• Citing COVID-19 Harm, Five States' Governors Ask EPA to Waive RFS Obligation

  • Citing COVID-19 Harm, Five States' Governors Ask EPA to Waive RFS Obligation

    Five refining-state governors have asked EPA Administrator Andrew Wheeler to
    grant an "appropriate waiver" of the Renewable Fuel Standard's (RFS) 2020
    biofuel blending targets, citing the economic downturn caused by the
    coronavirus 2019 (COVID-19) pandemic.

    In Wednesday letters, the governors -- Republicans Greg Abbott of Texas, Gary
    Herbert of Utah, Kevin Stitt of Oklahoma, Mark Gordon of Wyoming -- said the
    RFS allows the agency to waive an annual Renewable Volume Obligation when it
    determines that meeting the requirements could cause severe economic hardship
    to a state, region or the nation. The governors said EPA must take into account
    the state of the refining sector, which is with sharp declines in gasoline and
    jet fuel demand as more people stay at home in an effort to limit the virus's
    spread. Louisiana Democratic Gov. John Bel Edwards submitted his request to EPA
    on April 7.

    "It must then determine whether the implementation of the current RVO,
    including costs associated with the recent tripling in the price of renewable
    identification numbers (RINs), present a clear threat to the industry under
    such circumstances; and then, upon determining whether harm inflicted on a
    sector as vital as refining and allied aspects of the refining supply chain,
    constitute an appropriate basis for granting a waiver under the cited
    provision," the Republican governors' letter said.

    State governors have made similar requests in the past, most recently in 2018,
    but EPA administrators -- including Scott Pruitt -- has denied the requests
    saying they had contained insufficient analysis and information to demonstrate
    the RVO was causing "severe economic harm."

    "In the past, EPA has failed to grant waivers at the request of governors based
    on adequacy of documentation," the governors said in their letter. "However,
    current extraordinary circumstances represent a material change in condition
    since the last time EPA entertained such requests."

    The governors also said the Clean Air Act does not require that the waiver
    request be limited to situations in which the harm associated with RFS
    compliance is the only source of stress on the economy. The governors argued
    that severe harm to the energy economy is expected to result from depressed
    demand for transportation fuel.

    "For many U.S. refineries, RFS compliance has been one of their top annual
    operating costs - even higher than employee payroll," American Fuel &
    Petrochemical Manufacturers (AFPM) president and CEO Chet Thompson said in a
    statement. "This is an indefensible burden, especially now as COVID-19 has
    upended the market for gasoline and refined products and the refining industry
    nationally is running at low enough capacity that facilities are being forced
    to idle.

    "Governors recognize the threat the RFS poses to the health of America's
    refining sector and momentum is building in the states to push back. AFPM is
    supportive of these governors' efforts to stand up for the women and men in our
    industry who are keeping America's refineries online. We urge Administrator
    Wheeler to listen to them. Refineries are critical national security assets and
    cannot afford the unachievable RFS on top of COVID-19."

    Biofuels groups didn't share Thompson's view.

    "It's clear they know absolutely nothing about how the Renewable Fuel Standard
    actually works," Renewable Fuels Association (RFA) President and CEO Geoff
    Cooper said in a Thursday statement. "They outrageously claim that a waiver is
    needed because of 'depressed demand for transportation fuel.' But because EPA
    translates the RFS into a percentage each year, the renewable fuel blending
    requirements already adjust in tandem with changes in gasoline and diesel
    consumption. So, if COVID-19 causes 2020 gasoline and diesel demand to drop 15
    percent, for example, the renewable fuel blending requirements drops by the
    exact same amount.

    "In any event, the EPA has no authority to grant relief when the RFS itself is
    not the cause of the 'severe economic harm,' a fact that has been reconfirmed
    by EPA multiple times in the past when it denied similar nonsensical waiver
    requests. The governors themselves acknowledge the problems facing refiners
    today are driven by COVID-19 and cratering oil prices, not the RFS. These same
    factors are impacting the ethanol industry as well, and to an even
    greaterextent: Nearly half of the nation's ethanol production capacity has been
    idled as a result of falling gasoline demand. A general waiver at this point
    would only serve to close more ethanol plants and kill more jobs across rural

    "This is an offensive attempt by refiners to steal markets from struggling
    biofuel producers and farmers," Growth Energy CEO Emily Skor said. "Any move to
    unravel the RFS now would dim any hopes of economic recovery in rural America,
    where so many in the U.S. biofuel industry have been impacted by furloughs and
    plant closures, and millions of farmers are struggling to stay afloat.

    "We've seen the courts reject this kind of abuse before. Even oil companies
    admit that biofuel credits don't impose a real cost on refiners. We see this as
    a non-starter and call on this administration to focus on restoring - not
    destroying - rural jobs."

    "EPA has no other choice than to reject this most recent ploy to waive the RFS
    based on precedent from previous waiver appeals in 2008 and 2012 which require
    EPA to determine that the RFS itself must be proven to be the cause of severe
    economic harm to justify a waiver, not outside factors such as coronavirus or a
    drought," American Coalition for Ethanol (ACE) CEO Brian Jennings said. "The
    RFS is clearly not the cause of the economic catastrophe brought on by
    coronavirus and the Saudi-Russian oil price war, and the oil industry should
    direct its blame elsewhere.

    "We remind the Administration that oil refiners are not the only ones suffering
    from the economic fallout of the current situation. Ethanol producers, and the
    farmers supplying them corn, are suffering a proportional economic disaster.EPA
    should in fact do the opposite of the governors' request and issue an interim
    rule to increase the RVO for 2020 to the percentage necessary to ensure that
    the full 20.09 billion gallons required by law are used."

    University of Illinois economist Scott Irwin warned of the waiver scenario in
    an interview with OPIS last week.

    "If there was ever a time where you could make that case, it has to be now,"
    Irwin said. "It has to be severe economic harm to the nation. I think they
    would have a dramatically more receptive ear to that argument in the Trump
    Administration than the last time."

    --Reporting by Jordan Godwin, jgodwin@opisnet.com; Editing by Jeff Barber,

    Copyright, Oil Price Information Service