In a report that was immediately attacked as “shoddy” by the renewable fuels industry but welcomed by lawmakers representing refineries, the Government Accountability Office said recent denials of small refinery exemption petitions are based on “a potentially flawed assumption.”

That assumption, GAO said, was that “all parties pay and receive one price for the tradable credits used to demonstrate compliance with the Renewable Fuel Standard.” GAO, the investigative arm of Congress, said its analysis “showed that small refineries have paid more on average for compliance credits than large refineries.”

GAO also concluded in its 78-page report that EPA and the Department of Energy “do not have policies and procedures specifying how they are to consult about and make exemption decisions.”

“Without reassessing its conclusion on [Renewable Identification Number] pass-through, including by fully examining and documenting RIN market performance and RIN pass-through in all relevant fuel markets, EPA will continue to make decisions on exemption petitions without quality information and, therefore, risks inappropriately denying valid exemption petitions,” GAO said.

Geoff Cooper, president and CEO of the Renewable Fuels Association, however, said “there is no such thing as ‘disproportionate economic hardship’ under the RFS. All refiners — large or small, merchant or integrated — face the same compliance obligations and they all pass their RIN costs on to fuel blenders at the terminal. Period. There is a mountain of evidence confirming this fact, and GAO’s new report will just be thrown on the growing scrap heap of refiner disinformation meant to undermine the success of the RFS.”

But Sen. Shelley Moore Capito, R-W.Va., and John Barrasso, R-Wyo., who were among a group of lawmakers who sought a GAO report two years ago, welcomed the congressional auditor's findings.

“Today’s report shows that the Biden administration has arbitrarily denied small refineries relief from this mandate,” Barrasso, ranking member of the Energy and Natural Resources Committee, said. “It is high time that the administration reverse course, grant relief to small refineries, and clean up its gross mismanagement of this program. Senator Capito and I will fight to ensure this happens.”

The waivers were a hot-button issue during the Trump administration.

Former EPA Administrator Scott Pruitt was much more active in granting waiver requests, which are submitted by facilities with a daily production capacity of fewer than 75,000 barrels who feel complying with the Renewable Fuel Standard could cause them undue economic harm.

In 2019 and 2020, GAO received requests to look at the program from two separate groups of lawmakers — a bipartisan request from a dozen House members and five senators, including former Iowa Rep. Abby Finkenauer and senators Debbie Stabenow and Roger Marshall and then another from Barrasso, Capito, and eight other Republican senators.

But the awarding of the waivers cooled during the Biden administration.

Earlier this year, the agency denied 69 SRE petitions covering the 2016-2021 RFS compliance years — 61 of them covering 2019, 2020 and 2021 — but gave most of those facilities an opportunity to comply through alternative means. Among other factors behind the decision to grant compliance flexibility were “extenuating circumstances specific to the 2019 and 2020 compliance years, including a limited availability of RINs and the significant delay in EPA issuing its decisions on SRE petitions for these compliance years,” the agency said.

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Cooper said the GAO analysis “can only be described as a creative and obscure acrobatic routine. And even after performing these high-flying gymnastics, GAO can only suggest that the cost of RFS compliance for small refiners might be 0.5% — that’s half of 1 percent — higher than what larger refiners experience.” 

In its report, though, GAO said preliminary analysis conducted by EPA since receiving the draft GAO report “align with our own in that small refineries appear to pay more for RINs.”

“Since we recommend that EPA further evaluate RIN market performance and RIN pass-through to inform its analysis of whether there is disproportionate hardship, we are heartened that EPA has begun to do so since receiving our draft report,” GAO said.

DOE agreed with GAO recommendations that during its required consultation on SRE petitions, it should provide EPA with “useful information” on disproportionate economic hardship and “develop policies and procedures” to guide its consultations with EPA.

EPA disagreed with the report’s finding that the agency lacks “quality information needed to evaluate exemption petitions” and said it would not review its exemption decisions. “EPA further disagreed with our related recommendation that EPA reassess its conclusion that all small refineries recover their compliance costs,” GAO said.

GAO, however, said it wasn’t asking EPA to review its past exemption decisions but to “reassess its underlying conclusion of RIN cost pass-through.”

Cooper, in another criticism of the report, said that “renewable fuel supporters in both the House and Senate asked the GAO to investigate the gross mismanagement of the small refinery exemption program by former EPA Administrators Scott Pruitt and Andy Wheeler. Now, more than three years later — and less than one week before the midterm elections — GAO puts out a shoddy report that is friendly to oil refiners and purports to answer questions no one ever asked.”

The “only thing” Cooper argued GAO got right in the report was its conclusion that “SREs reduce demand for renewable fuel, causing harm to ethanol producers,” he said.

The report says that because SREs have been granted after annual requirements were set, “they have likely reduced blending. According to experts and a representative of a fuel blender, exemptions have reduced the price of RINs, giving less incentive to blend renewable fuel.”

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