Scott Irwin – Small Refinery Exemptions and Biomass-Based Diesel Demand Destruction

Jeff Hove: Since the inception of the U.S. EPA Renewable Fuels Standard (2007), the downstream petroleum industry has been taking great risks to fulfill the intent of Congress. Blending renewable fuels is expensive and requires new equipment, new suppliers, complex RIN credit tracking, and new risks associated with marketing new products. The otherwise successful RFS was first undermined by criminal forces generating fraudulent RIN credits which almost brought the RFS to it knees. Now the primary force undermining the RFS is the EPA itself. The issuance of small refinery exemptions, often to the largest, most profitable refining companies in the country, behind closed doors, has dramatically undermined demand for biodiesel. The manner in which EPA issued these waivers under former Administrator Pruitt was nothing short of government-sanctioned market manipulation. I am hopeful that the Agency will change course under Administrator Wheeler. 

Article Excerpt:The market impact of small refinery exemptions (SREs) granted under the RFS remains a highly contentious issue. From a regulatory standpoint, there is no doubt that SREs opened a backdoor mechanism for the EPA to reduce the statutorily-mandated RFS volumes (farmdoc daily, July 12, 2018). However, there is sharp disagreement about the impact of SREs on the physical consumption of biofuels, particularly for ethanol. The ethanol industry has argued vociferously that there has been substantial destruction of demand in the physical ethanol market due to the SREs. However, a series of farmdoc daily articles in recent months showed that the physical use of ethanol declined little if any due to SREs (September 13, 2018; December 13, 2018; January 16, 2019).
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