A witness testifying before a Senate Committee hearing this week told Oklahoma U.S. Sen. Jim Inhofe there’s no doubt that if the Biden administration denies small refinery exemptions from biofuels mandates, it will result in even higher gasoline costs.
It’s what LeAnn Johnson Koch, Partner, Perkins Coie, LLP told the Senator during a hearing of the Environment and Public Works Committee hearing titled the “Environmental Protection Agency’s Renewable Fuel Standard Program: Challenges and Opportunities.”
“If EPA publishes its proposed denial, the parties holding the RINs that small refineries need for compliance will be in a position to demand exorbitant prices because small refiners will be captive buyers on the eve of the compliance deadline,” she said in response to a question raised by Sen. Inhofe.
Johnson also said it will result in higher gasoline prices.
“So, it is a recipe for crushing small refineries, it is a recipe for escalating RIN prices; they will get much worse if EPA moves forward with its proposal,” she said.
Witnesses included: Cory-Ann Wind, Oregon Clean Fuels Program Manager, Oregon Department of Environmental Quality; Emily Skor, Chief Executive Officer, Growth Energy; Lucian Pugliaresi, President, Energy Policy Research Foundation, Inc.; and LeAnn Johnson Koch, Partner, Perkins Coie, LLP.
Click here to watch Inhofe’s full remarks.
Inhofe: Thank you, Mr. Chairman. And before you start my clock, I’m going to experiment with something I haven’t tried before. I have two questions, but the first question has four parts. Rather than putting Ms. Johnson in a position of having to write down fast, I’m going to ask my staff to hand her the written copy of those four questions, which I will read now. First of all, Ms. Johnson, would denial of the small refinery exemptions, of which we have two in Oklahoma, ultimately drive gas prices up, and does the data support the assertion that small refinery exemptions lower blending biofuels and please describe your understanding of the EPA stakeholder engagement with refiners regarding the proposed rule, and is there data to support the claim that EPA’s denial of hardship relief for small refineries would contribute to closure of American refineries and lost jobs. Now, anything that has already been answered, you can go ahead and run over that fast, alright?
Johnson: Thank you, Senator Inhofe, and thank you for the list of questions. So, with respect to your first question of whether denial of small refinery exceptions will drive compliance costs higher and gas prices higher, it is a certainty. If EPA publishes its proposed denial, the parties holding the RINs that small refineries need for compliance will be in a position to demand exorbitant prices because small refiners will be captive buyers on the eve of the compliance deadline. Multiple compliance deadlines on top of one another, because EPA has been so delayed in its rule making. This is assuming that RINs are available at all, so my small refineries do not have the RINs they need for compliance; they are physically unavailable. No more 2019’s are available for compliance. No more 2020’s are available for compliance. Because, as EPA described, parties’ uncertainty about what the ultimate volumes will be are holding on to their excess RINs. So, it is a recipe for crushing small refineries, it is a recipe for escalating RIN prices; they will get much worse if EPA moves forward with its proposal. Gas prices will increase with RIN prices for parties that can partially or fully pass through their costs. For example, large integrated oil companies and large exempt retailer chains, and small refineries will be forced to violate the law without hardship relief, shut down, curtail or go bankrupt. Those are the Department of Energy’s predictions.
With respect to your second question, senator, does the data support the assertion support that small refineries exemptions lower blending of biofuels; I want to answer that in two parts. First of all, EPA’s current proposal relates to compliance years 2019, 2020 and 2021. It is impossible to blend any more fuel in those years – those years have already closed. So, no biofuel blend rate will go down. Essentially, the other proof is that there is a lot of discussion about the 2016 to 2018 time frame when the prior administration granted more hardship relief than it had historically. During the period of time when small refinery hardship increased, so did the blend rate. And the simple reason is small refineries cannot meaningfully impact the blend rate; the blending is done downstream. The only question is whether or not small refineries are going to make massive wealth transfer to the large integrated oil companies and large exempt blenders that hold the RINs needed for compliance.
Your third question was to describe stakeholder engagement with refiners regarding the proposed rule. I can say this: small refiners were blindsided by EPA’s proposal to retroactively deny all 2019 to 2021 petitions years after their statuary deadlines to issue their decisions had passed. EPA checked a box. They met with us on August 25, 2021; they shared no substance about their plans to issue retroactive mass adjudications and denials for small refineries. The proposal matches entirely, instead, the asks of the biofuel industry which seems to have had meaningful engagement with EPA. EPA also seems to have engaged with the USDA. And by the way, you, Congress, decided that the appropriate consultation was with the Department of Energy—not Ag—and the Department of Energy, as I’ve said has determined that EPA’s plan to deny hardship relief will result in the shutdown and closure of refineries.
Your last question, senator, was whether there is data to support the claim that EPA’s denial would contribute to the closure of American refineries and less jobs. I won’t repeat what I’ve said previously, but, essentially, a number of small refineries do not have the RINs they need for compliance. If they are denied relief, they will be captive buyers in a market with escalating RIN prices, and EPA has acknowledged that there was a shortcoming in the production of RINS for the 2019 compliance year and that the RINS that are available in the market are not in the hands of small refineries. So, small refineries will necessarily violate the Clean Air Act because they will not have the ability to get the RINs that they need for compliance, which will then force them to decide between spending money on RINs, if they have it, shutting down and/or going into bankruptcy. Senator, I hope I’ve answered each of your questions.
Inhofe: Excellent. I have one last thing for Mr. Pugliaresi, is there anything in terms of the risk associated with an entirely electric fleet that you didn’t adequately cover?
Pugliaresi: Yes, the biggest problem is we are energy independent now. In order to move to an electric fleet, we have to move to a series of critical materials and minerals, upon which we will be highly dependent on. Some of them sourced from countries that are not necessarily friendly to the United States. One question I thought was very interesting—it’s very important to understand that Oregon has the fifth highest gasoline prices in the country. So, it may be lower than some other adjoining states, but gasoline prices are quite high in Oregon.
Source: release