Small Refinery Exemption Remanded to EPA

Small Refinery Exemption Remanded to EPA

Ergon Scores Remand on SRE Appeal

Ergon is a West Virginia refinery that meets the definition of a small refiner under the Renewable Fuel Standard (RFS) threshold.  Ergon primarily produces paraffinic lube oils, with transportation fuels produced as a by-product of its primary production.

As a specialty lubricants producer, this sets Ergon apart from most refiners and has led Ergon to challenge how the EPA and DOE scored Ergon on their Scoring Matrix.  The Scoring Matrix is composed of two indices – the Disproportionate Impact Index and the Viability Index.  Scoring is used to determine whether a small refinery suffers disproportionate economic hardship and thereby qualifies for the continued exemption for that year. Ergon did not score high enough to meet the deffinition of disproportionate economic hardship.

Ergon argues the DOE used the same contradictory definitions of refineries in Sections 1(b) and 2(a) and scored Ergon the same way on remand. By doing so, Ergon asserts EPA acted arbitrarily and capriciously and that the concept of refining should be treated in the same way when scoring both sections. This scenario may only be relevant to specialty producers like Ergon.

The Fourth Circuit Court concluded that part of the EPA’s basis for accepting the DOE’s reasoning has been reliably called into question.  Accordingly, EPA found the decision as arbitrary and capricious. The Court goes on to say it expresses no view on how the EPA should act to cure the flawed analysis and that it is possible the DOE or EPA could explain why it is appropriate to apply a different standard in some cases.

The Fourth Circuit’s ruling differs from the 10th Circuit and does not appear to pit the two rulings against one another.  The 10th circuit ruling held that EPA cannot extend exemptions to any small refineries whose earlier, temporary exemptions had lapsed. The statute limits exemptions to situations involving ‘extensions,’ with the goal of forcing the market to accept escalating amounts of renewable fuels over time… The EPA exceeded its statutory authority in granting those petitions because there was nothing for the agency to ‘extend.’  It is unclear whether Ergon meets this standard, should the 10th Circuit’s ruling be applied nationwide. It is plausible Ergon could win its appeal and still not be eligible to receive an exemption if the 10th Circuit Courts ruling is expanded to the rest of the country.

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