blending mandates under the RFS.
The resulting increased demand for blending credits which could cause RIN market chaos.
The Supreme Court ruling will also likely influence how the RFS is “reset” after 2022 when the annual statutory blending volumes set by Congress end and the EPA takes over establishing mandatory blending volumes in 2023.
Until now, the EPA used small refiner exemptions to reduce the overly optimistic annual blending mandates set by Congress back in 2007 to reflect current, real word demand for gasoline.
It is not clear how the EPA will balance blending volume mandates moving forward if the Supreme Court rules against refiners. However, the EPA is required to issue a rule in 2021 establishing a framework for determining volumetric blending mandates after 2022.
The Supreme Court is expected to issue a ruling on the SRE issue by July.
Meanwhile, according to Reuters, the American Fuel & Petrochemical Manufacturers said it wants the EPA to establish a methodology to ensure blending volumes are in line with market conditions for that year — meaning they would be lower in periods of weak demand and higher when demand ticks up, while also encouraging the increased use of advanced and cellulosic biofuels, instead of conventional biofuels such as ethanol.