April 2022 Denial of Petitions for RFS
Small Refinery Exemptions
£% United States
Environmental Protect
Agency
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April 2022 Denial of Petitions for RFS
Small Refinery Exemptions
United States Environmental Protection Agency
United States
Environmental Protection
^1 Agency
EPA-420-R-22-005
April 2022
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Table of Contents
EXECUTIVE SUMMARY 1
I. Final Adjudication Summary and Process 5
II. Background 8
A. RFS Program 8
B. Renewable Identification Numbers (RINs) 9
C. RFS Compliance and RIN Market Dynamics 10
D. History of SREs 12
III. EPA's Approach to Determining DEH When Evaluating SRE Petitions 17
IV. EPA Evaluation 20
A. Eligibility to Petition for Extension of a Small Refinery Exemption 20
1. Requirement to Have Received Initial Blanket Statutory Exemption 20
2. Changed Approach to Eligibility 21
3. Alternative Eligibility Determinations for Two Refineries 22
B. Compliance with SRE Petition Requirements 23
C. DOE Consultation and EPA Consideration of the DOE Study 23
D. Hardship Must Be Caused by RFS Compliance 26
1. The CAA Requires That DEH Must Be Caused by RFS Compliance 26
a. The Text of the Statute Provides That DEH Must Be Caused by Compliance
with the RFS Program 26
b. The Purpose of the RFS Program Supports a Requirement That DEH Must Be
Caused by Compliance with the RFS Program 28
2. DEH and RIN Cost Passthrough 29
a. Assessments of RIN Market Dynamics 31
b. Economic Principles of RIN Cost Passthrough 32
c. Impacts on Different Market Participants 40
d. EPA Evaluation of Available Market Data 48
3. EPA Responses to Small Refinery Arguments for Exemption 58
V. Alternative Compliance Demonstration Approach 70
VI. Denial of Petitions and Judicial Review 71
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EXECUTIVE SUMMARY
Small Refinery Exemption (SRE) Denial and Related Compliance Actions
In this action, the Environmental Protection Agency (EPA or "the Agency") is denying
36 petitions from 36 small refineries seeking exemption from their Renewable Fuel Standard
(RFS) obligations for the 2018 compliance year.1 This final action (hereinafter the "SRE
Denial") is a single action, but it is comprised of the adjudications of 36 SRE petitions.
On December 7, 2021, EPA proposed to deny 65 pending SRE petitions (the "Proposed
Denial") based on a proposed revision of EPA's interpretation of Clean Air Act ("CAA" or "the
Act") SRE provisions. In this action, EPA is acting on 36 SRE petitions that were remanded to
the Agency by the U.S. Court of Appeals for the D.C. Circuit on December 8, 2021. The D.C.
Circuit ordered EPA to "issue new decisions" by April 7, 2022.2 EPA has received and
considered all the comments received on the Proposed Denial and addresses those comments in
this action.
In a separate action, EPA is providing compliance flexibility for a subset of the 36 small
refineries whose SRE petitions EPA initially granted for the 2018 compliance year, but now, on
remand, is denying under this action. This subset includes 31 of the 36 SRE petitions decided in
this action. EPA has determined that, if it were to require these small refineries to comply with
their newly created 2018 obligations under the existing compliance scheme, the impact on the
RFS program as a whole, in addition to the impacts on the individual small refineries, would be
unacceptable due to the unavailability of sufficient RINs to satisfy these new obligations. Thus,
the concurrent action provides an alternate compliance approach by which these small refineries
can demonstrate compliance with their 2018 obligations that they otherwise would not be able to
meet.
Grounds for the SRE Denial
The Proposed Denial
EPA issued the Proposed Denial in response to the conclusion of litigation that addressed
historical inconsistencies in EPA's treatment of SREs since 2011. First, in Renewable Fuels
Association v. EPA, the U.S. Court of Appeals for the Tenth Circuit Court found that EPA had
exceeded its statutory authority by granting extensions of the SREs held by certain small
refineries and remanded those decisions to the Agency for reconsideration. The court held that:
(1) In granting exemptions based on economic factors unrelated to compliance with the RFS
program, EPA had exceeded its statutory authority to exempt small refineries from their RFS
1 There is one additional 2018 SRE petition that was decided separately from the other 36 2018 SRE petitions and
was also remanded to EPA; however, this 2018 SRE petition was remanded by the Fourth Circuit in 2020. This SRE
petition is not included in the 36 2018 SRE petitions decided in this action. Hereinafter, when we refer to "the SRE
petitions," we refer only to the 36 2018 SRE petitions on remand from the D.C. Circuit.
2 On January 3, 2022, EPA provided notice that the 36 remanded 2018 SRE petitions were again before the Agency,
and that EPA was expanding the Proposed Denial to include them and requesting comment on that approach.
Memorandum: Scope of Action and Notification," EPA-HQ-OAR-2021-0566-0027.
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obligations "for the reason of disproportionate economic hardship [DEH]" because the statute
authorizes EPA to extend exemptions only where RFS compliance costs are the cause of the
small refinery's hardship; (2) EPA had acted arbitrarily and capriciously in granting exemptions
without explaining whether and how the subject SRE grants were consistent with EPA's firmly
established position that all parties subject to RFS obligations recover their compliance costs
through a feature of the market EPA identified as "RIN cost passthrough;" and (3) In order to be
eligible to petition for extension of an SRE, a small refinery needed a continuous, uninterrupted
exemption history beginning with the CAA section 21 l(o)(9) blanket statutory exemption period
for small refineries.
Following the Tenth Circuit's RFA opinion, the small refinery intervenors in that case
appealed only the holding that, to be eligible for exemption, a small refinery needed a
continuous, uninterrupted exemption history. In HollyFrontier Cheyenne Refining, LLC, etal. v.
Renewable Fuels Association, et al., the Supreme Court held that the term "extension" as used in
CAA section 21 l(o)(9)(B) does not include a continuity requirement and reversed the Tenth
Circuit opinion on that issue.
After evaluating this jurisprudence, refinery-specific materials submitted by many small
refineries to support of their SRE petitions in the wake of the Supreme Court's ruling, years of
experience and data collected by implementing the RFS program and SRE provisions, and our
exhaustive analysis of how the RFS credit market functions, EPA determined that the Tenth
Circuit provided the best reading of the SRE statutory provisions and issued the Proposed
Denial, based on EPA's conclusion that small refineries cannot demonstrate they suffer DEH
caused by the cost of compliance with the RFS program. EPA proposed the following findings:
(1) Regardless of the mechanism by which any obligated party—including small refineries—
comply with their RFS obligations, RFS compliance costs are the same for all obligated parties
and thus no party bears RFS compliance costs that are disproportionate relative to others' costs;
(2) Any obligated party—including small refineries—recovers their compliance costs through
the market price they receive when they sell their fuel products and thus do not bear a hardship
created by compliance with the RFS program; and (3) With no disproportionality and no
economic hardship, there can be no DEH pursuant to the statute. EPA therefore proposed to
revise its CAA statutory interpretation to extend SREs only to small refineries whose claimed
DEH is caused by the cost of complying with the RFS program and not by other factors and to
deny 65 pending SRE petitions on this basis. Further, EPA proposed to deny SRE petitions
submitted by any small refinery that had not received the initial blanket statutory exemption
under CAA section 21 l(o)(9).
The Notice-an d- Co mine n t Process
Recognizing the complexity of the Agency's past implementation of the SRE provisions,
recent litigation, and the significance and potential ramifications of the proposed changes in SRE
interpretations to refineries and the entire RFS program, EPA requested comment on the
Proposed Denial to ensure that RFS stakeholders and the public had an opportunity to provide
input on the proposed shift in interpretation of the SRE statutory provisions, as well as to submit
refinery-specific information related to the proposed SRE petition denials. EPA chose to
undertake a notice-and-comment process to provide maximum transparency, as we proposed to
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address past inconsistencies in SRE implementation and new case law providing a better read of
the SRE statutory provisions.
As set forth herein, EPA received numerous individual comments from various RFS
stakeholders, most of which are available in the public docket for this action; however, some of
the comments from petitioning small refineries provided unique, refinery-specific information
submitted under claims of confidentiality that are therefore being addressed in appendices that
will be provided only to the individual commenters. EPA has carefully considered all comments
received and provides responses to those comments in Appendix B and in confidential, refinery-
specific appendices to this action. While this final action only adjudicates 36 remanded 2018
SRE petitions, many small refineries still have pending SRE petitions for multiple subsequent
and prior compliance years, and their comments raised arguments and provided data applicable
to more than one of their pending SRE petitions. EPA has considered and responded to all
information relevant to the remanded 2018 SRE petitions in this action. EPA will respond to any
comments relating only to the still-pending SRE petitions in a subsequent action to address those
petitions.
First, EPA received similar comments from most small refineries and their trade
associations challenging the validity of the Proposed Denial's approach to DEH. Many submitted
refinery-specific information about their operations, finances, and the fuels markets in which
they participate to support their arguments that they should receive SREs. Because the same
arguments were repeated by most, if not all, SRE petitioners, EPA presents and responds to them
as a group in Section IV.D.3. These comments articulate the following general themes:
(a) Small refineries face unique challenges that prevent them from achieving RIN cost
passthrough and EPA must consider their specific circumstances;
(b) EPA's Point of Obligation denial is not relevant to SRE policy because it did not
address their situations and does not apply to them;
(c) The Point of Obligation denial is out of date and inapplicable;
(d) Revenue from RIN sales allows large retailers to undercut small refineries;
(e) Large integrated refiners set prices in fuels markets, undercutting small refineries on
price because of their market position and because large integrated refiners have
lower or no RIN costs;
(f) EPA is incorrect about there being parity between the cost of obtaining a RIN through
blending and the cost of buying a RIN on the market;
(g) Single-site refineries are disadvantaged relative to large integrated refiners because
they only have access to a limited market; and
(h) Small refineries that produce primarily diesel fuel are at a disadvantage because they
cannot blend as much renewable fuel into their product as can refineries that produce
gasoline.
After addressing the universal comments described above, EPA presents and responds to
unique comments received from a range of RFS stakeholders—including refineries and their
trade organizations, biofuel producers and their trade organizations, and a number of local, state,
and federal officials—in Appendix B and, where applicable, in confidential, refinery-specific
appendices to this action. The comments addressed in Appendix B focus on EPA's notice-and-
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comment process for proposing and finalizing the SRE Denial, EPA's legal authority to take this
final action, and how the SRE Denial may affect the RFS program as a whole. The comments
addressed in the refinery-specific appendices focus on information submitted by many refineries
under claims of confidentiality regarding their specific operations and finances, and studies
commissioned based on such confidential information to evaluate the RFS economic findings
described in the Proposed Denial.
After careful consideration of all the comments received as well as all other available
information regarding the RFS program, the operation of the RIN market, and the validity of our
DEH analysis, EPA is here adopting and applying its proposed SRE statutory interpretations and
denying 36 pending SRE petitions.
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I. Final Adjudication Summary and Process
This section summarizes EPA's final action and the public process the Agency has
followed to reach its decision. EPA has determined that any small refinery seeking an exemption
from its RFS obligations must: (1) Demonstrate that any DEH it claims to experience is caused
by compliance with the RFS program; and (2) Reconcile any such showing with RIN cost
passthrough.3 EPA has also changed its criteria for assessing a refinery's eligibility to receive an
exemption from its RFS obligations; we now require a small refinery to have received the
original statutory exemption under CAA section 21 l(o)(9)(A)(i) in order to be eligible to petition
for an extension of that exemption, though, consistent with the Supreme Court's holding in
HollyFrontier^, a small refinery need not have had continuous exemptions since the original
statutory exemption.5
On December 7, 2021, EPA issued the Proposed Denial. On December 8, 2021, the D.C.
Circuit remanded 36 2018 SRE petitions.6 On January 3, 2022, EPA provided notice that it was
considering deciding the 36 SRE petitions under the Proposed Denial and requested comment on
that approach.7 After analyzing the petitions, applying the new approach to DEH, and for the
reasons described in this document, EPA is denying the 36 pending 2018 SRE petitions. EPA
received numerous comments on the process utilized in reaching this final action, and we have
responded to those comments in Appendix B.
In addition to denying 36 pending 2018 SRE petitions on DEH grounds, EPA is also
finding that there are alternative grounds to deny two pending 2018 SRE petitions from two
refineries because they did not receive the original statutory blanket exemption under CAA
section 21 l(o)(9)(A)(i).8 EPA received comments from these refineries under claims of
confidentiality and has responded to those comments in confidential, refinery-specific
appendices. EPA has also responded to generalized comments on eligibility to petition for an
SRE in Appendix B.
This final agency action therefore adjudicates 36 pending SRE petitions by: (1) Clearly
articulating EPA's current interpretation of its statutory authority to grant SREs; (2) Presenting
our analysis of all available data on RFS costs and market dynamics, including our response to
3 This approach is described in more detail in Section III. The RIN cost passthrough phenomenon is explained in
Section IV.D.2.
4 See HollyFrontier Cheyenne Refining, LLC, et al. v. Renewable Fuels Ass 'n, et al., 114 S.Ct. 2172, 2181 (2021)
(HollyFrontier).
5 Refinery eligibility is explained in Section IV.A.
6 See, e.g., Order, Doc. No. 1925942, Dec. 8, 2021, Sinclair Wyo. Refining Co. v. EPA, No. 19-1196 (consol. with
19-1197) (D.C. Cir.).
7 In this final action, EPA is addressing the 36 SRE petitions for the 2018 compliance year that were remanded by
the U.S. Court of Appeals for the D.C. Circuit in four coordinated cases (see, e.g., Order, Doc. No. 1925942, Dec. 8,
2021, Sinclair Wyo. Refining Co. v. EPA, No. 19-1196 (consol. with 19-1197) (D.C. Cir.)). The identification of
these small refineries is presented in Appendix A, which is redacted to protect information claimed as confidential
by the small refineries.
8 While we determine in this action that these two refineries are ineligible to petition for SREs, this determination is
made in the alternative, because EPA has denied these two petitions as part of the 36 pending SRE petitions denied
by this action on DEH grounds for the reasons described herein. Therefore, even if the refineries are later deemed
eligible to petition for exemptions, their two SRE petitions pending before EPA are denied for substantive reasons.
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comments received on the Proposed Denial; and (3) Denying the 36 pending SRE petitions based
on the current statutory interpretation and analysis described herein in a single action. EPA's
final action on the pending SRE petitions is based on the legal and factual analysis presented
herein, after consulting with the Department of Energy (DOE), and considering the 2011 DOE
small refinery study, "other economic factors," and public comments submitted in response to
our request for comment on the Proposed Denial.9
While this single final action adjudicates 36 SRE petitions, we intend for this
adjudication to be severable in these articulated ways. First, we intend for the two distinct
statutory interpretations we adopt in this action to be severable. If a reviewing court invalidates
our interpretation that DEH must be caused by compliance with the RFS program, our
interpretation on eligibility to petition for and receive an exemption would still stand. Second, it
is our intent that the separate action we are taking to provide an alternative compliance
demonstration be severable from the decision to deny the SRE petitions. While the need for the
alternative compliance demonstration flows from this adjudication, each action is separate and
independent from the other. This adjudication, consistent with the statute and applicable case
law, denies 36 SRE petitions. The separate action providing compliance flexibility determines
how the identified 31 small refineries will demonstrate compliance with their newly created 2018
obligations.10 As these actions utilize differing authorities and operate independently, we intend
for them to be severable.
This document provides a sequential explanation of EPA's new approach to SRE petition
evaluation and the data we analyzed to support this approach. It begins, in Section II, by
providing background on the RFS program, compliance with the RFS program, and the SRE
provisions of that program. Section II also provides a brief history of EPA's approach to
evaluating SRE petitions and judicial review of EPA's past SRE decisions. Section III presents
the statutory requirements for EPA's evaluation of SRE petitions and EPA's new approach to
SRE evaluation. Section IV provides EPA's analysis of the SRE eligibility and petition
requirements and statutory construction of the CAA's SRE provisions. It also presents a detailed
explanation of RFS market economics including the costs of RFS compliance on obligated
parties, and the implications of those costs on DEH. Section IV also includes a description of
how EPA satisfied the statutory requirements for this action,11 then summarizes and responds to
the arguments advanced by the petitioning small refineries, and others that commented on the
Proposed Denial, as to how and why RFS compliance could cause DEH.12 Section V describes
the separate, concurrent action EPA is taking to provide certain small refineries with an
9 EPA has established a docket for this action under Docket ID No. EPA-HQ-OAR-2021-0566. Supporting materials
for this action and comments received on the Proposed Denial can be found there.
10 "April 2022 Alternative RFS Compliance Demonstration Approach for Certain Small Refineries," EPA-420-R-
22-006, April 2022.
11 In evaluating SRE petitions, CAA section 21 l(o)(9)(B)(ii) requires the Administrator, in consultation with the
Secretary of Energy, to consider the findings of the DOE study performed under CAA section 21 l(o)(9)(A)(ii)(I)
and other economic factors. A memorandum summarizing the consultation between EPA and DOE can be found in
the docket for this action.
12 A summary of the substantive comments EPA received that were not submitted under claims of confidentiality,
and EPA's responses to those comments, can be found in Appendix B. EPA has responded to confidential
information submitted by the petitioning small refineries in their comments through confidential, refinery-specific
appendices to this action.
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alternative compliance demonstration. Lastly, Section VI provides EPA's conclusion to deny 36
SRE petitions based on all the information presented herein and information regarding judicial
review of this final action.
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II. Background
This section describes the RFS program in general, including the SRE provisions of the
program, as well as how EPA has implemented the SRE provisions in the past.
A. RFS Program
In 2005 and 2007, Congress amended the CAA to establish the RFS program.13 Congress
enacted this program to "move the United States toward greater energy independence and
security" and to "increase the production of clean renewable fuels," among other purposes.14 The
statute specifies increasing annual "applicable volumes" for four categories of renewable fuel for
the transportation sector: total renewable fuel, advanced biofuel, cellulosic biofuel, and biomass-
based diesel (BBD).15 The specified applicable volumes for renewable fuel, advanced biofuel,
and cellulosic biofuel are prescribed for each year through 2022, and for BBD through 2012;
EPA must determine the applicable volumes for subsequent years.16
Congress directed EPA to establish a compliance program and annual percentage
standards to ensure that the applicable volumes are used each year.17 To calculate these
percentage standards, EPA divides the applicable volume for each type of renewable fuel
established in the CAA or determined by EPA18 by the Energy Information Administration's
estimate of the national volume of transportation fuel that will be introduced into commerce in
that year.19 For example, if EPA set the percentage standard for total renewable fuel at 10%, an
obligated party that produced 1,000,000 gallons of gasoline one year would need to ensure that
100,000 gallons of renewable fuel was introduced into the market that year.
Congress authorized EPA to place the obligation to satisfy the applicable percentage
standards on "refineries, blenders, and importers, as appropriate."20 By regulation, EPA
determined that refineries and importers of gasoline and diesel fuel must fulfill the requirements
of the RFS program.21 These "obligated parties" apply the percentage standards to their own
annual production (or importation) of gasoline and diesel fuel to calculate their individual
renewable volume obligation (RVO or "RFS obligation") for each category of renewable fuel.
Thus, the RFS standards place the same obligation on all producers and importers of gasoline
and diesel fuel in proportion to their production (or importation) volume.
13 See Energy Policy Act of 2005 (EPAct), Pub. L. No. 109-58, 119 Stat. 594; Energy Independence and Security
Act of 2007 (EISA), Pub. L. No. 110-140, 121 Stat. 1492
14121 Stat. 1492.
15 CAA section 21 l(o)(2)(B)(i)(I)-(IV).
16 Id.
17 Id:, CAA section 211(o)(2)(A)(i), (iii), and (3)(B)(i).
18 CAA section 21 l(o)(2)(B), (7)(A), and (7)(D)-(F).
19 CAA section 21 l(o)(3)(A).
20 CAA section 21 l(o)(3)(B)(ii)(I).
21 40 CFR 80.1406. For simplicity this document focuses on refiners; however, the same concepts of RIN costs, RIN
cost passthrough, and RIN discount for blended fuel also apply to importers.
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B. Renewable Identification Numbers (RINs)
The CAA requires EPA to establish a credit trading program allowing obligated parties
that acquire excess credits in one year to apply credits toward compliance in a subsequent year or
to sell the credits to another obligated party for use in its own compliance.22 In conjunction with
EPA's authority under CAA section 21 l(o)(2)(B) to put in place implementing regulations for
the RFS program, and in compliance with CAA section 21 l(o)(5), EPA designed a flexible and
comprehensive system of tradable credits (Renewable Identification Numbers or RINs). Section
21 l(o)(5) required only that EPA allow for the generation and trading of credits for obligated
parties that refine, blend, or import excess renewable fuel. The RIN system fulfills that statutory
provision, and also creates a fungible system of credit trading by not just obligated parties but
also renewable fuel producers and others, creating an open, liquid market for RINs to allow
obligated parties to comply with their RFS obligations.
Under the RIN system, producers and importers of renewable fuel generate RINs for each
gallon of renewable fuel they import or produce for use in the United States.23 RINs are
"assigned" to batches of renewable fuel by the producers and importers of renewable fuel.24
RINs may be "separated" from those batches by a party that blends the renewable fuel into
gasoline or fossil-based diesel fuel to produce a transportation fuel, heating oil, or jet fuel.25
Once separated, RINs may be kept for compliance or sold.26 Obligated parties may use a RIN to
demonstrate compliance for the compliance year in which the RIN is generated, or for the
following compliance year (for up to 20% of an obligated party's obligations).27 An obligated
party may not use a RIN for any subsequent compliance years because the RIN has expired, is
now invalid, and therefore not useable for compliance purposes.28 Obligated parties meet their
RFS obligations by accumulating RINs and "retiring" them in an annual compliance
demonstration.29 The statute and RFS regulations also provide that, in lieu of retiring the
requisite number of RINs to show compliance for a particular compliance year, an obligated
party may choose to carry forward a RIN deficit into the following compliance year under
certain conditions.30 An obligated party may carry forward a RIN deficit equal to its full or
partial RFS obligations in a given compliance year, but must satisfy the deficit in full the
subsequent compliance year, along with the obligations for that subsequent year in full (i.e., the
obligated party cannot carry forward the subsequent compliance year's obligations as a deficit).
The price of the RIN is expected to reflect the marginal difference between the supply
price for the renewable fuel and the demand price for the renewable fuel, which is the price the
market is willing to pay for the renewable fuel as a transportation fuel.31 In other words, if it
22 CAA section 21 l(o)(5)(A)-(C).
23 40 CFR 80.1426(a).
24 40 CFR 80.1426(e).
25 40 CFR 80.1429(b).
26 40 CFR 80.1425-29.
27 40 CFR 80.1427(a)(6), 80.1428(c), and 80.1431(a).
28 40 CFR 80.1427(a)(6), 80.1428(c), and 80.1431(a).
29 40 CFR 80.1427(a).
30 CAA section 21 l(o)(5)(D), 40 CFR 80.1427(b).
31 See "A Preliminary Assessment of RIN Market Dynamics, RIN Prices, and Their Effect," Dallas Burkholder,
Office of Transportation and Air Quality, US EPA, May 14, 2015, pg. 7 (hereinafter the "Burkholder memo").
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costs more to produce the renewable fuel than consumers are willing to pay for it, the RIN price
would be expected to match that cost difference so that, in the end, the fuel price for consumers
is the same.32 The price of the RIN, therefore, provides the "discount" on the renewable fuel
necessary for the market to consume the renewable fuel. This dynamic functions to incentivize
blending and use of the renewable fuel up to the mandated volume even if the market demand
price for the renewable fuel would not cover the cost of its production. In this way, the RIN price
facilitates greater use of renewable fuel as the RFS program was designed to do. Throughout this
document we refer to the cost difference described here as the "RIN discount."
The design of the RIN trading system enabled parties that were already producing and
blending renewable fuel to continue to do so. They could then sell excess RINs to obligated
parties that lacked blending capability. This open trading market for RINs provides three main
benefits. First, it allows all obligated parties, regardless of size or situation, equal ability to
comply with their RFS obligations immediately without having to invest capital or resources.
They can contract with others already providing the services and/or go into the open market to
acquire RINs. Second, this system averts the need for each individual obligated party to purchase
and blend renewable fuel into its own gasoline and diesel fuel.33 Thus, the program was designed
to "preserve^ existing business practices for the production, distribution, and use of both
[petroleum] and renewable fuel."34 Third, it levels the playing field for the cost of compliance,
with all obligated parties having access to the RINs needed for compliance at the same cost,
regardless of whether they acquire the needed RINs by purchasing them on the open market or
by blending renewable fuel themselves. The RFS program, through the RIN system, was
designed to avoid creating DEH based on whether compliance is achieved through blending of
renewable fuel or through purchasing RINs.
C. RFS Compliance and RIN Market Dynamics
Congress structured the RFS program to impose proportional requirements on all
obligated parties, including small refineries. The RFS obligations are established as a percentage
of an obligated party's production (or importation) of gasoline and diesel fuel;35 therefore, by
definition, the obligation is proportional to the quantity of gasoline and diesel fuel that a party
produces (or imports) each year.36 Obligated parties must acquire RINs to meet their RFS
obligations,37 either through their own blending of renewable fuel or through the purchase of
32 Throughout this document we use the term "consumer" to refer to wholesale and retail consumers alike as RIN
prices pass through both levels of the market. Where we are specifically describing the sale from terminals or
refinery racks we refer to the purchaser of the fuel at wholesale as the "wholesale purchaser."
33 Complying with such a requirement would have been difficult, if not impractical for obligated parties, as different
renewable fuels are blended into gasoline and diesel fuel and pipeline operators normally do not allow gasoline or
diesel fuel containing renewable fuel to be transported through their pipelines.
34 "RFS1 Summary and Analysis of Comments," EPA-420-R-07-006 at 1-6, April 2007.
35 See supra, Sections II. A and B.
36 See CAA section 211(oX3)(B); 40 CFR 80.1407.
37 For purposes of the RFS program, transportation fuel is defined as "fuel for use in motor vehicles, motor vehicle
engines, nonroad vehicles, or nonroad engines (except fuel for use in ocean-going vessels)." 40 CFR 80.1401. The
regulations at 40 CFR 80.1406 establish that "[a]n obligated party is any refiner that produces gasoline or diesel fuel
within the 48 contiguous states or Hawaii, or any importer that imports gasoline or diesel fuel into the 48 contiguous
states or Hawaii during a compliance period." The regulations at 40 CFR 80.1407 establish that, in practice, an RFS
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RINs from other parties that produce or blend renewable fuel. Obligated parties must
demonstrate compliance annually by retiring RINs requisite with their RFS obligations.
The cost of acquiring RINs is the same for all parties regardless of whether the RINs
needed to comply are acquired by blending renewable fuel or by procuring RINs from others.38
This occurs through the phenomena of RIN discount and RIN cost passthrough, introduced in the
Executive Summary and explained in detail throughout this document. Parties that blend more
renewable fuel than they need to satisfy their RFS obligations may show an apparent revenue
source from the sale of those RINs. However, in the competitive fuels market, parties that sell
RINs acquired through blending renewale fuels must discount the price of their blended fuel by
the value of the RINs associated with the renewable fuel in the fuel blend.39 If parties that blend
renewable fuel into transportation fuel do not discount the price of their blended fuel by the
market price of the RIN, then their blended fuel would be priced higher than the same fuel where
the producer has discounted the fuel by the price of the RIN, and the non-discounted fuel would
never sell. Therefore, in order to price their products competitively in the fuels market, parties
that blend renewable fuel into transportation fuel must reduce the price of their blended fuel by
the price of the RIN (RIN discount). Thus, the revenue from the RIN sale is used to offset the
discounted sales price of the blended fuel and is passed through to consumers through reduced
market prices for the blended fuels. Moreover, the RFS program imposes the same cost on all
parties that produce (or import) gasoline or diesel fuel nationwide40 because the market price for
all gasoline and diesel fuel increases to reflect this RIN price (RIN cost passthrough), much as it
would increase in response to a new tax. This relationship between RIN prices and the market
prices for blended fuels was first analyzed by EPA in 2015.41
In this document we refer to an obligated party's ability to recover the cost of the RINs it
acquires for compliance as "RIN cost passthrough," since obligated parties are passing these
costs through to wholesale purchasers. We refer to the lower prices received for blended fuel
(i.e., gasoline and diesel fuel blended with renewable fuel) enabled by the sale of RINs as "RIN
discount," since the sale of the RIN allows blenders to discount the price of the blended fuel. We
find that all types of obligated parties have the same cost to acquire RINs, and that all types of
obligated parties recover these costs when they sell the gasoline and diesel fuel they produce (or
import) at the market price (RIN cost passthrough). Further, we find that blenders use revenue
obligation is imposed only on gasoline and ultra-low-sulfur diesel (ULSD) used in motor vehicles, nonroad engines,
locomotives, and marine engines (historically called MVNRLM diesel fuel). Such gasoline and diesel fuel only
incur an obligation if used in the RFS "covered location" as defined in 40 CFR 80.1401. Throughout this document
we refer to fuel that incurs an RFS obligation (i.e., gasoline and diesel fuel) as "obligated fuel" and fuel that does not
incur an RFS obligation (e.g., heating oil, jet fuel) as "non-obligated fuel."
38 See infra, Section IV.D.2.
39 Burkholder Memo, pg. 24.
40 In this document, the term "nationwide" refers to the RFS "covered location," which the RFS regulations define
as "the contiguous 48 states of the United States, Hawaii, and any state or territory that has received an approval
from the Administrator to opt-in to the RFS program under §80.1443." 40 CFR 80.1401.
41 Burkholder Memo, pg. 22.
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from RIN sales to discount the price of blended fuel (RIN discount). We therefore conclude that
compliance with the RFS program cannot cause DEH for small refineries.42
D. History of SREs
A small refinery is defined by the CAA as "a refinery for which the average aggregate
daily crude oil throughput for a calendar year . . . does not exceed 75,000 barrels."43 Both the
original RFS statutory provisions enacted pursuant to the Energy Policy Act (EPAct) and the
current text of the statute as amended by the Energy Independence and Security Act (EISA)
provided all small refineries an initial blanket exemption from their obligations under the RFS
program until calendar year 2011.44 Under EPA's regulations, small refineries that were
producing either "gasoline" under RFS 145 or "transportation fuel" under RFS246 were required to
notify EPA that they qualified for the temporary exemption by submitting verification letters
stating their average crude oil throughput rate during the applicable qualification period.47
Further discussion of EPA's past and current interpretation of small refinery eligibility criteria is
provided in Section IV.A.
The CAA includes two additional provisions regarding extensions of the SRE for the
period after the initial blanket exemption expired:
1) Under the first statutory mechanism, applicable to 2011 and 2012, if DOE determined,
through a study mandated under the CAA, that compliance with the RFS requirements
would impose DEH on a small refinery, EPA was required to extend the small refinery's
exemption by at least two years.48 In 2009, DOE completed its study and found that, in a
liquid and competitive RIN market, compliance with the RFS requirements would not
impose DEH on any small refinery. Subsequently, some members of Congress directed
DOE to revisit the 2009 DOE Small Refinery Study49 and in so doing to solicit input
from the small refineries themselves.50 In 2011, DOE completed a second study that used
the small refinery input to develop a set of financial and operational metrics intended to
inform DOE whether a small refinery was likely to experience DEH.51 Contrary to the
42 The economic theory supporting EPA's findings on RIN cost passthrough and the RIN discount, the market data
we have evaluated in reaching these findings, and more detailed explanations on how various parties in the fuels
market are affected by the RFS program are discussed in Section IV.D.2.
43 CAA section 21 l(o)(l)(K). Thus, a "small refinery" is determined based on the annual volume of crude oil
processed at the refinery, not on the size of the company that owns the refinery. Indeed, many "small refineries" are
owned by large multi-national companies.
44 CAA section 21 l(o)(9)(A)(i).
45 "Regulation of Fuels and Fuel Additives: Renewable Fuel Standard Program," 72 FR 23900 (May 1, 2007).
46 40 CFR 80.1441(a)(1).
47 72 FR 23900, 23924 (May 1, 2007); 40 CFR 80.1441(b). EPA's regulations allowed for small refineries that had
submitted verification letters to qualify for the original statutory exemption under EPAct / RFS1 to also qualify
under the SRE provisions in EISA / RFS2. The small refineries were not required to re-certify their throughput to
maintain eligibility under the RFS2 program.
48 CAA section 21 l(o)(9)(A)(ii)(II).
49 "EPACT 2005 Section 1501 Small Refineries Exemption Study," Office of Policy and Internation Affairs, U.S.
Department of Energy, February 2009 (hereinafter the "2009 DOE Study").
50 Senate Report 111-45, at 109 (2009).
51 "Small Refinery Exemption Study, An Investigation into Disproportionate Economic Hardship," Office of Policy
and International Affairs, U.S. Department of Energy, March 2011 (hereinafter the "2011 DOE Study").
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2009 DOE Study, the 2011 DOE Study did not assume that RFS compliance costs would
be the same for all refineries in a competitive market, and instead, assumed that small
refineries could face higher compliance costs by purchasing RINs when compared to
large integrated refiners that would acquire RINs through blending. Furthermore, neither
study considered the possibility that refineries would recover the cost of RINs through
higher prices for their products.52 DOE organized the metrics into a two-part matrix with
sections addressing "disproportionate impacts" and "viability impairment."53 DOE also
developed a scoring protocol for the matrix that required the score in both sections of the
matrix to exceed an established threshold for DOE to find that DEH existed at a given
small refinery. Using this regime, the 2011 DOE Study found that DEH existed at 14
small refineries, but again, assumed that small refineries bore a higher cost of compliance
in the acquisition of RINs and that no refineries recovered the RIN compliance costs in
the prices for their products. As required by the statute, EPA granted those small
refineries a two-year extension of the original exemption (through 2012).
2) The second statutory mechanism provided that small refineries "may at any time petition
the Administrator for an extension of the exemption under [section 21 l(o)(9)(A)] for the
reason of [DEH]."54 The Supreme Court recently opined on the meaning of "extension"
in the context of CAA section 21 l(o)(9)(B), overturning one holding in the Tenth
Circuit's RFA opinion that required a small refinery to have continuous exemptions to be
eligible for further exemption extensions.55 When evaluating SRE petitions, the Act
directs the Administrator, "in consultation with the Secretary of Energy," to "consider the
findings of the study under [CAA section 21 l(o)(9)(A)(ii)(I)] and other economic
factors."56 After DOE conducted its 2011 DOE Study and EPA granted two-year
extensions to the 14 refineries the study identified, additional refineries came forward to
EPA to seek exemptions for 2011 and 2012. EPA shared these new petitions with DOE,
which applied the matrix scoring methodology developed in the 2011 DOE Study and
shared the scoring results with EPA. EPA chose to satisfy the statutory requirements for
consultation and consideration of the 2011 DOE Study by using DOE's scoring results in
its evaluation of each SRE petition. Consistent with the extensions of exemptions it
granted to the 14 small refineries through the 2011 DOE Study, EPA then decided to
grant an extension of the exemption to an additional ten small refineries for 2011, and to
nine for 2012. Since 2013, EPA has shared all incoming SRE petitions and supplemental
information with DOE.57
Since 2013, DOE and EPA have changed their treatment of the scoring matrix several
times as informed by direction from members of Congress, court decisions, and changing
52 See infra, Section IV.D.
53 2011 DOE Study at 32-36.
54 CAA section 21 l(o)(9)(B)(i).
55 See HollyFrontier, 114 S.Ct. at 2181. Consistent with that decision, small refineries that received the initial
blanket exemption but have not received continuous exemption extensions remain eligible to petition for future
exemptions.
56 CAA section 21 l(o)(9)(B)(ii).
57 DOE continued to make findings to EPA based on its scoring matrix, which does not assess the degree to which
small refineries recover their RFS compliance costs in higher prices for their refined products (i.e., it does not
consider RIN cost passthrough). See infra, Section IV.C, for a description of EPA's current consultation process.
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administration policies. For DOE, the most significant change in approach did not involve the
matrix evaluation or the scoring methodology. Rather, in 2016 DOE modified the finding it
provided to EPA for a given score on the matrix (i.e., as described below, DOE implemented
new direction from Congressional report language to recommend 50% exemptions, as opposed
to the exclusively 0% or 100% recommendations in prior years). For EPA, the changes involved
the weight EPA afforded DOE's findings relative to the "other economic factors" EPA
considered when evaluating SRE petitions. However, in none of these years did EPA require
small refineries to demonstrate that they faced RFS compliance costs that were higher than for
other obligated parties (i.e., disproportionate), nor did EPA require a demonstration that the
hardship was caused by compliance with the RFS program, including an explanation for how
compliance costs harmed them in a market characterized by RIN cost passthrough.
In some prior decisions, DOE and EPA concluded that DEH existed only when a small
refinery experienced both disproportionate impacts and viability impairment, as measured by the
matrix. In response to concerns that the two agencies' threshold for establishing DEH was too
stringent, Consolidated Appropriations Act report language directed DOE to recommend 50%
relief when a small refinery's score on either section of the matrix exceeded the applicable
threshold.58 Subsequent Senate Report language directed EPA to follow DOE's
recommendation, and to report to Congress if it did not.59 This direction was not included in the
Explanatory Statements for the 2022 fiscal year appropriations bill.60
The Congressional direction, along with changing administration policies, prompted EPA
to change its approach to finding DEH at a small refinery. Whereas EPA had previously
exercised discretion in evaluating "other economic factors" in its analysis of a small refinery's
petition, EPA changed its approach to instead rely on DOE's findings and began granting a full
exemption whenever DOE findings indicated that the small refinery could receive at least 50%
relief, based on its matrix score.61 Under this approach, EPA exempted small refineries from
their RFS obligations solely based on this DOE finding, which was derived from metrics that
assumed some refineries faced higher RFS compliance costs and that did not account for RIN
cost passthrough. Thus, neither EPA nor DOE required any demonstration that the DEH a small
58 Consolidated Appropriations Act, 2016, Pub. L. No. 114-113 (2015). The Explanatory Statement is available at
161 Cong. Rec. H9693, H10105 (daily ed. Dec. 17, 2015): "If the Secretary finds that either of these two
components exists, the Secretary is directed to recommend to the EPA Administrator a 50 percent waiver of RFS
requirements for the petitioner."
59 Senate Report 114-281, 71 ("When making decisions about small refinery exemptions under the RFS program,
the Agency is directed to follow DOE's recommendations which are to be based on the original 2011 Small
Refinery Exemption Study prepared for Congress and the conference report to division D of the Consolidated
Appropriations Act of 2016. Should the Administrator disagree with a waiver recommendation from the Secretary of
Energy, either to approve or deny, the Agency shall provide a report to the Committee on Appropriations and to the
Secretary of Energy that explains the Agency position. Such report shall be provided 10 days prior to issuing a
decision on a waiver petition.").
60 Consolidated Appropriations Act, 2022, Pub. L. No. 117-103 (2022). ("The Committees recognize that the
Renewable Fuel Standard (RFS) under Clean Air Act Section 21 l(o)(9) provides that EPA may exempt small
refineries from compliance with the RFS in certain circumstances and that a small refinery "may at any time petition
the Administrator for an extension of the exemption ... for the reason of disproportionate economic hardship.")
61 We note that under this approach, EPA granted full SREs to some very profitable refineries. A substantial number
of small refineries that showed no viability impairment on the matrix received a 50% waiver finding from DOE,
based only on the small refinery's disproportionate impacts score.
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refinery claimed to experience was due to the RFS program. Nor did EPA reconcile this
reasoning with EPA's own finding that the costs of RINs used for compliance with the RFS
program are the same for all obligated parties and passed through by all obligated parties to
consumers (RIN cost passthrough).
EPA's approach to evaluating SRE petitions has been challenged several times by small
refineries and other parties in different U.S. Courts of Appeals, as well as in the Supreme
Court.62 The approach to evaluating DEH we apply in this action is informed by the outcome of
the RFA litigation in the Tenth Circuit. Biofuels groups led by the Renewable Fuels Association
challenged EPA's actions in granting three individual SREs, and the affected small refineries
intervened on EPA's behalf.63 The court vacated and remanded EPA's actions for three reasons.
First, under the Tenth Circuit's reading of the CAA, a small refinery would be eligible for SRE
relief only if it has received extensions of the initial exemption in every year since 2010.64
Second, the court found that EPA may grant relief only when it finds that the small refinery
would suffer DEH caused by compliance with the RFS program and not due, even in part, to
other factors.65 Third, the court held that EPA had acted arbitrarily and capriciously by failing to
explain how granting the exemptions was consistent with the Agency's longstanding findings on
RIN cost passthrough.66
After the Tenth Circuit's RFA opinion, the small refinery intervenors petitioned the
Supreme Court for a writ of certiorari, appealing only the Tenth Circuit's first holding that, in
order to be eligible for exemption, a small refinery needed a continuous, uninterrupted
exemption history.67 The Supreme Court granted the petition for a writ of certiorari and reviewed
the Tenth Circuit's holding. EPA—which changed its prior litigation position—and RFA filed
briefs in opposition, arguing that the Court should uphold the Tenth Circuit's ruling. On June 25,
2021, the Supreme Court held that the term "extension" as used in CAA section 21 l(o)(9)(B)
does not include a continuity requirement and reversed the Tenth Circuit opinion only on that
issue.68 The Supreme Court did not review the other two holdings in RFA as those were not
appealed by the small refineries, and on July 29, 2021, the Tenth Circuit issued its mandate in
RFA. On August 19, 2021, EPA filed a motion for clarification regarding the legal effect of the
court's mandate. The Agency stated that, if the court concluded no further clarification was
needed, EPA would proceed with its understanding that the alternative holdings of RFA remain
in effect and the SRE decisions at issue in RFA are remanded to EPA without vacatur.69
62 See e.g., Hermes Consol., LLC v. EPA, 787 F.3d 568 (D.C. Cir. 2015); Lion Oil Co. v. EPA, 792 F.3d 978 (8th
Cir. 2015); Sinclair Wyoming Refining Co. v. EPA, 887 F.3d 986 (10th Cir. 2017); Ergon-West Virginia, Lnc. v.
EPA, 896 F.3d 600 (4th Cir. 2019) (EWV-I); Ergon-West Virginia, Lnc. v. EPA, 980 F.3d 403 (4th Cir. 2020) (EWV-
LL); Renewable Fuels Ass 'n, et al. v. EPA, 948 F.3d 1206 (10th Cir. 2020) (RFA); Renewable Fuels Asset al. v.
EPA, No. 19-1220 (D.C. Cir.).
63 RFA at 1206.
MRFA at 1244-49.
65 Ld. at 1253-54.
66 Ld.
67 Pet. for Writ of Certiorari at (i), HollyFrontier.
68 HollyFrontier, 141 S.Ct. at 2183.
69 EPA's Motion for Clarification of the Court's July 29, 2021 Mandate at 2, RFA, 948 F.3d 1206 (10th Cir. August
19, 2021).
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On August 26, 2021, the court denied EPA's motion.70 Accordingly, EPA considers the
remaining holdings of RFA to remain in effect, as explained to the court in its motion.
After the Supreme Court issued its opinion in the HollyFrontier case, EPA met with
several of the petitioning small refineries in individual meetings,71 received additional
supplemental information from petitioning small refineries,72 informed all petitioning small
refineries of the opportunity to submit additional information to EPA for consideration,73 and
conducted an open meeting with the small refineries, inviting them to participate and provide
feedback.74 EPA then issued its Proposed Denial75 on December 7, 2021, which initiated a public
comment period allowing all interested parties to inform this final analysis and decision.76 We
especially sought additional information that would support or refute the proposed finding that
small refineries do not experience DEH caused by compliance with the RFS program. We also
requested information demonstrating that the cost of compliance with the RFS program is the
same for all obligated parties and is passed on to consumers.
On December 8, 2021, the U.S. Court of Appeals for the D.C. Circuit granted EPA's
motion for voluntary remand without vacatur of EPA's final action granting or denying 36 SRE
petitions for the 2018 compliance year and ordered EPA to issue new decisions by April 7, 2022.
EPA had requested remand without vacatur to reconsider the final action in light of the
intervening judicial opinions and to provide a more robust explanation for any action taken on
remand.77 After the court granted EPA's motion for remand, EPA notified the 2018 SRE
petitioners of the remand via emails to each individual petitioner, requesting comment on
"whether or not to include those 36 petitions under the Proposed Denial of other pending SRE
petitions or to adjudicate the petitions separately," and inviting comment on "any aspect of this
issue."78 EPA is now taking final action on these 36 remanded SRE petitions for the 2018
compliance year.
70 Order, id. (10th Cir. August 26, 2021).
71 See "Memorandum on EPA Meetings with Individual Small Refinery Petitioners Between June 25, 2021, and
December 7, 2021," available in the docket for this action.
72 These supplemental materials were submitted under claims of confidentiality and are, therefore, not included in
the public record. Where the supplemental information was not confidential or such that EPA could aggregate and
summarize it, we have done so and provided this information and our responses to it in Appendix B. We have also
responded to confidential information through confidential, refinery-specific appendices to this action.
73 Email from Karen Nelson, EPA, sent bcc to all SRE petitioners (August 17, 2021) (email on record with EPA).
74 Email from Byron Bunker, EPA, with meeting invite sent bcc to all SRE petitioners (August 16, 2021) (email on
record with EPA).
75 "Proposed RFS Small Refinery Exemption Decision," EPA-420-D-21-001, December 2021 (hereinafter the
"Proposed Denial").
76 86 FR 70999 (December 7, 2021).
77 See, e.g., EPA's Motion for Voluntary Remand Without Vacatur, Sinclair Wyoming Refining Co. v. EPA, No. 19-
1196 (D.C. Cir. August 25, 2021), pg. 5.
78 "Memorandum: Scope of Action and Notification," EPA-HQ-OAR-2021-0566-0027.
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III. EPA's Approach to Determining DEH When Evaluating SRE Petitions
This section describes EPA's approach to evaluating SRE petitions based on DEH, as
explained in more detail in the remainder of this document. Section 21 l(o)(9)(B)(i) of the CAA
authorizes the EPA Administrator to temporarily exempt small refineries from their RFS
obligations for the reason of DEH. The statute directs EPA, in consultation with DOE, to
consider the DOE Study and other economic factors in evaluating SRE petitions. The statute
does not define "disproportionate economic hardship" and identifies no particular "economic
factors" to be considered, giving EPA "substantial discretion" for purposes of implementing
these exemption provisions.79 EPA, however, must interpret these provisions in a reasonable
manner, consistent with the purpose of the statutory provisions at issue.
In the past, EPA's approach to interpreting these statutory provisions and evaluating SRE
petitions was that a small refinery could receive an exemption from its RFS obligations by
demonstrating it was experiencing DEH for any reason, including reasons unrelated to RFS
compliance.80 In this action, EPA is adopting the approach proposed on December 7, 2021,
requiring the small refinery to demonstrate that compliance with the RFS program is the cause of
the DEH experienced by the small refinery. EPA has previously performed analyses and
reviewed academic studies on the RIN market that verify the passthrough of RFS compliance
costs to wholesale purchasers. However, our prior approach to evaluating SRE petitions did not
require a showing that DEH was caused by RFS compliance because we concluded that our
consideration of "other economic factors" extended beyond economic factors addressing DEH
caused by RFS compliance. The Tenth Circuit in RFA determined that EPA's prior approach was
contrary to the language of the CAA authorizing exemptions only due to DEH caused by
compliance with the requirements of the RFS program.81 Under the approach we adopt here, a
small refinery must demonstrate a direct causal relationship between its RFS compliance costs
and the DEH it alleges; assertions regarding other real but unrelated financial difficulties a small
refinery may be experiencing will not satisfy this requirement. Additionally, a small refinery
must demonstrate how its specific RFS compliance costs are disproportionate compared to other
refineries' RFS compliance costs and are of sufficient magnitude to warrant the exemption. EPA
has weighed several considerations in developing this new approach and this interpretation is
consistent with the language of the Act, the purpose of the SRE provisions, and is the most
reasonable approach for implementing the RFS program.ffl82
Our change in approach is primarily informed by the RFA opinion, which laid out a
rationale for the Tenth Circuit's conclusion that the statutory SRE provisions require DEH to be
caused by RFS compliance.83 Additionally, the court in RFA held that EPA had acted arbitrarily
and capriciously when the Agency ignored the relevant evidence in granting three SREs without
79 Hermes, 787 F.3d at 575 ("The statute gives no further instruction and identifies no particular economic factors or
metrics to be considered. That sort of statutory silence about the particular factors that an agency must consider
conveys 'nothing more than a refusal to tie the agency's hands' (internal citation omitted). As long as EPA consults
with DOE and considers the 2011 Study and 'other economic factors,' EPA retains substantial discretion to decide
how to evaluate hardship petitions.").
80 See supra, Section II.D.
slRFA, 948 F.3d at 1253-54.
82 See infra, Section IV.D. 1.
S3RFA, 948 F.3d at 1253-54.
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addressing EPA's long-standing position that RIN costs are passed through by refineries and
ultimately borne by consumers. After review of the court's decision, EPA agrees that these
holdings both reflect a better interpretation of the Act and comport with EPA's longstanding
conclusions regarding RIN cost passthrough.84
Our change in approach is also supported by DOE's definition of DEH in the 2011 DOE
Study. Under the CAA, DOE was directed to "conduct for the Administrator a study to
determine whether compliance with the requirements of [the RFS] would impose a [DEH] on
small refineries."85 In the 2011 DOE Study, DOE stated that DEH "must encompass two broad
components: a high cost of compliance relative to the industry average, and an effect sufficient to
cause a significant impairment of the refinery operations."86 In other words, for a small refinery
to demonstrate DEH, it must have disproportionate RFS compliance costs and actual economic
hardship due to those disproportionate RFS compliance costs. The approach adopted in this
action aligns with DOE's definition: EPA's analysis shows that the costs of compliance with the
RFS program through blending or buying RINs are the same; therefore, small refineries do not
have disproportionate RFS compliance costs.87 Additionally, the RIN cost passthrough analysis
demonstrates that there is no economic hardship caused by RFS compliance costs; therefore, no
small refinery experiences DEH as a result of compliance with the RFS program.88 EPA now has
data to demonstrate that the assumption DOE relied on in the 2011 DOE Study that RINs
generated through blending renewable fuels would be free to those generating them—whereas
RINs purchased through the market would represent a disproportionately high costs of
compliance on obligated parties that complied that way—is false.89
EPA also considered "other economic factors" in evaluating whether a small refinery's
RFS compliance costs cause DEH. While the CAA does not require EPA to consider any
particular number or types of economic factors, it does require that DEH be caused by
compliance with the RFS program. Thus, it is clear that the "other economic factors" EPA may
consider when evaluating SRE petitions must still be related to determining whether the small
refinery's compliance with its RFS obligations is what caused its alleged DEH. EPA may not
consider economic factors in its evaluation of SRE petitions that may show a small refinery is
struggling financially when those struggles are unrelated to its RFS compliance. By performing
the analyses described in Section IV.D.2, and in the responses to comments in Appendix B and
in the confidential, refinery-specific appendices, EPA has evaluated and considered many "other
economic factors," including, but not limited to, the dynamics and characteristics of the fuels and
RIN markets, publicly available price data, confidential financial and other refinery-specific data
submitted by the petitioning small refineries, and all the data other commenters submitted on the
Proposed Denial. Fundamentally, EPA has reviewed all the information the small refineries and
other interested parties submitted to ensure the Agency has considered all the appropriate "other
84 See infra, Section IV.D.2.
85 CAA section 21 l(o)(9)(A)(ii)(I).
86 2011 DOE Study at 3.
87 See infra, Section IV.D.2.
ss Id.
89 See infra Section IV.D.2.
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economic factors" provided in determining that small refineries do not experience DEH caused
by RFS compliance.
Using this new approach, we evaluated the information and data available to us,
including data we received responding to our request for comment, to assess whether any of the
petitioning small refineries demonstrated DEH. The data confirm that the market-based design of
the RFS program with the RIN system for compliance has equalized the cost of compliance
among all market participants, making it highly unlikely any one refinery would face a
disproportionate cost of compliance. We have evaluated an extensive amount of data and
available literature, including academic and commissioned studies submitted by commenters,
and our analysis shows that the cost of RINs is the same whether refineries acquire the RINs by
blending renewable fuel or by buying RINs on the open market.90 The data and available
literature also informed our finding that RFS compliance costs are passed through in the price of
refined products. Therefore, considering all of this information and analysis as more fully
explained in later sections of this document, we find that no small refinery experiences DEH due
to its compliance with the RFS program.
When an agency changes its position, it must "provide a reasoned explanation for its
action" and "display awareness that it is changing position."91 In doing so, EPA does not need to
show "that the reasons for the new policy are better than the reasons for the old one; it suffices
that the new policy is permissible under the statute, that there are good reasons for it, and that the
agency believes it to be better, which the conscious change of course adequately indicates."92
The approach explained in this final action is reasonable as it is supported by the language and
construction of the CAA and data analyses performed by EPA and independent parties.93 For the
reasons described herein, EPA believes that this approach is the best interpretation of—and the
most reasonable way to implement—the statutory SRE provisions. Therefore, we adopt and
apply it here.
90 See infra, Section IV.D.2.
91 FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009).
92 Id. (emphasis in the original).
93 See infra, Section IV.D.
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IV. EPA Evaluation
This section explains in detail EPA's evaluation of the 36 SRE petitions on which it is
taking final action, including its evaluation of eligibility for the exemption, of DEH, and of other
economic factors.
A. Eligibility to Petition for Extension of a Small Refinery Exemption
EPA is denying 36 pending SRE petitions for failing to demonstrate DEH. In addition,
we determine that two of the 36 refineries were ineligible to petition for an SRE for the 2018
compliance year, each for failing to meet a requirement for eligibility. These refineries are
ineligible because they did not receive the initial blanket exemption under CAA section
211(°)(9)(A).94
In making this finding, we are interpreting the RFS statute to mean that only small
refineries that received the initial blanket exemption are eligible to petition for an extension of
that initial exemption, consistent with a prior EPA interpretation.95 Note that this does not mean
that any refinery that met the definition of "small refinery" at the start of the RFS program is
qualified to seek exemption for later years; the small refinery must have actually received the
blanket exemption for the years before 2011 pursuant to the RFS statute and implementing
regulations. This means that the small refinery must have been producing transportation fuel,
such that it was obligated under the RFS program to qualify for the blanket exemption from the
RFS requirements (i.e., a refinery processing fewer than 75,000 bpd of crude oil into products
only other than transportation fuel could not have received an exemption from an RFS obligation
it did not have). This is why, under the RFS program, a refinery that met the definition of a
"small refinery" was additionally required to submit a verification letter to EPA confirming its
status as a small refinery before receiving the blanket exemption.
1. Requirement to Have Received Initial Blanket Statutory Exemption
In 2016, EPA took an action finding a refinery ineligible to petition for an exemption
extension because the refinery did not exist in 2006 and, thus, could not have received the initial
blanket exemption.96 In that adjudication, EPA relied on the RFS regulations that state "a refiner
may petition the Administrator for an extension of its small refinery exemption...." (emphasis
added).97 Additionally, EPA reasoned that "newer small refineries have the ability to consider
whether they believe the establishment of the RFS program and its requirements will cause
economic hardship before beginning operations."98 Beginning in 2017, EPA shifted to a different
approach to small refinery eligibility and granted exemptions for refineries that had not received
94 This initial exemption is sometimes called the "blanket exemption" since it could be obtained by all eligible small
refineries producing transportation fuel and lasted for the years 2006-2010.
95 At the same time, we are maintaining our approach to size-based eligibility—only small refineries with an average
aggregate daily crude oil throughput that does not exceed 75,000 bpd for the calendar year they petition and the
prior year are eligible to petition for an SRE. See CAA section 2ll(o)(l)(K), 40 CFR 80.1401, 40 CFR
80.144 l(e)(2)(iii).
96 See Pet. for Review, Dakota Prairie Refining, LLC v. EPA, No. 16-2692, at 8 of 17 (8th Cir. June 13, 2016).
97 40 CFR 80.1441(e)(2).
98 Pet. for Review, Dakota Prairie, at 8-9 of 17.
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the initial blanket exemption. With this action, we are again requiring that, to be eligible to
petition for an SRE, a refinery must have actually been an obligated party under the RFS
program prior to 2011 and received the initial blanket exemption, though a small refinery need
not have had a continuous exemption since the original statutory exemption, consistent with the
Supreme Court's holding in HollyFrontier.
2. Changed Approach to Eligibility
EPA is changing its approach to SRE eligibility to require that a petitioning small
refinery have received the initial statutory exemption through 2010 in order to qualify for an
extension of the initial exemption under CAA section 21 l(o)(9)(B) because we believe this
policy aligns with the text of the CAA, which describes a small refinery's ability to "at any time
petition the Administrator for an extension of the exemption in subparagraph (A) for the reason
of [DEH]."99 Furthermore, we believe this interpretation best supports the policy interests of
implementing the RFS program in promoting greater use of renewable fuels. This is particularly
true since exemptions provide a significant windfall profit to exempted small refineries, as the
small refineries passthrough their RIN costs and then, when exempted, sell any RINs they had
acquired or generated. Such a result would be particularly unfair if granted to new participants in
the RFS program that were not producing transportation fuel during the statutory blanket
exemption period of 2006-2010 because these new participants would have had the opportunity
to prepare and plan for compliance with the RFS program prior to starting operations or
otherwise being subject to an RFS obligation, unlike the refineries that received the initial
blanket exemption.100 Additionally, refineries that exceeded the 75,000 bpd throughput threshold
in 2006 were not the intended recipients of the initial exemption for small refineries, and new
entrants to the transportation fuels industry after this blanket exemption ended have knowledge
of the requirements of the RFS program, and make an informed decision whether to enter the
transportation fuels business. Thus, we are acting consistently with congressional intent by
continuing to exclude these parties from receiving an SRE.
While the Supreme Court has held that a small refinery need not have had a continuous
exemption since receiving the initial blanket exemption, the Court's decision suggests that an
exemption must have existed at some point for it to be extended.101 The Court agreed with the
Tenth Circuit that, as used in CAA section 21 l(o)(9), the word "extension" has a temporal
meaning (i.e., an extension of time), and not the alternative meaning of "extension" to grant or
99 CAA section 21 l(o)(9)(B)(i) (emphasis added).
100 See infra, Section IV.D.2.
101 See HollyFrontier, 141 S. Ct. at 2177 ("It is entirely natural—and consistent with ordinary usage—to seek an
"extension" of time even after some lapse."); id. at 2181 ("And fairly read, the key phrase at issue before us—'A
small refinery may at any time petition the Administrator for an extension of the exemption under subparagraph (A)
for the reason of disproportionate economic hardship'—simply does not contain the continuity requirement the court
of appeals supposed."); id. at 2184 (Barrett, J. dissenting) ("Yet, HollyFrontier insists, the term "extension" is not
always used that way. Instead, it might sometimes refer to a "non-continuous extension"—in other words, an
extension of something that used to exist but no longer does. . . . [T]he Court concludes that Holly-Frontier's reading
must be right—which means that EPA can provide an "extension" of an exemption that is no longer in effect."); id.
at 2177-78 (the Court's extension analogies assume something existed initially to be extended, i.e. "a term paper
after the deadline has passed, the tenant who does the same after overstaying his lease, or parties who negotiate an
'extension' of a contract after its expiration.").
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offer.102 The Court, however, clarified that an extension may still be given after a lapse.103 In
order for something to lapse, it must have existed to begin with. The Court applied several
analogies to illustrate this, including that of a student requesting an extension of a deadline to
submit a paper after the deadline has already passed.104 Applying that analogy to a small refinery
that did not receive the original exemption, but requests an extension of that exemption, would
be like a student that was never in the class asking the professor for an extension of a deadline
for a paper that was never assigned to that student to begin with (i.e., there is no due date for the
professor to extend just as there is no exemption period for EPA to extend). Thus, the language
of the statute indicates that, without having received "the exemption under subparagraph (A),"
there is nothing for a small refinery to petition EPA to extend temporally.105 Thus, if a small
refinery did not receive the original statutory blanket exemption, it is ineligible to have EPA
extend the duration of that exemption.106
3. Alternative Eligibility Determinations for Two Refineries
In this final action, EPA is denying two 2018 SRE petitions from two refineries not just
because they have failed to demonstrate DEH, but also on alternative grounds: EPA here
determines that both refineries are ineligible to petition for SREs. These two refineries submitted
refinery-specific comments under claims of confidentiality specifically addressing their
eligibility to submit SRE petitions. EPA addresses general eligibility comments in Appendix B
and addresses refinery-specific eligibility comments in confidential, refinery-specific appendices
to this action.
For the first refinery, EPA determines that it is ineligible to petition for an SRE under the
approach described in Section IV.A.2. The refinery did not receive the initial blanket exemption
because it did not qualify as a "small refinery" in 2004 or 2006, since its average aggregate daily
crude oil throughput exceeded 75,000 bpd during those qualification years.107 The refinery,
therefore, did not submit the verification letter required by regulation to receive the initial
blanket exemption, and, because it did not receive that exemption, it is ineligible to petition for
an SRE. This eligibility determination is alternative and added to our denial of its 2018 SRE
petition because the refinery did not demonstrate that it experienced DEH caused by RFS
compliance as described generally for all small refineries in Section IV.D.2, based on our review
of the petition, supplemental information, and comments submitted by the refinery. As such,
102 See supra, Section II.D.
103 HollyFrontier, 141 S.Ct. at 2177 ("Ultimately, however, we agree with the renewable fuel producers and the
court of appeals that subparagraph (B)(i) uses "extension" in its temporal sense—referring to the lengthening of a
period of time."). The HollyFrontier decision is further discussed in Section II.D.
104 Id. at 2177-78.
105 Id. at 2181-82 ("Indeed, the dissent finds it "odd" that our reading would permit hardship relief only to small
refineries in existence in 2008 and not to new ones, post, at 2189-2190... Nor is there anything odd about the fact
that Congress chose only to protect existing small refineries rather than new entrants. Often Congress chooses to
protect existing market participants from shifts in the law while applying new restrictions fully to future entrants.")
106 We note that this issue was not before the courts in RFA or in HollyFrontier because the three small refineries at
issue in those cases had all received the initial blanket exemption.
107 40 CFR 80.1141(a)(1), 72 FR 23900 (May 1, 2007); 40 CFR 80.1441(b), 75 FR 14670 (March 26, 2010).
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even if this refinery was eligible to petition for an SRE for the 2018 compliance year—which
EPA determines it was not—the petition is denied on DEH grounds.
For the second refinery, EPA determines that it is also ineligible to petition for an SRE
under the approach described in Section IV. A.2. The refinery did not receive the initial blanket
exemption because it was not an RFS obligated party at the time the initial blanket exemption
was available, prior to 2011. Even though this refinery met the statutory definition of a "small
refinery," it did not receive the blanket exemption because it did not produce transportation fuel
during between 2006-2010; therefore, it had no RFS obligation, and thus, there was nothing to
exempt. Therefore, the refinery did not submit the verification letter required by the RFS
regulations to receive the initial blanket exemption, and because it did not receive that
exemption, it is ineligible to petition for an SRE. This eligibility determination is alternative and
added to our denial of its 2018 SRE petition because the refinery did not demonstrate that it
experienced DEH caused by RFS compliance described generally for all small refineries in
Section IV.D.2 for the 2018 compliance year, based on our review of the petition, supplemental
information, and comments submitted by the refinery. As such, even if this refinery was eligible
to petition for an SRE for the 2018 compliance year—which EPA determines it was not—this
petition is denied on DEH grounds.
B. Compliance with SRE Petition Requirements
When submitting an SRE petition to EPA, the small refinery bears the burden of
demonstrating that compliance with the requirements of the RFS program causes DEH for that
small refinery. The RFS regulations require that an SRE petition specify the factors that
demonstrate DEH, provide a detailed discussion regarding the hardship the refinery would face
in complying with the RFS requirements, and identify the date the refinery anticipates that
compliance with the RFS requirements can reasonably be achieved at the small refinery.108 Since
the Tenth Circuit issued its opinion in RFA, many small refineries have contacted EPA to
supplement their original SRE petitions and to provide additional information about their
financial situations. In addition, EPA received extensive input in response to its request for
comment on the Proposed Denial. EPA greatly appreciates this information. EPA has completed
a thorough evaluation of the data and information provided in the SRE petitions, supplemental
submissions, and comments to determine if any of the petitioners have demonstrated that the cost
of compliance with the RFS is the cause of their alleged DEH and that such costs are not passed
through by that small refinery to the wholesale purchasers under the RIN cost passthrough
principle.109
C. DOE Consultation and EPA Consideration of the DOE Study
CAA section 21 l(o)(9)(A)(ii) required that EPA grant exemptions for "not less than 2
additional years" (i.e., 2010 and 2011) upon DOE's determination that a small refinery "would
be subject to a disproportionate economic hardship."110 Section 21 l(o)(9)(B), in contrast,
provides how EPA will evaluate petitions, "in consultation with the Secretary of Energy," but
108 40 CFR 80.1441(e)(2).
109 See infra, Appendix B, for a summary of the comments and EPA's responses.
110 See supra, Section II.D.
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does not dictate any particular action that EPA must take following that consultation, nor does it
not provide any further direction on the form EPA's consultation with DOE must take. In fact,
"Congress placed no limits on how DOE should provide its consultation to EPA under [the
RFS] "111 This absence of direction provides "substantial discretion" to the agencies to determine
how DOE will provide consultation for the pending SRE petitions.112 Both agencies previously
relied on DOE's findings through its application of the DOE scoring matrix to effectuate DOE's
consultation on each SRE petition.113 For this action, EPA shared all SRE petition and comment
information with DOE. However, DOE did not apply the scoring matrix because it was not
designed to account for RIN cost passthrough. Rather, EPA consulted with DOE through
discussions in meetings and phone conversations regarding the pending SRE petitions, the
supplemental supporting information the small refineries provided, other comments submitted in
response to the Proposed Denial, and the analysis and determinations that supply the basis for
this final action.114
In evaluating petitions for SREs under CAA section 21 l(o)(9)(B), EPA is directed to
"consider the findings of the [DOE] study." DOE, in fact, conducted two studies, one in 2009
and an update to the study in 2011.115 The original 2009 DOE Study concluded that small
refineries would not face DEH from compliance with the RFS program given the proportional
obligations of the program as a function of their gasoline and diesel fuel production and the
opportunity for refineries to comply by blending or by purchasing RINs, provided that the RIN
market proved to be liquid and competitive. The RIN market has developed to be open,
competitive, liquid, and functioning as intended;116 hence, the 2009 DOE Study accurately
forecasted what was likely to occur given the highly competitive fuels market with which DOE
was familiar.
When DOE expanded its study in 2011, it posited that small refineries could face DEH "if
blending renewable fuel into their transportation fuel or purchasing RINs increase[d] their cost of
products relative to competitors."117 DOE expressed a similar possibility another way noting, "If
certain small refineries must purchase RINs that are far more expensive than those that may be
generated through blending, this will lead to disproportionate economic hardship for those
affected entities."118 Looking to a potential future where RIN prices rose significantly (as they
have since done), DOE projected, "there are numerous circumstances when RIN prices could
rise, increasing the cost of compliance and perhaps increasing the cost of compliance more for
refineries that rely on [purchasing] RINs for compliance compared to those that do not."119 To
make clearer the circumstances it was envisioning where such disproportionate costs could arise,
DOE provided a detailed appendix (Appendix B) that laid out scenarios for three refiners in
111 Hermes, 787 F.3d at 577.
112 Id. at 575.
113 See supra, Section II.D.
114 While not legally required, EPA has added a memorandum to the docket for this action describing the EPA-DOE
consultation process. See "Memorandum on DOE Consultation from Byron Bunker," available in the docket for this
action (hereinafter the "DOE Consultation Memo").
115 See supra, Section II.D.
116 See infra, Section IV.D.2.
117 2011 DOE Study at vii (emphasis added).
118 Id. at 2 (emphasis added).
119 Id. at 3 (emphasis added).
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different circumstances relative to the RFS program.120 The first case was a refiner that blends all
its production with ethanol and does not have to purchase ethanol RINs. The second case was for
a refiner that does not do any blending and must purchase all its RINs to meet its RVOs. Finally,
the third case was for a refiner with excess RINs to sell into the market. DOE assumed in
Appendix B that the refiner that got its RINs through blending ethanol would get the RINs at
nearly no cost, while the refiners that had to buy RINs would be forced to pay the higher market
cost for compliance. Based on this assumption, DOE projected that some refineries could face a
disproportionate cost of compliance. Through the matrices in its report, DOE evaluated whether
those disproportionate costs rose to a level such that a refinery faced DEH due to those higher
costs. DOE articulated bringing those two elements together when it stated: "[disproportionate
economic hardship must encompass two broad components: a high cost of compliance relative to
the industry average, and an effect sufficient to cause a significant impairment of the refinery
operations."121 However, DOE did not assess in its 2011 study whether its assumptions that
refiners bear different costs for blending or purchasing RINs and that they may not be able to
pass these costs on to wholesale purchasers in the marketplace would actually occur.122
A number of small refineries have stated to EPA that DOE's projection in the 2011 DOE
Study is exactly what has come to pass, reiterating these assertions in their comments on the
Proposed Denial. Ethanol (D6) RIN prices have risen significantly, and small refineries argue
that they bear these higher RIN costs while integrated refiners (refiners that blend renewable
fuels) and non-obligated blenders receive RINs at almost no cost. Further, they argue that these
disproportionate costs are significant enough that they constitute DEH for the refineries just as
DOE articulated. EPA has carefully reviewed data, contracts, and other information from small
refineries to evaluate if, as DOE posited in 2011, refineries that acquire RINs through blending
get them at a lower cost than do refineries that purchase RINs on the open market.123 What we
have found is that the RIN discount phenomenon applies—blenders, in fact, discount their sales
price for E10 by the market price of the RIN (i.e., the sales price of E10 reflects the cost to buy
ethanol minus the market price for selling the RIN). Hence, while the blender gets the RIN for
"free" when it purchases a gallon of ethanol, it has to discount the price of that ethanol when sold
as E10 by the full current market price of the RIN. This means the blending refinery pays the full
market cost of the RIN through the discount it gives in the price of the E10 it sells. The 2011
DOE Study did not consider that blending refineries would have to discount blended fuel by the
price of the RIN; therefore, the projections envisioned by the 2011 DOE study have not occurred
in practice. Rather, as the 2009 DOE Study anticipated, the competitive market forces have
resulted in the same cost of compliance whether that cost comes through the purchasing of RINs
on the open market or through the discounting of the price for blended fuel sold by blenders.
Moreover, neither the 2009 DOE Study nor the 2011 DOE Study anticipated the even more
significant finding that, without regard to how refineries experience their RFS compliance costs,
the RIN cost passthrough phenomenon applies—refineries pass those higher costs through to
their customers in higher prices for the refined products they sell.
120 Id. at B-4.
121 Id. at 3.
122 See DOE Consultation Memo.
123 See infra, Section IV.D.2.
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For the reasons described above and after considering the "other economic factors"
described in Section IV.D.2, we find small refineries do not face disproportionate costs to
comply with the RFS program. Further, we find there is no economic harm—much less a
hardship significant enough to impair refinery operations—that qualifies as DEH caused by RFS
compliance. For these reasons, we find, consistent with the broad criteria for relief described in
the 2009 and 2011 DOE Studies, that DEH is not demonstrated in the 36 SRE petitions EPA has
evaluated and is denying in this action.
D. Hardship Must Be Caused by RFS Compliance
1. The CAA Requires That DEH Must Be Caused by RFS Compliance
As discussed above, the best reading of the statutory provisions at CAA section 21 l(o)(9)
is that EPA's authority to grant an SRE "for the reason of (DEH)" requires that the hardship is
caused by RFS compliance. This interpretation aligns with the statutory text as well as with the
purpose of the RFS program and the SRE provisions. EPA has considered the comments
received on this interpretation and provides specific responses to those comments in Appendix B.
This section summarizes EPA's analysis supporting its conclusions.
a. The Text of the Statute Provides That DEH Must Be Caused by Compliance with
the RFS Program
On January 24, 2020, the Tenth Circuit in RFA held that the EPA only has the authority
to grant SREs when the refinery experiences DEH caused by the RFS program.124 The court
pointed to statements in the three decision documents at issue indicating that relief from the RFS
obligations could relieve the refinery's hardship "in whole or in part," and concluded that
granting relief on the basis of something other than DEH caused by RFS compliance was
impermissible.125 We have evaluated the court's opinion and the text of the statute, and, in this
final action and going forward, we will require that petitioning small refineries demonstrate that
DEH is caused by RFS compliance as discussed further in this section.
The CAA's SRE provisions are structured in two sections. Section "(A) Temporary
exemption" provides the blanket exemption to all small refineries through 2010 and then lays out
the conditions in which a small refinery may receive an extension of the initial exemption
following the study conducted by DOE. Section "(B) Petitions based on [DEH]" addresses
ongoing case-by-case SRE petitions and the basis for EPA's evaluation of those petitions.
Section A refers to the "requirements of paragraph [21 l(o)(2)]," which provides, among
other things, the applicable annual volume targets for the required categories of renewable fuel.
The "requirements of paragraph [21 l(o)(2)]" are utilized in describing what an exemption
means: "The requirements of paragraph [21 l(o)(2)] shall not apply to small refineries until
calendar year 2011,"126 as well as identifying the subject of the DOE's study: "[T]he Secretary of
Energy shall conduct for the Administrator a study to determine whether compliance with the
124 RFA, 948 F.3d at 1254.
125 Id.
126 CAA section 21 l(o)(9)(A)(i).
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requirements of paragraph [21 l(o)(2)] would impose a [DEH] on small refineries."127 It also
describes the basis under which an exemption can be extended: "[i]n the case of a small refinery
that the Secretary of Energy determines under subclause (I) would be subject to a [DEH] if
required to comply with paragraph [21 l(o)(2)], the Administrator shall extend the exemption
under clause (i) for the small refinery for a period of not less than 2 additional years."128 These
repeated references to paragraph 21 l(o)(2) indicate a direct link between the RFS requirements,
SREs, and DEH. Given the focus by Congress in the SRE provisions on compliance with the
RFS volume requirements, the best reading of the statutory language is that compliance with the
RFS program must be the reason for DEH warranting an SRE under section A. DOE reached the
same conclusion in the 2011 DOE Study:"Disproportionate economic hardship must encompass
two broad components: a high cost of [RFS] compliance relative to the industry average, and an
effect sufficient to cause a significant impairment of the refinery operations."129 This means that
a small refinery may not simply experience a year of poor economic performance or struggle
with disadvantageous operational or market constraints to merit an SRE because these impacts
are not based on compliance with the RFS program. Nor can a refinery rely on unplanned and
unanticipated events like a fire or a natural disaster, or on planned events unrelated to RFS
compliance, such as paying out stock dividends or other capital purchases/loans to qualify for
relief from its RFS obligations.130 Rather, section A of the SRE provisions provides that DEH
must be caused by the small refinery's compliance with the requirements of the RFS program.131
Section B of the SRE provisions states that a small refinery may "at any time petition the
Administrator for an extension of the exemption under subparagraph (A) for the reason of
[DEH] "132 By making any future SREs "extensions] of the exemption under subparagraph
(A)," Congress carried over the causal requirement in section A to section B.133 While section B
uses the language "for the reason of [DEH]" without a modifying clause tying it to compliance
with the RFS program, section B cannot be read outside of the context of section A; section B is
merely providing an opportunity for small refineries to request continuation of the exemption in
section A. Therefore, the causal requirement in section A tying DEH to RFS compliance applies
to section B as well. Additionally, it is section A that provides the basis on which DEH must be
founded: compliance with the RFS program. Thus, even if the exemption under section B could
be interpreted as a distinct exemption from the exemption under section A, it must be "for the
reason of [DEH]" as defined in section A as being "impose[d]" by, or existing "if [a small
refinery was] required to comply with" its RFS obligations. In this way, the use and meaning of
"disproportionate economic hardship" is the same in both sections A and B. Therefore, we agree
with the Tenth Circuit that the "language of these provisions indicates that renewable fuels
compliance must be the cause of any disproportionate hardship."134 As described above, EPA
127 CAA section 21 l(o)(9)(A)(ii)(I).
128 CAA section 21 l(o)(9)(A)(ii)(II) (emphasis added).
129 2011 DOE Study at 3.
130 RFA, 948 F.3d at 1254 ("Granting extensions of exemptions based at least in part on hardships not caused by
RFS compliance was outside the scope of the EPA's statutory authority.").
131 Id.
132 CAA section 21 l(o)(9)(B)(i) (emphasis added).
133 RFA, 948 F.3d at 1253.
134 Id.
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believes this is the best interpretation of the interrelated provisions of CAA sections
21 l(o)(9)(A) and (B) and is therefore adopting this interpretation going forward.
b. The Purpose of the RFS Program Supports a Requirement That DEH Must Be
Caused by Compliance with the RFS Program
Requiring that DEH be caused by RFS compliance also furthers the goals of the RFS
program, which include encouraging the use of renewable fuel and reducing greenhouse gas
emissions from the transportation sector. Historically, SREs have resulted in reductions in the
volume of renewable fuel required to be used in the United States.135 Moreover, allowing relief
from RFS obligations for hardship unrelated to the RFS program would be an inappropriate use
of the SRE provisions, particularly where the text of the statute requires demonstration of a
causal relationship between the hardship and the RFS program. Had Congress intended that EPA
provide relief for hardship due to something other than the RFS program, it could have easily
done so, and the statutory language would have been more explicit in providing such broad
authority. Instead, Congress adopted a "temporary hardship" provision followed by the ability to
petition for an "extension" of the temporary exemption based on the same type of hardship. This
limited approach to providing hardship relief all but precludes an interpretation that the
exemption is available to provide financial assistance to small refineries for reasons wholly
unrelated to the RFS program, the program from which an exemption would provide relief. It
would only make sense that, in implementing the RFS program, EPA would provide relief from
impacts of the RFS program that result from the RFS program itself. It is hard to imagine that
Congress intended the SRE provisions be used to provide relief from the financial distress some
small refineries may otherwise face, especially when other legal and policy options exist to
provide compliance flexibility, and, significantly, when that distress may be caused by a broad
array of circumstances unrelated to the RFS program, ranging from higher transportation and
production costs to adverse business decisions.136
Finally, in light of EPA's findings regarding RIN cost passthrough, granting SREs would
mean that exempted small refineries would not only be relieved of their RFS obligations, but
would also get a financial benefit through the sale of their petroleum fuel that includes the value
of the RIN but no associated RFS compliance costs.137 This windfall to small refineries does not
further the goals of the RFS program, and only provides a disproportionate net benefit to small
refineries granted exemptions in comparison to other refineries that are either ineligible to
petition for an exemption or are denied an exemption on the lack of merit of their petition.138
Furthermore, when small refineries gain this benefit through exemption, RFS compliance is
incrementally shifted to other parties that, in turn, pass on that increment in their compliance
135 We acknowledge that beginning in 2020, we have projected the amount of SREs such that when the projections
accurately reflect the volume of fuel exempted, the volume of renewable fuel required under the RFS program is not
reduced by the granting of SREs.
136 For example, a small refinery may not choose to pay discretionary dividends and simultaneously claim DEH in
an SRE petition. The D.C. Circuit in Hermes said of this method, "Allowing small refineries to perpetuate that
manner of self-inflicted hardship would conflict with the terms of the statute which contemplate a "[tjemporary
exemption" for small refineries with an eye toward eventual compliance with the renewable fuels program for all
refienries." 787 F.3d at 578.
137 See infra, Section IV.D.2.
138 See, e.g., Comments from API on 2020 RFS Annual Rule, Docket Item No. EPA-HQ-OAR-2019-0136-0721.
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costs to wholesale purchasers. In essence, the significant financial benefit of exemptions granted
to small refineries is still paid for by wholesale purchasers in higher transportation fuel costs.139
2. DEH and RIN Cost Passthrough
An additional part of the Tenth Circuit's holdings was that EPA failed to explain how a
finding of DEH comports with EPA's findings on RIN cost passthrough.140 In this action, we are
adopting an interpretation of the statute that DEH must be caused by compliance with the RFS
program. It follows, then, that in making a finding of DEH we must explain how the RFS
program could cause DEH for a small refinery in light of EPA's longstanding and consistent
findings on RIN cost passthrough. EPA considers RIN cost passthrough as part of its
consideration of "other economic factors" when evaluating SRE petitions. As such, the section
that follows presents EPA's consideration of "other economic factors" in evaluating the SRE
petitions and determining that compliance with the RFS program does not impose DEH on small
refineries. In other words, the analysis in this section, and the data that it relies on, is part of
EPA's careful consideration of "other economic factors" relevant to demonstrating whether RFS
compliance will cause DEH. Additional "other economic factors" EPA considered in its
evaluation of SRE petitions are described in the responses to comments in Appendix B and in the
confidential, refinery-specific appendices.
After reviewing the available data and analysis, including analyses conducted by EPA
and outside parties,141 as well as data and analyses submitted by petitioning small refineries, and
comments, data, and analyses submitted in response to the request for comment on the Proposed
Denial, we find that all obligated parties recover the cost of acquiring RINs by selling the
gasoline and diesel fuel they produce at the market price, which reflects these RIN costs (RIN
cost passthrough). Further, we find that blenders use the revenue from RIN sales to discount the
price of the blended fuel they sell (RIN discount). Furthermore, since refining and fuel blending
markets are highly competitive, we find that: (1) The RFS obligation is the same for every gallon
of gasoline and diesel fuel; (2) RINs are generally widely available in an open and liquid market;
and (3) The cost of acquiring RINs is the same for all parties. All types of obligated parties bear
the same cost from compliance with the RFS program as these aspects of the RFS program and
the RIN market facilitate the RIN cost passthrough and the RIN discount principles discussed
above. While some parties dispute EPA's findings on RIN cost passthrough and the RIN
discount, those same parties have made business decisions over the last decade that implicitly
acknowledge that RIN cost passthrough and RIN discount do occur. For example, if RIN cost
passthrough did not exist, we would expect to see refiners shift production to non-obligated fuel
(e.g., heating oil, jet fuel) and/or export fuel in order to avoid RFS obligations. We would also
expect to see actions to expand or modify their business models to include additional blending of
renewable fuel to reap the alleged rewards that they claim independent blenders and marketers
139 In the 2020 RFS Annual Rule, EPA finalized regulations that shift the projected exempted volumes for small
refineries to the remaining obligated parties instead of reducing the renewable fuel volumes as had been common
practice in prior years. 85 FR 7016 (February 6, 2020).
140 RFA, 948 F.3d at 1256-57.
141 These outside parties include academics as well as consultants associated with one or more petitioning small
refineries.
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enjoy. However, we see neither of those practices occurring. Therefore, for all these reasons
taken together, we conclude that the RFS program does not impose DEH on small refineries.
Assessing the impact of the RFS program on refiners and blenders is complicated for
several reasons. First, many parties may operate in several different roles, such as merchant
refiners, integrated refiners, and blenders, in any given year.142 Second, the impact of RIN costs
on the price of fuels is not often apparent in the market pricing data.143 Third, while market
prices for renewable fuel with RINs attached are readily available in posted prices, renewable
fuel is less commonly traded without RINs and hence prices of renewable fuel without the RIN
are also rarely available outside of contracts between parties that are claimed as confidential.144
Finally, terminology and accounting practices vary between different parties, often making
apples-to-apples comparisons less obvious.145
In this section, we again present the data and analysis that we provided in the Proposed
Denial to support our findings that small refineries do not suffer DEH from their RFS obligations
because RIN costs are fully passed through to wholesale purchasers. We include some brief
discussion of the comments here, but primarily respond to comments submitted on this analysis
in Appendix B. Here, we show that any such RFS compliance costs are not disproportionate
because the cost to acquire RINs, whether via blending or through the RIN market, are the same,
making the costs of RIN acquisition the same for all parties. After presenting some of the
assertions made by small refineries below, we provide a brief description of prior publications on
RIN cost passthrough and the RIN discount. We then reiterate the general economic theory that
supports the premises of RIN cost passthrough and the RIN discount before briefly discussing
the different market participants and how we expect their operations to be affected based on
economic theory. Finally, we analyze the most current data available to the Agency to determine
whether the finished fuel and RIN markets move in the way the economic theory predicts.
Small refineries alleging DEH generally claim that: (1) They are unable to recover the
cost of the RINs they purchase in the sales prices of the gasoline and diesel fuel they produce
because of their geography or market position; and/or that (2) They face higher costs for
acquiring RINs than their competitors (usually integrated refiners or non-obligated blenders) that
acquire RINs by blending qualifying renewable fuel. In the first case, petitioners argue that they
are unable to recover the added cost of RIN purchases needed for RFS compliance and/or that
the market price for gasoline and diesel fuel does not fully reflect these costs. In the second case,
petitioners argue that their competitors (non-obligated blenders and/or integrated refiners) do not
have to discount the blended fuel they sell to wholesale purchasers by the price of the RIN and,
therefore, are able to acquire these RINs at a lower net cost than parties that purchase RINs. EPA
has not found evidence to support either of these arguments, as shown by the data and analysis
presented below. It is notable that the data we evaluated in doing this analysis and the market
behavior they describe are very consistent with each other across the markets we observed. Some
comments we received on the Proposed Denial included studies and market analyses that
suggested different market behavior in certain geographical locations and therefore questioned
142 See infra, Section IV.D.2.C.
143 See infra, Section IV.D.2.b.
144 See infra, Section IV.D.2.d.
145 See infra, Section IV.D.2.d.ii.
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EPA's conclusions about RIN cost passthrough. We respond to those studies and analyses in
Appendix B and in confidential, refinery-specific appendices to this action.
a. Assessments of RIN Market Dynamics
The degree to which the cost is "passed through" to wholesale purchasers (RIN cost
passthrough) and revenue from RIN sales is used to discount the price of blended fuel (RIN
discount) has been a longstanding area of interest, especially since D6 RIN prices increased
dramatically in 2013. EPA first published results of an assessment of obligated parties' ability to
"pass through" RIN costs and the impact of RIN prices on the price of blended fuel in a technical
memorandum in 2015.146 EPA explained the economic principles at work that enabled obligated
parties to recover their RIN costs through RIN cost passthrough and the discount of renewable
fuel blends by the price of the RIN. EPA then examined several sources of market data to test
those principles. We concluded that both the costs in refined products and discounts in blended
fuel prices due to RINs were being fully passed through to wholesale purchasers.
EPA next considered this issue in the context of petitions to reconsider the point of
obligation in the RFS program in 2017.147 While RIN cost passthrough was not the only topic at
issue in our consideration of changing the point of obligation in the RFS program, the degree to
which RIN costs and the RIN discount were passed through to wholesale purchasers was a
central argument in the various petitions. In considering these requests, EPA again examined
available market data, as well as studies by outside parties and numerous public comments.148
Once again, EPA concluded that the RIN costs and RIN discount were fully passed through to
wholesale purchasers and reflected in the market prices of petroleum fuel and blended fuel, and
that blenders used revenue from RIN sales to discount the price of blended fuel. This decision
was reviewed and upheld by the U.S. Court of Appeals for the D.C. Circuit.149
In evaluating the SRE petitions currently before the Agency, EPA has again evaluated the
available market data, and has evaluated data from additional markets submitted in comments to
supplement that analysis. EPA has examined data through 2020 to determine whether more
146 See Burkholder memo.
147 "Denial of Petitions for Rulemaking to Change the RFS Point of Obligation," EPA-420-R-17-008 at 21-31,
November 2017 (hereinafter the "POO Denial").
148 C.R. Knittel, B.S. Meiselman, & J.H. Stock, "The Pass-Through of RIN Prices to Wholesale and Retail Fuels
under the Renewable Fuel Standard," Journal of the Association of Environmental and Resource Economists, 2017.
C.R. Knittel, B.S. Meiselman, & J.H. Stock, "The Pass-Through of RIN Prices to Wholesale and Retail Fuels under
the Renewable Fuel Standard: Analysis of Post-March 2015 Data," Working Paper. See also Letter from RaceTrac
to Administrator McCarthy, August 17, 2016, Docket Item No. EPA-HQ-OAR-2016-0544-0014; Letter from
QuikTrip to Administrator McCarthy, August 17, 2016, Docket Item No. EPA-HQ-OAR-2016-0544-0013;
Presentation from Murphy USA to EPA, August 16, 2016, Docket Item No. EPA-HQ-OAR-2016-0544-0028.
149.1 ton Refining Krotz Springs, Inc v. EPA, 936 F.3d 628 (D.C. Cir. 2019). In its decision, the D.C. Circuit found
that in determining whether refiners recover the cost of the RINs they purchase for RFS compliance, EPA
"grounded that conclusion in studies and data in the record." Id. at 649. The D.C. Circuit also supported EPA's
findings that there is a cost for integrated refiners and non-obligated blenders to acquire RINs, even if they do not
purchase separated RINs, through lower prices for blended fuels. "In a competitive market there's no such thing as a
free lunch, and blenders and integrated refiners pay their tab just as other do; they just do so indirectly. To offer
finished fuel without attached RINs at a competitive price, these entities must discount their blended fuel by roughly
the value of the RINs that they detach and kept for themselves." Id. at 650.
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recent data continues to support EPA's views on the economic principles at play in the RIN
market and whether these new data reconfirm our prior conclusions about both RIN cost
passthrough and the RIN discount. EPA's prior analyses were generally based on publicly
available data reported by the Energy Information Administration (EIA), which reports spot fuel
prices for large fuels markets such as the New York Harbor and the Gulf Coast. Several small
refineries claimed that, while RIN cost passthrough and the RIN discount may occur in these
larger and more competitive fuels markets, RIN cost passthrough and the RIN discount were not
occurring in the local markets into which these small refineries sold gasoline and diesel fuel. To
assess these claims, EPA analyzed the data we received, including data sets provided by some of
the small refinery petitioners located in smaller markets. The petitioners submitted the datasets to
disprove EPA's conclusions on RIN cost passthrough. However, EPA found that the available
data, including the more recent data through 2020 and the data received in comments, either
could not be used to draw conclusions regarding RIN market dynamics, or, in contrast to the
petitioner's claims, actually supported the conclusions that RIN costs are passed through in
higher refined product prices and that blended fuel prices are discounted by the price of the RIN
and passed through to wholesale purchasers.150 In light of EPA's prior assessments of RIN cost
passthrough, its recent assessment for the Proposed Denial, and its latest assessment of the
comments and data provided in response to the Proposed Denial, EPA continues to conclude that
no obligated party has a structural advantage or disadvantage from the RFS program. EPA found
these conclusions held not only in the large fuels market previously assessed, but also in the
smaller markets EPA examined using non-public market data, as well as the data submitted by
the small refineries. Each of these assessments is discussed in further detail in the following
sections.
While EPA recognizes that much of this data may not be specific to the 2018 compliance
year, it demonstrates the price dynamics in the fuels and RIN markets. Moreover, EPA's prior
analyses indicate that RIN costs were passed through prior to and during the 2018 compliance
year.151 EPA's analysis provided herein confirms and supports our prior findings regarding RIN
cost passthrough using more recent data.
b. Economic Principles of RIN Cost Passthrough
The market for gasoline and diesel fuel in the United States is extremely competitive at
all levels from the wholesale level (terminals and refinery racks) to the retail level (gas stations
and truck stops). At the wholesale level, there are currently more than 1,300 terminals across the
United States.152 At the retail level, there are currently about 145,000 retail stations across the
United States.153 The majority of these stations are owned by parties that own fewer than ten
retail stations, and, in many cases, only a single retail station.154 All of these parties are selling
fungible products (gasoline and diesel fuel) to a consumer base that is very sensitive to fuel
150 See infra, Section IV.D.2.d.
151 See Burkholder memo. See also POO Denial.
152 Internal Revenue Service, Active Fuel Terminals, February 28, 2022, available at https://www. i rs. gov/pub/i rs~
utl/tcn-db.pdf.
153 National Association of Convenience Stores, Convenience Stores Sell the Most Fuel, March 10, 2022,
https://www.conven.ience.org/Topics/Fnels/Who-Sells-Americas-Fiiel.
154 Id. According to this data, 57.1% of retail fuel stations are owned by parties that own only one station, and an
additional 3.8% of all retail fuel stations are owned by parties that own 2-10 retail stations.
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prices, with prices posted on large signs making prices transparent. At the wholesale level, there
are 129 petroleum refineries in the United States.155 The market for renewable fuel and RINs is
similarly very competitive. In 2020, more than 300 companies generated RINs for qualifying
renewable fuel.156 On average, approximately 5 billion RINs are traded between registered
parties each month.157 Prices for petroleum fuel, renewable fuel, and RINs are regularly reported
by a variety of price reporting services.158
Refineries within the United States compete with each other, as well as with many other
refineries overseas, and importers capable of sourcing gasoline and diesel fuel from a global
fuels market. Low transportation costs for gasoline and diesel fuel, enabled by an extensive
pipeline network, and the low cost of shipping these fuels via pipeline, barge, and petroleum
tankers, mean that fuels markets across the United States are linked and that refiners are not only
competing with other local refineries, but with parties across the country and in many cases the
world. This can be seen clearly in the structure of many fuel supply contracts across the country
that establish pricing based on the price of fuel at a major market (e.g., Houston or New York
Harbor) plus or minus transportation costs between the local market and the major market,
depending on the direction of product flow.159 If a small refinery is facing competition in its
local market from a larger remote market, the local price will typically be higher than the price in
the major market, reflecting the cost of shipping the fuel to the local market from the larger
remote market.160 Conversely, if the small refinery is shipping its fuel to the larger remote
market to sell, it will need to price its fuel below the larger remote market price to cover the cost
of shipping the fuel to the larger remote market. Through thousands of decisions made by all the
market participants each day, the prices between the markets generally equilibrate to the same
level, offset by the transportation costs between the markets. This means at the terminals where
wholesale gasoline and diesel fuel are sold, competition forces all of the market participants to
accept the same price for their products in the same way that gas stations across the street from
each other must price their fuel at the same price.161
155 According to data from EIA, there were 129 operable refineries in the United States as of January 1, 2021 (EIA,
When was the last refinery built in the United States?, Frequently Asked Questions (FAQs), June 25, 2021,
fattps://www.eia.gov/toots/fa.qs/fa.q.pfap?id=29&t=6). Some of these refineries are located outside of the RFS covered
location or do not produce gasoline or diesel fuel, and thus are not subject to the RFS program.
156 The number of companies that generated RINs is from data accessed from EPA's Moderated Transaction System
(EMTS).
157 RIN trade and price information reported to EMTS is available at https://www.epa.gov/fuels-registration-
reporting-and-compliance-help/rin-trades-and-p rice-information.
158 See, e.g., fuel price data from EIA (https://www.eia.gov/dnav/pet/pet pri spt s i d.htm) and RIN price data from
EPA (https://www.epa.gov/ftiels-registration-reporting-and-compliance-help/rin-trades-and-price-information').
159 Scott Berhang, "Pricing 101 Part 3: Wholesale Rack Fuel Pricing Essentials," September 12, 2017, available at
http://blog.opisnet.com/wholesale-rack-fiiel-pricing-essentials. Several small refinery petitioners included examples
of contracts, some of which were based on the fuel price at a larger fuel market plus (or minus) transportation costs.
This information has been claimed as confidential by the petitioners.
160 This is because the price in the local market will be set by the marginal supplier of fuel. In a market with both a
local and remote supplier, the marginal supply price will be no lower than the fuel sourced from the remote market,
which will include transportation costs.
161 There are very minor variations at the wholesale and retail level where branded fuels that include proprietary fuel
additives command a marginally higher price than do unbranded fuels which retail consumers may perceive as being
of lower quality. These differences in the prices for the products are unrelated to RFS because there are no
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Economic theory suggests that in competitive markets like the fuels market where
demand is nearly inelastic, competitive market forces would drive market participants to pass
through the costs and revenue from RINs to wholesale purchasers in the prices of the products
they sell.162 This means that higher RIN prices should not advantage any one group of refineries
over another, and that RIN prices should not impact refining margins. As an initial assessment of
the impact of RIN prices on refineries, EPA examined the refining margins for three groups of
refineries—small refineries, large refineries, and all refineries—based on available public data
(e.g., financial data from publicly traded companies) and confidential data, including data
provided by petitioners. We compared these refining margins (operating profit per gallon of fuel
produced) to the average RIN cost per gallon (the per gallon cost to acquire the RINs necessary
to meet a refinery's RVO).163 These data are presented in Figure IV.D.2.b-l. Consistent with the
economic theory, we see no correlation between refining margins and RIN prices, nor do we see
any indication that higher RIN prices put small refineries at an advantage or disadvantage
relative to large refineries. This result is consistent with findings of Burkhardt 2019: "full pass-
through of RIN costs to nationwide output prices on average, and no statistical difference
between pass-through rates for large and small refineries."164 Figure IV.D.2.b-l also includes an
estimate of the refining margin for small refineries if they received an exemption from their RFS
obligations. The estimate was calculated by adding the RFS RIN compliance cost per gallon to
the refining margins for small refineries each year, since exempting small refineries from their
RFS obligations means they do not have to acquire RINs. This estimate demonstrates that
exempting small refineries from their RFS obligations results in small refineries, as a class,
having consistently higher refining margins than large refineries or the average of all refineries.
This advantage is significant and increases as RIN prices increase.
distinguishing features or branding of the renewable components in gasoline or diesel fuel (i.e., one E10 fuel blend
does not sell for more than another because it contains "higher quality" branded ethanol).
162 RBB Economics, "The price effect of cost changes: passing through and here to stay," December 2014, available
at https://www.rbbecon.com/downloads/2014/12/RBB_B48_Brief_WEB.pdf. RBB Economics, "Cost pass-through:
theory, measurement, and potential policy implications," December 2014, available at
https://assets.piiblishing.service.gov.iik/government/uploads/svsteiii/iiploads/attachiiient data/file/320912/Cost Pass
-Tfaroiigh JRepo rt. pdf.
163 We calculated the RIN cost per gallon based on the RFS obligation and the average RIN prices for each year.
164 Jesse Burkhardt, "The impact of the Renewable Fuel Standard on US Oil refineries," 130 Energy Policy 429, 435
(2019) available at https://doi.Org/10.1016/i.enpoL2019.03.058.
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Figure IV.D.2.b-l: Refining Margins and RIN Costs (2009-2019)a
$0.35
tS
<-> $0.30
z
% $0.25
~ $0.20
c
_o
re $0.15
-2?
— $0.10
V)
£? $0.05
CO
S <_
60 ¦?
c
c
4-
u
^ All Renneries Large Rennenes
Small Refineries ¦ RIN Cost
— — — Small Refinery with Exemption
Data from SRE petitions and financial statements from publicly traded companies.
a The "Small Refinery with Exemption" line was calculated by adding the "RIN cost" line to the "Small Refineries"
line. If a small refinery had already accounted for the financial benefit of an SRE in their reported margin for a given
year, the effect would be to make the "Small Refinery with Exemption" line slightly less than shown for that year.
Understanding the impacts of the RFS program on the various parties that participate in
the fuels market is complicated by the fact that different parties may participate in different
activities within the fuels market. When analyzing the impact of the RFS program on the fuels
market, we generally consider three different types of market participants: (1) Parties that
produce and sell petroleum fuel, including blendstocks165 (generally referred to as merchant
refiners); (2) Parties that purchase petroleum fuel and renewable fuel, and sell blended fuel
(blenders); and (3) Parties that produce petroleum fuel, purchase renewable fuel, and sell blended
fuel (integrated refiners). The latter two of these market participants compete directly with each
other at the wholesale fuel terminals where gasoline and diesel fuel "breaks bulk" and is sold into
tanker trucks for delivery to retail stations. A typical fuel terminal may have a dozen different
companies that sell the gasoline and diesel fuel dispensed from the terminal.166 A simplified
version of the business activities each of these parties engage in, as well as the impact of the RFS
program on their costs and revenue, is illustrated in Figure IV.D.2.b-2.
Merchant refiners produce, market, and sell petroleum fuel and buy the RINs they need
for compliance with their RFS obligations; they do not purchase or blend renewable fuel.
Integrated refiners also produce petroleum fuel, but unlike merchant refiners, they also purchase
and blend renewable fuel to produce, and ultimately sell, blended fuel that contains some volume
of renewable fuel. Integrated refiners generally do not purchase RINs, but instead purchase
renewable fuel with attached RINs and acquire most of the RINs they need for compliance when
165 A "blendstock" is defined as "any liquid compound or mixture of compounds (not including fuel or fuel additive)
that is used or intended for use as a component of a fuel." 40 CFR 1090.80.
166 Kristi Moriarty, "High Octane Fuel: Terminal Backgrounder," NREL, February 2016, available at:
https://afdc.energv.gOv/files/u/publication/hof tenninal backgrounder.pdf.
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they blend the renewable fuel.167 Non-obligated blenders do not produce petroleum fuel
components, but instead purchase these products from merchant refiners. They then purchase
renewable fuel with attached RINs that they use to produce, and ultimately sell, blended fuel
(e.g., E10 and B5168). Because these parties do not have RFS obligations, they can also sell the
RINs associated with the renewable fuel they blend. In practice there are few refineries that fall
entirely into a single category, with most refiners having business interests that fall into at least
two categories. Nevertheless, these distinctions help to clarify the context for RIN cost
passthrough and the RIN discount in the price of blended fuel.
Figure IV.D.2.b-2: Simplified Illustration of Fuels Market Participants
The place in the fuel supply chain where we can see the cost of the RIN being passed
through to wholesale purchasers is in the price of the petroleum products. Since all parties have
167 Very few, if any, integrated refiners acquire all the RINs they need by blending renewable fuel. Petroleum fuel is
subject to an RFS obligation for all four categories of renewable fuel, but it is generally only blended with one type
of renewable fuel (i.e., ethanol in the case of gasoline and biodiesel or renewable diesel in the case of diesel fuel).
Based on the 2020 RFS percentage standards, integrated refiners would generate a small amount of excess
conventional biofuel (D6) RINs when blending ethanol as E10, but would need to purchase a small number of
advanced biofuel (D5), biomass-based diesel (D4), and cellulosic biofuel (D3) RINs to meet the RFS obligation
associated with the petroleum-based portion of the E10 blend. Similarly, integrated refiners that blend biodiesel as
B5 would generate excess D4 RINs but would need to purchase D6 and D3 RINs to meet the RFS obligation
associated with the petroleum-based portion of the B5 blend. In practice, nearly every gallon of blended fuel
produced by an integrated refiner generates some quantity of excess RINs of one type and simultaneously incurs an
obligation for other types of RINs.
168 B5 refers to diesel fuel blended with 5% biodiesel.
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the same cost to acquire RINs (on a per gallon basis),169 whether they blend renewable fuel or
purchase separated RINs, one would expect the price for petroleum fuel subject to an RFS
obligation (i.e., gasoline and diesel fuel) to increase when RIN prices increase and to decrease
when RIN prices decrease. Just as the prices of gasoline and diesel fuel increase if fuel taxes
increase,170 they also increase when RIN prices increase. Merchant refiners fully recover the cost
of their RFS obligations when the difference between the market price of gasoline and diesel fuel
and the market price for these fuels in the absence of the RFS obligation is equal to the cost of
purchasing the RINs to satisfy the RFS obligation. Equations showing the expected RIN price
impacts on the prices of gasoline and diesel fuel, assuming RIN costs are fully passed through,
are shown below.
Equation 1: Expected Impact on Gasoline (EO) Prices Assuming Full RIN Cost Passthrough
Gasoline Price = Gasoline Price with no RFS Obligation + RIN Costs
Equation 2: Expected Impact on Diesel Fuel (BO) Prices Assuming Full RIN Cost Passthrough
Diesel Fuel Price = Diesel Fuel Price with no RFS Obligation + RIN Costs
EPA once again examined these economic principles by looking at available market data,
including recent market data that was submitted by commenters.171 The data EPA examined
show that the market prices for gasoline and diesel fuel operate as shown in Equations 1 and 2,
supporting EPA's findings that all obligated parties recover the cost of their RFS obligations in
the sale prices for the gasoline and diesel fuel they produce.172 The ability for an obligated party
to recover its RIN costs is not dependent on the obligated party's ability to set the price for these
fuels in the markets where they are sold. Rather, because all obligated parties face the same RIN
costs per gallon of gasoline and diesel fuel produced nationwide,173 the market prices for these
fuels rise and fall with changes in RIN prices in all markets by the same amount on any given
day (after accounting for other factors that impact the prices of these fuels), such that all parties
that sell gasoline and diesel fuel recover their RIN costs.174
The place in the fuel supply chain where we see the RIN discount is the point at which
renewable fuel is blended with gasoline or diesel fuel and sold for distribution to fuel retailers
(i.e., at bulk terminals). Parties that blend renewable fuel with gasoline or diesel fuel to produce
blended transportation fuel must discount the price of the blended fuel by the price of the
169 See infra, Section IV.D.2.C.
170 EIA, Gasoline explained: Factors affecting gasoline prices, March 15, 2022,
https://www.eia.gov/energvexplained/gasoline/factors-affectlng-gasoline-prices.php.
171 EPA's analysis of the market data to determine the degree to which RIN costs are passed through to wholesale
purchasers through higher prices for gasoline and diesel fuel is provided in Section IV.D.2.d.i.
172 See infra, Figures IV.D.2.d.i. 1 through 4, where EPA compared the price difference between a fuel subject to an
RFS obligation to a very similar fuel not subject to an RFS obligation and the RIN cost per gallon of diesel fuel.
173 See infra Section IV.D.2.d.ii, see also the "RVO c/USG" value reported in the Argus Americas Biofuels Report,
which reports the RVO cost per gallon of fuel produced based on current RIN prices.
174 See infra Section IV.D.2.d.i.
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associated RIN.175 These parties can then separate any RINs that are attached to the renewable
fuel and either use these RINs to demonstrate compliance with their RFS obligations (if they are
an obligated party) or sell these RINs to other parties. In either case, the point at which they
acquired the RIN at the market price, or, rather, incurred a market rate cost for the RIN, is what
determines the cost to acquire the RIN. This distinction is not necessarily intuitive as many
market participants assume the cost to acquire the RIN is set when the renewable fuel is
purchased at a cost that includes the RIN rather than when the renewable fuel is blended and sold
as described further below.
The sale of a RIN by a party that blends renewable fuel and separates the RIN creates a
separate revenue stream in addition to the revenue from the sale of the blended fuel itself.
Competitive forces require that blenders price their blended fuel based on the net price of
renewable fuel, or the price of the renewable fuel less the price of the RIN associated with the
fuel (e.g., net ethanol price = ethanol price - D6 RIN price; net biodiesel price = biodiesel -
1.5*D4 RIN price176). Any party that attempts to retain the revenue from the RIN sales, rather
than passing it on to wholesale purchasers via the RIN discount, is unable to offer blended fuel at
a competitive price. If the market price for blended fuel is equal to the prices of the fuels used to
create the blended fuel (e.g., 0.9 gallons of gasoline blendstock and 0.1 gallons of ethanol in the
case of E10) without discounting the price for the renewable fuel by the price of the RIN, the
RIN sales would result in profits for the blender. In the competitive fuels market, however,
blenders are forced to reduce the price of the blended fuel to be competitive, consistent with the
RIN discount phenomenon. If they do not, their competitors will give up the revenue from the
sale of RINs to maximize profits by increasing fuel sales. These competitive forces require that
blenders use the revenue from the RIN sales to effectively subsidize the price of the blended fuel
they sell.
This market phenomenon has been relatively obvious to program participants looking at
the market for biodiesel blends where it was understood from the start of the RFS2 program that
a higher D4 RIN price was necessary to reduce the effective market price of biodiesel to make it
equivalent to petroleum diesel fuel. Integrated refiners and non-obligated blenders pay the higher
cost for renewable fuel through their purchase and blending. Merchant refiners pay the non-
obligated blenders the incremental cost of the renewable fuel for doing the blending of renewable
fuel on their behalf when they purchase the separated RINs. As an illustrative example, if
petroleum diesel fuel is selling at $3.00 per gallon, and it costs $4.50 per gallon to produce
biodiesel (net of tax credits and state LCFS credits) and generate 1.5 D4 RINs, the price of a D4
RIN would need to be $1.00 for biodiesel to compete with petroleum diesel fuel so that the
revenue from the sale of the 1.5 D4 RINs for $1.50 would lower the effective cost of the
biodiesel to match the cost of the petroleum diesel fuel.177 Any blender attempting to retain the
revenue from the sale of the D4 RINs (rather than using it to discount the price of the blended
175 Another way to think about the RIN discount is that, to remain competitive, parties that blend renewable fuel
must base the final price for the blended fuel on the net price of the renewable fuel (after accounting for the sale of
the RIN) rather than on the price they paid for the renewable fuel with an attached RIN.
176 Each gallon of biodiesel generates 1.5 RINs.
177 In this example we are assuming that the RIN value tracks the cost of biodiesel production after accounting for
the federal biodiesel tax credit and state LCFS credits (if applicable) in order to bring the net or effective price of
biodiesel to parity with diesel fuel.
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fuel) could not offer a competitively-priced blended fuel, since any biodiesel the blender used in
its product would increase the cost of the fuel blend.
As described in greater detail below both in terms of economic principles and the recent
data EPA received from small refineries, this market dynamic was previously not well
understood when applied to the blending of ethanol to make E10. From the start of the RFS
program until recently, there was no need to discount ethanol to create parity with gasoline
blendstocks because ethanol had been relatively inexpensive and highly valued as an octane
improver when blended to produce E10. As a result, both in the period prior to the RFS program
and for the early parts of the RFS program, the market price for El 0 was simply the weighted
price for gasoline blendstock and ethanol. When D6 RIN prices increased, it was not obvious to
many program participants how these high RIN prices impacted E10 prices, which many
program participants simply assumed should continue to reflect the weighted costs of gasoline
blendstock and ethanol. In fact, what has happened is that the high RIN prices have increased the
production cost of gasoline blendstock (i.e., the RIN cost passthrough described in the preceding
section) while simultaneously lowering the net cost of ethanol in almost equal proportion (the
RIN discount), resulting in little change in the actual cost of E10 to consumers.178 While this
competitive market response has meant little change in E10 prices due to the RFS program, it has
created confusion among market participants who perceive that D6 RINs are "free" to parties
that blend E10, while obligated parties that must buy the D6 RINs at market prices bear a very
high cost.179 Instead, as we will show here based both on economic theory and the new small
refinery data submissions, all sellers of E10 discount the price of E10 by the price of the D6
RIN, meaning fuel blenders pay for the RIN through this discounted E10 price at the same cost
as if they purchased the RIN on the open market. As a result, parties that acquire RINs through
fuel blending and parties that acquire RINs from the open market incur the same cost to acquire
RINs.
Equations showing a generalized fuel blending example, and an example specific to E10,
are provided below. These equations and the discussion that follows describe what one would
expect if RIN prices are fully passed through to wholesale purchasers. The subsequent sections
examine market data to test these equations and determine the degree to which RIN prices are
passed through to wholesale purchasers.
178 This does not mean that there is no cost to the RFS program. The RFS program requires the use of renewable
fuels, which often have higher prices than the petroleum fuels they displace. This is particularly true for advanced
biofuels such as biodiesel and renewable diesel. By requiring the use of higher cost fuels, the RFS program
marginally increases the cost of transportation fuel in the United States.
179 In fact, the RFS compliance cost estimates that small refineries submit to EPA as part of their SRE petitions
reflect this misunderstanding by estimating the D6 RIN cost as the gasoline price minus the ethanol pricing meaning
that, when ethanol is less expensive than gasoline, D6 RIN prices are negative.
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Equation 3: Generalized Fuel Blending Example Assuming Full RIN Discount
Blended Fuel Price = PFP * PF% + (RFP - RIN Value) * RF%
Where: PFP = Petroleum Fuel Price
PF% = Petroleum Fuel Percentage in the fuel blend
RFP = Renewable Fuel Price
RIN Value = RIN Price * Equivalence Value180
RF% = Renewable Fuel Percentage in the fuel blend
Equation 4: Fuel Blending Example for E10 Assuming Full RIN Discount
E10 Price = Gasoline Blendstock Price * 90% + (Ethanol Price - D6 RIN Price) * 10%
EPA's analysis of the market data confirms these economic principles that the RIN value
is passed through to wholesale purchasers in the price of blended fuel.181 The analysis—
comparing the market prices for petroleum fuel, ethanol, RINs, and E10—shows that the market
prices for blended fuel operate as shown in Equations 3 and 4, supporting EPA's findings that
blenders are passing on the value of the RIN to wholesale purchasers.182 Importantly, this means
that, although blenders do not purchase RINs directly, there is still a cost for blenders to acquire
RINs. This cost is realized when blenders discount the price for the finished blended fuel, pricing
it based on the net price of the renewable fuel, after accounting for the sale of any RINs attached
to the renewable fuel. The data EPA analyzed support our finding that the RIN value is fully
passed through from blenders to wholesale purchasers, as described in Equations 3 and 4.
Because the market is competitive, a blender cannot attempt to sell RINs at higher prices, as
wholesale purchasers would merely go to a competitor selling at the market price. Thus, the cost
of acquiring a RIN by blending renewable fuel and the cost of purchasing a separated RIN are
equal as would be expected from the design of the RFS program and RIN system. Commenters
submitted studies that they claim refute EPA's analysis; however, these studies are imperfect
and, as described in Appendix B, EPA did not find it appropriate to rely on the conclusions
presented in those comments and the studies they included.
c. Impacts on Different Market Participants
Before turning to the data analysis of RIN cost passthrough and the RIN discount as
reflected in the prices of refined products and blended fuel, respectively, we first provide an
180 The equivalence value is an RFS regulatory term that relates the number of RINs generated per gallon of
renewable fuel produced. Ethanol has an equivalence value of 1.0. Other renewable fuels have equivalence values
that are determined by their energy content relative to ethanol. For example, biodiesel has an equivalence value of
1.5 RINs per gallon of biodiesel reflecting that biodiesel has approximately 150% the energy content of ethanol.
181 See infra, Section IV.D.2.d.
182 See infra, Section IV.D.2.d.ii.
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illustrative example to examine the implications of RIN cost passthrough and the RIN discount
on the three types of market participants described above: a merchant refiner, an integrated
refiner, and a non-obligated blender. We present examples for producing both E10 and B5, two
common fuel blends present in many fuels markets. Each of these parties produces, purchases,
and sells different products within the E10 and B5 markets, but, as this example demonstrates, no
party has a structural advantage or disadvantage since both the RIN cost and the RIN discount
are passed through to wholesale purchasers.
As briefly discussed previously, in reality very few parties fit entirely within only one of
these three categories. Most refiners, both small and large, sell some volume of petroleum fuel
(acting as merchant refiners) and blend some of their petroleum fuel with renewable fuel (acting
as integrated refiners). Some also purchase gasoline or diesel fuel from other parties and blend it
with ethanol to sell as E10 (acting as non-obligated blenders). Further, some refiners are also
renewable fuel producers that produce the renewable fuel they blend rather than purchasing it
from other parties and sell excess renewable fuel to others. Therefore, to better understand how
various parties are affected by the RFS program and RIN prices, it is better to consider the role
the party is playing in the fuels market (producing gasoline or diesel fuel, blending renewable
fuel, etc.) than the predominant role of the company.
To illustrate the impact of the RFS program and RIN prices on parties acting in each of
these roles, EPA evaluated scenarios with fuel prices, RIN prices, and RVOs as they existed on
December 30, 2020. EPA also evaluated an alternative scenario where there was no RFS
obligation. The fuel and RIN prices used in these scenarios, as well as the sources of these prices,
are shown in Table IV.D.2.C-1 for the E10 example and Table IV.D.2.C-3 for the B5 example.
The costs, revenue, and profit/loss for each party, both with and without the RFS program, are
shown in Table IV.D.2.C-2 for E10 and Table IV.D.2.C-4 for B5. EPA recognizes that fuel and
RIN prices have changed since the Proposed Denial. However, because the purpose of these
tables is to provide illustrative examples, we thought it would be appropriate to maintain
consistent examples between the Proposed Denial and this SRE Denial, particularly because a
number of the commenters included references to this example in their comments. Accordingly,
we have not updated the prices used in these examples, and we do not expect that updated prices
would change the outcome of our analysis.
The 2011 DOE Study included a very similar hypothetical value breakdown for various
types of refiners in Appendix B of that study.183 At the time, DOE projected that //integrated
refiners did not have to discount the E10 that they sell, then they could acquire RINs through
blending at little or no cost. In this hypothetical scenario, integrated refiners that acquired RINs
at little or no cost through blending renewable fuel would have a significant advantage relative to
merchant refiners that purchased RINs at a higher market price. However, as the examples below
illustrate, integrated refiners must compete with non-obligated blenders in the blended fuels
market. To offer competitively priced blended fuel, integrated refiners (like blenders) must
discount the price of the blended fuel by the price of the RIN attached to the renewable fuel
contained in the blended fuel. Market data reviewed by EPA confirm that the price of blended
fuel reflects the RIN discount.184 Thus, contrary to the hypothetical example in the 2011 DOE
183 See supra, Section II.D.
184 See infra, Section IV.D.2.d.ii.
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Study,185 we find that all obligated parties have the same cost to acquire RINs, whether they
acquire RINs through blending renewable fuel or purchasing separated RINs. We address
comments on these findings in a generalized manner in Appendix B and in confidential refinery-
specific appendices to this action.
Table IV.D.2.C-1: BOB186, Ethanol, E10, and RIN Prices on December 30, 2020187
Product
Price
Data Source
BOB Cost of Production
$1.34
Assumed to be equal to the BOB Market Price
without RIN Cost
BOB Market Price without RIN
Cost
$1.34
Calculated (BOB Market Price with RIN Cost
less RIN Cost)
BOB Market Price with RIN Cost
$1.44
EIA
Ethanol Market Price
$1.50
OPIS
E10 Market Price with the RFS
Program
$1.37
Calculated using BOB Market Price with RIN
Cost, Ethanol Market Price, and D6 RIN Price
E10 Market Price without the
RFS Program
$1.36
Calculated using BOB Market Price without
RIN Cost and Ethanol Market Price
D6 RIN Price
$0.77
OPIS
RIN Cost per Gallon of BOB
$0.10
Calculated from 2020 RVO and OPIS RIN
Prices
D6 RIN Cost per Gallon of E10
$0.06
Calculated from 2020 RVO and OPIS RIN
Prices
D3, D4, and D5 RIN cost per
gallon of E10
$0.03
Calculated from 2020 RVO and OPIS RIN
Prices
185 DOE's example in Appendix B of the 2011 DOE Study included a comparison of Company A that blends all its
production with ethanol and does not need to purchase ethanol RINs, with Company B that does not do any blending
and must purchase RINs to meet its entire RFS obligation, and with Company C that blends in excess of its
obligation and has RINs to sell into the market. In DOE's hypothetical case, Company A acquired RINs at no cost
(n/a in the estimate) while Company B faced a 15 cent per RIN cost to purchase RINs. 2011 DOE Study at B-4.
186 BOB is an intermediate petroleum product that is used in making finished gasoline and is generally blended with
ethanol to make E10. BOB represents the petroleum-based portion of blended gasoline that has a RIN obligation
attached to it. Therefore, BOB can be used to show the price impacts of the RIN market on the petroleum
component of blended fuel.
187 We recognize that fuel and RIN prices have changed, in some cases significantly, since December 30, 2018, and
again since December 30, 2020. However, because the purpose of Tables IV.D.2.C-1 through 4 is to provide an
illustrative example of how various parties are impacted by fuel and RIN prices, and because several commenters
reference these tables as provided in the Proposed Denial, we believe they are useful in demonstrating that RIN cost
passthrough occurred in 2018 and have not updated them with more current data. Accordingly, we do not expect that
updated prices would change the outcome of our analysis.
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Table IV.D.2.C-2: Illustrative Costs, Revenue, and Profit for E10 Production
Line
Merchant
Refiner
Integrated
Refiner
Non-Obligated
Blender
With
RFS
No
RFS
With
RFS
No
RFS
With
RFS
No
RFS
2-1
0.9*BOB Cost of
Production
$(1.21)
$(1.21)
$(1.21)
$(1.21)
-
-
2-2
0.9*RIN Cost
$(0.09)
-
$(0.09)
-
-
-
2-3
0.9*BOB Market Price
$1.30
$1.21
-
-
$(1.30)
$(1.21)
2-4
0.1 *Ethanol Market Price
(with RIN)
-
-
$(0.15)
$(0.15)
$(0.15)
$(0.15)
2-5
0.1 *Net Ethanol Market
Price (no RIN)
-
-
$(0.07)
$(0.15)
$(0.07)
$(0.15)
2-6
E10 Market Price (per
Gallon)
-
-
$1.37
$1.36
$1.37
$1.36
2-7
D6 RIN Purchases
$(0.06)
-
-
-
-
-
2-8
D3, D4, and D5 RIN
Purchases
$(0.03)
-
$(0.03)
-
-
-
2-9
D6 RIN Sales
-
-
$0.02
-
$0.08
-
2-10
Profit/Loss per Gallon
E10
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
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Table IV.D.2.C-3: Diesel Fuel, Biodiesel, B5 and RIN Prices on December 30, 2020
Product
Price
Data Source
ULSD188 Cost of Production
$1.38
Assumed to be equal to the ULSD
Market Price without RIN Cost
ULSD Market Price without RIN Cost
$1.38
Calculated (ULSD Market Price with
RIN Cost less RIN Cost)
ULSD Market Price with RIN Cost
$1.48
EIA
Biodiesel Market Price
$3.66
OPIS
Biodiesel Tax Credit
$1.00
N/A
B5 Market Price with the RFS Program
$1.46
Calculated using ULSD Market Price
with RIN Cost, Biodiesel Market Price,
and D4 RIN Price, and Tax Credit Price
B5 Market Price without the RFS
Program
$1.44
Calculated using ULSD Market Price
without RIN Cost, Biodiesel Market
Price, and Tax Credit Price
D4 RIN Price
$1.00
OPIS
RIN Cost per Gallon of ULSD
$0.10
Calculated from 2020 RVO and OPIS
RIN Prices
D4 RIN Cost per Gallon of B5
$0.02
Calculated from 2020 RVO and OPIS
RIN Prices
D3, D5, and D6 RIN cost per gallon of B5
$0.07
Calculated from 2020 RVO and OPIS
RIN Prices
188 ULSD stands for "ultra-low-sulfur diesel" fuel.
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Table IV.D.2.C-4: Illustrative Costs, Revenue, and Profit for B5 Production
Line
Merchant
Refiner
Integrated
Refiner
Non-Obligated
Blender
With
RFS
No
RFS
With
RFS
No
RFS
With
RFS
No
RFS
4-1
0.95*ULSD Cost of
Production
$(1.31)
$(1.31)
$(1.31)
$(1.31)
-
-
4-2
0.95*RIN Cost
$(0.09)
-
$(0.09)
-
-
-
4-3
0.95*ULSD Market Price
$1.41
$1.31
-
-
$(1.41)
$(1.31)
4-4
0.05*Biodiesel Market Price
(with RIN)
-
-
$(0.18)
$(0.18)
$(0.18)
$(0.18)
4-5
0.05*Tax Credit
-
-
$0.05
$0.05
$0.05
$0.05
4-6
0.95*Net Biodiesel Price
$(0.06)
$(0.13)
$(0.06)
$(0.13)
4-7
B5 Market Price (per Gallon)
-
-
$1.46
$1.44
$1.46
$1.44
4-8
D4 RIN Purchases
$(0.02)
-
-
-
-
-
4-9
D3, D5, and D6 RIN
Purchases
$(0.07)
-
$(0.07)
-
-
-
4-10
D4 RIN Sales
-
-
$0.05
-
$0.07
-
4-11
Profit/Loss per Gallon E10
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
The illustrative examples presented in Tables IV.D.2.C-2 and 4 demonstrate several
important points about the impact of the RFS program and RIN prices on merchant refiners,
integrated refiners, and non-obligated blenders. First, since the RIN cost (lines 2-2 and 4-2) and
the RIN discount (blended fuel prices based on net renewable fuel prices; lines 2-6 and 4-7) are
fully passed through to wholesale purchasers, no party benefits or is harmed by the RFS
program, either in absolute terms or relative to their competitors.189 This can be seen in lines 2-
10 and 4-11. In each of the examples, the revenues and costs of various products change as a
result of the RFS program, but the profit/loss and, thus, the potential harm for each of these three
parties is identical with and without the RFS program.
Second, a merchant refiner's ability to recover its RIN costs in the price of the fuel it
produces does not depend on its ability to be a "price setter" or to receive a price for its fuel that
is above the market price. Instead, the market price for fuel increases to account for the RIN cost
associated with producing the fuel (RIN cost passthrough). Whether and the degree to which a
refiner is a "price setter" or "price taker" is not influenced by the RFS program. Rather, the RFS
program merely shifts upward the price at which this competitive dynamic is at play. This price
impact can be seen by comparing the market prices for gasoline and diesel fuel with and without
the RFS program (lines 2-3 and 4-3 respectively). Merchant refiners automatically receive a
price for their fuel that reflects the cost increase due to the RFS program (i.e., the cost of the
RIN) when they sell the fuel at the market price.
189 Throughout Section IV.D.2.C, references to "lines" are to Table IV.D.2.C-2 (lines beginning with 2-) and Table
IV.D.2.C-4 (lines beginning with 4-).
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Third, if a refiner (merchant or integrated) has a higher cost of production than the market
price without the RFS program, it will lose money for each gallon of fuel it produces. This is true
both with and without the RFS program. Any party that has a higher cost of production than the
market price for the goods it produces will lose money when selling those goods. However, the
higher market prices for fuels can obscure these underlying fundamentals. In the example
presented in Table IV.D.2.C-1, if a merchant refiner's cost to produce 0.9 gallons of gasoline is
$1.30, it may appear that the refiner would break even by selling gasoline at the market price
(line 2-3) but for the RIN purchases (lines 2-7 and 2-8). Several petitioners have made this very
claim, that their refineries would be profitable if they did not have to purchase RINs but are not
profitable after accounting for their RIN costs. However, such claims ignore the fact that in the
absence of the RFS program, the market price for 0.9 gallons of gasoline (line 2-3) would fall to
$1.21, resulting in a $0.09 loss. If a refiner's cost of production exceeds the marginal supply
price for its market, the refiner will lose money for every gallon of fuel it produces due to its
high cost of production, regardless of the presence or absence of the RFS program. As
demonstrated by the identical results for all parties in Tables IV.D.2.C-2 and 4, the RIN
compliance costs associated with the RFS program do not have a differential impact on the
refiner's situation.
Fourth, while integrated refiners that do their own blending have the same cost to acquire
RINs as merchant refiners, they spend less on separated RIN purchases when they produce E10
or B5 (lines 2-7 and 4-8, respectively). Integrated refiners are acting both as merchant refiners
(producing fuel that carries an RFS obligation) and as blenders (blending renewable fuel and
separating the attached RINs) at the same time. However, rather than purchasing all the RINs
they need from other parties or selling all the RINs they acquire through blending renewable
fuel, integrated refiners keep the RINs they need for compliance from blending renewable fuel
rather than purchasing these RINs. The transfer of RINs from the blending operation of an
integrated refiner to the refining operation is an internal transfer, rather than an external purchase
or sale that is easier to see in financial reports. While it may appear that integrated refiners are at
an advantage relative to merchant refiners under the RFS program because they purchase fewer
RINs per gallon of fuel produced (lines 2-7 and 4-8) than merchant refiners, they also sell fewer
RINs than non-obligated blenders (lines 2-9 and 4-10). These two impacts—the higher RIN
purchases relative to merchant refiners and the lower RIN sales relative to non-obligated
blenders—offset each other such that integrated refiners neither benefit from the RFS program,
nor are at a disadvantage relative to merchant refiners or non-obligated blenders under the RFS
program.
Another way to understand the impact of the RFS program on integrated refiners is to
consider the opportunity cost to these parties of selling blended fuel rather than petroleum fuel.
Integrated refiners are competing with non-obligated blenders when they sell blended fuel (lines
2-6 and 4-7). These blenders must discount the price of the blended fuel they sell because of the
revenue they realize when they sell the RINs associated with the renewable fuel (lines 2-9 and 4-
10). Integrated refiners generally keep the RINs they acquire when they blend renewable fuel, so
they do not have this revenue source to reduce the price of their blended fuel to compete with
blenders. Instead of revenue from RIN sales, integrated refiners can use their own production of
petroleum fuel, which has a lower cost of production than the market price for the fuel (lines 2-1
and 2-3 and lines 4-1 and 4-3), to produce blended fuel. Access to these lower-cost fuels allows
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integrated refiners the ability to offer blended fuel at the same price as non-obligated blenders—
which use the revenue from RIN sales to discount the price of their blended fuel—despite the
fact that they use the RINs they acquire through blending for RFS compliance, rather than selling
them to other parties. In doing so they give up the opportunity to sell their petroleum fuel at the
higher market rate, which reflects the RIN cost (lines 2-2 and 4-2).
Fifth, the fact that refiners are able to recover the cost of the RINs they need for
compliance and that blenders pass through the RIN discount to wholesale purchasers does not
mean that the RFS program has no impact on fuel prices.190 The RFS program functions as a
cross-subsidy, where RINs increase the market price of petroleum fuel (lines 2-3 and 4-3) and
decrease the net price of renewable fuel (lines 2-5 and 4-6). This means that the RFS program
reduces the market price for fuel with higher renewable fuel content (e.g., E85 or B20) and
increases the market price for fuel with little or no renewable content (e.g., EO or BO). Notably,
the RIN cost and the RIN discount are not the same for all blended fuels. RIN costs (lines 2-2
and 4-2) are proportional to the quantity of petroleum fuel in the blended fuel while the RIN
value used to discount the price of the renewable fuel is proportional to the quantity and type (D6
ethanol, D4 biodiesel, etc.) of renewable fuel in the blended fuel. In the two examples in Tables
IV.D.2.C-2 and 4, the RIN cost and the RIN discount for E10 and B5 are very similar and as a
result the prices for E10 and B5 with and without the RFS program (lines 2-6 and 4-7,
respectively) are very similar. This is not the case for fuels with significantly higher or lower
proportions of renewable fuel.
Finally, while non-obligated blenders realize revenue from RIN sales (lines 2-9 and 4-
10), this revenue is not a windfall profit. Instead, RIN revenues result in lower net prices for
renewable fuels (lines 2-5 and 4-6). The prices of the blended fuel (lines 2-6 and 4-7) then reflect
the lower net cost for the renewable fuel under the RFS program. For fuels such as E10 and B5,
when the RIN value of the renewable fuel in the blend is approximately equal to the RIN cost
associated with the petroleum fuel in the blend, it can be difficult to see the impact of the RFS
program in the blended fuel price. For fuels with significantly higher or lower renewable fuel
content, the impact is more pronounced. RINs decrease the price for fuel with a high renewable
content (e.g., B20 or E85), while RINs increase the price for fuel with little or no renewable
content (e.g., EO or BO). This is the mechanism by which the RFS program was intended to
increase the production and use of renewable fuel in the United States.
In the calculations in Tables IV.D.2.C-2 and 4, we have made several simplifying
assumptions. First, we have assumed that the fuel cost of production for both the merchant
refiner and the integrated refiner (lines 2-1 and 4-1) is equal to the market price for the fuel
without the RFS program. In practice, the marginal cost to supply fuel to any given market sets
the market price. Each refiner's refining margin would, therefore, be determined by its actual
fuel cost of production relative to the market price for the fuel. RIN costs increase the market
price for the fuel by an amount equal to the RIN cost, since all parties have the same RIN costs.
However, since the market price for fuel reflects the RIN cost, the merchant refiner's profit/loss
is determined by its cost of production relative to the marginal cost of production for its market,
190 The RFS program requires the use of renewable fuels, which often have higher prices than the petroleum fuels
they displace. This is particularly true for advanced biofuels such as biodiesel and renewable diesel. By requiring the
use of higher cost fuels, the RFS program marginally increases the cost of transportation fuel in the United States.
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with or without the RFS program. Said another way, different refineries in a market will have
differing profit margins for the fuel they produce and ultimately distribute to terminals. But since
RFS compliance costs (i.e., RINs) apply equally to every gallon of fuel produced, these costs
directly impact all gasoline and diesel fuel volumes equally, raising the marginal supply price for
these products. Thus, RIN prices increase a refinery's costs and the market price for their
production, but the difference between the refining margins for the different refineries will
remain the same with and without the RFS program.
Similarly, in this example we have assumed no blending margin or cost for blending
beyond the purchase of petroleum fuel and renewable fuel. This is a simplification that does not
reflect the fact that, in addition to the cost of purchasing fuel, blenders—whether operating at a
gasoline terminal or their own truck rack—also have operating costs and fixed costs. These costs
include, among others, labor costs, maintenance costs, and capital recovery costs. Blenders must
earn a margin when they sell blended fuel to cover these fixed and operating costs, and the
market price for blended fuel reflects the fixed and operating costs of the marginal fuel
blender.191 However, not all blenders will have the same fixed and operating costs. Much like the
previous example, we would expect a blender's (or integrated refiner's) profit/loss for blending
renewable fuel to be equal to its fixed and operating costs relative to the fixed and operating
costs of the marginal blender. Blenders and integrated refiners with relatively low blending costs
are expected to earn greater profits through blending, while blenders and integrated refiners with
relatively high blending costs are expected to earn relatively lower profits (or losses) through
blending. This is true independent of the RFS program, as RIN costs/revenues are neutral.
Notably, the design of the RFS program enables the market to function efficiently by allowing
those refiners that have relatively high fixed and operating costs of blending renewable fuel to
purchase RINs from blenders that have lower fixed and operating costs of blending renewable
fuel. We acknowledge this simplification and note that our decision to exclude a blending margin
from the examples presented in Tables IV.D.2.C-2 and 4 does not affect the conclusions
highlighted above.
d. EPA Evaluation of Available Market Data
EPA analyzed the available market data to verify the economic principles at work and to
verify that the RIN cost and the RIN discount are being reflected in the retail price of blended
fuel.192 These analyses, including analyses conducted for previous assessments of the
passthrough of both the RIN cost and the RIN discount, as well as new analyses using more
recent data, are presented in this section. These analyses confirm that both the cost of the RINs—
which is reflected in the prices for fuel and blendstocks—and the discount of the RINs are passed
through to wholesale purchasers in the marketplace in the price they pay for blended fuel. In
Appendix B, we address the RIN market studies included in the comments we received on the
Proposed Denial. Some small refineries also submitted analyses specific to their operations under
191 We note that, in some of the contracts that have been submitted to EPA, this blending margin is represented by a
fixed price, while in other cases the fuel purchaser appears to be accepting slightly less than full passthrough of the
RIN value, possibly to pay for part or all of the blending margin or blending cost. In either case, these blending
margins are negotiated between fuel buyers and fuel blenders and are generally not made public. EPA has provided
a more detailed assessment of the individual refinery contracts provided to the Agency in the confidential refinery-
specific CBI appendices.
192 See supra, Section IV.D.2.b.
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claims of confidentiality, and we have responded to those in confidential, refinery-specific
appendices to this action.
i. Assessment of Data on RIN Cost Passthrough
EPA first assessed available data to determine whether refiners are able to recover the
cost of the RINs they need to demonstrate compliance with their RFS obligations through higher
prices for the petroleum fuel they produce, as described in Equations 1 and 2. This analysis is
complicated by the fact that the terms in Equations 1 and 2 for the gasoline price with no RFS
obligation and the diesel fuel price with no RFS obligation cannot be found in market data from
the United States, as the reported data will always reflect the cost of the RFS obligation. As
described below, however, there are market data on the prices of fuels that are very similar (and
in some cases identical) where one fuel has an RFS obligation and the other does not.
In 2015, EPA identified prices for near-identical fuels (in terms of technical fuel
specifications, and, therefore, presumably cost of production) except for the fact that one fuel
was subject to an RFS obligation while the other was not.193 We then used the price of the non-
obligated fuel to approximate what the cost of the obligated fuel would be in the absence of the
RFS obligation. We then compared the price difference between these two fuels, which
represents the increase in the market price of the obligated fuel as a result of its RFS obligation,
to the RIN cost for producing or importing a gallon of fuel subject to an RFS obligation. The
strong correlations between the price differences for similar fuels with and without an RFS
obligation and the RIN cost per gallon of obligated fuel led to the conclusion that the market
prices for gasoline and diesel fuel are higher than they would otherwise be in the absence of the
RFS program. Further, the observed price difference was equal to the cost of purchasing the
RINs needed to meet the compliance obligations for a gallon of gasoline or diesel fuel. We
therefore concluded that all refiners recovered the full cost of the RINs they purchase through the
prices of the fuel they sell.
EPA subsequently repeated the analytical techniques first developed in 2015 using more
recent data from 2017-2020. Figure IV.D.2.d.i-l shows the price difference in New York Harbor
between ULSD, which is subject to an RFS obligation, and heating oil, which is essentially an
identical product except that it is not subject to an RFS obligation. As expected, there is a very
strong correlation between these data sets, as shown in Figure IV.D.2.d.i-2. The market price
premium for ULSD over that for heating oil consistently matches the RIN cost (i.e., the cost of
purchasing the RINs needed to meet the RFS obligation). EPA received both public and
confidential comments on its analysis, and has responded to those comments in Appendix B and
in confidential, refinery-specific appendices to this action.
Similarly, Figure IV.D.2.d.i-3 shows the price difference in the Gulf Coast between
ULSD, which is subject to an RFS obligation, and jet fuel, which is not. However, as shown in
Figure IV.D.2.d.i-4, the correlation between the price difference of ULSD and jet fuel and the
RIN cost is not as strong as the correlation between the price difference of ULSD and heating oil
and the RIN cost. This is to be expected, as there are more significant product quality differences
between ULSD and jet fuel such that they are not one-for-one replacements of each other.
193 See Burkholder memo.
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Furthermore, they are used primarily in different markets with distinct supply/demand dynamics
that would also contribute to differences in their market prices.194 Thus, there is more noise in
these data, but a general relationship between the price difference among these fuels and the RIN
cost can be seen. Also apparent in Figure IV.D.2.d.i-3 is the impact of the COVID-19 pandemic.
In late March 2020, air travel and demand for jet fuel decreased dramatically, resulting in an
over-supply of jet fuel and a spike in the price premium for ULSD over jet fuel.195 Over time, as
demand for jet fuel gradually increased and refiners adjusted their production to better match fuel
demand, the price difference between jet fuel and ULSD returned to match the RIN cost. Taken
together, these more recent data confirm EPA's original conclusion that the market prices for
gasoline and diesel fuel reflect the RIN cost, and, therefore, all refiners are able to recover their
RIN costs through the sales prices of these fuels.
Figure IV. D.2.d.i-1: Price Difference Between ULSD and Heating Oil in New York Harbor
and RIN Cost (2017-2020)196
ULSD - Heating Oil and RIN Value (NYH)
$0.20
1/3/2017 1/3/2018 1/3/2019 1/3/2020
$(0.05)
ULSD - Heating Oil RIN Cost
$0.15
$0.10
$0.05
194 Jet fuel generally contains more sulfur than ULSD. While the properties of jet fuel are closer to #1 diesel than to
#2 diesel. EPA's public data does not contain prices for #1 diesel
195 El A. COVID-19's impact on commercial jet fuel demand has been significant and uneven, Today in Energy
(August 7, 2020), https://www.eia.gov/todavinenergy/detail.php?id=44676.
196 prjccs for ULSD and heating oil are reported by EIA and are available at
https://www.eia.gov/dnav/pet/pet pri spt si d.htm.
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Figure I V.D.2.d.i-2: Correlation Between Price Difference of ULSD and Heating Oil and
RIN Cost (2017-2020)
$0.20
$0.15
$0.10
ro
v j.
I $0.05
$-
$0.02 $0.04 $0.»6 $0.08 $0.10 $0.12
$(0.05)
RIN Cost
Figure IV.D.2.d.i-3: Price Difference Between ULSD and Jet Fuel in the Gulf Coast and
RIN Cost (2017-2020)197
1/3/2017
$(0.10)
$(0.20)
$(0.30)
1/3/2020
• ULSD-Jet Fuel
>RIN Cost
197 Prices for ULSD and jet fuel are reported by EIA and are available at
https://www.eia.gov/dnav/pet/pet pri spt si d.htm.
51
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Figure IYf.D.2.d.i-4: Correlation Between Price Difference of ULSD and Jet Fuel and RIN
Cost (2017-2020)
$0.40
$0.30
- $0.20
"® $0.10
U_
+-J
QJ
$-
O
(S)
=> $(0.10)
$(0.20)
${0.30)
March - May 2020
$0.12
RIN Cost
In their SRE petitions and in their subsequent comments on the Proposed Denial, several
small refineries submitted examples of fuel pricing contracts in their local markets under claims
of confidentiality. EPA has responded to the general comments in Appendix B and to the
confidential information in confidential refinery-specific appendices to this action. Notably,
many of these contracts indexed the sales price for fuel in the typically smaller markets into
which the small refineries sell fuel to larger fuels markets, usually with the addition of
transportation costs. The structure of these contracts supports EPA's finding that the inclusion of
the RIN cost in the price of obligated fuel is not unique to larger, coastal fuels markets, but is
true across the United States. If the RIN cost is reflected in the sales price of fuel in New York
Harbor and the Gulf Coast, it is certainly reflected in markets (including smaller markets) that
index their pricing to these larger markets.
One piece of evidence that the pricing of fuel in smaller markets is commonly indexed to
the price in larger spot markets is the reporting of the Spot Replacement Index (SRI) by a major
industry source of fuel pricing information. A contractor to EPA described the SRI as follows:
"The starting point for both the gasoline and ULSD SRI is the average of the prior-day's
closing spot range in each of the seven U.S. spot markets. Each day the price reporting
service surveys traders and brokers and publishes a full day range (high, low, mean,
settlement) that represents their assessment of the value of spot transactions for gasoline
and diesel fuel that day. The price service provider has mapped over 250 rack markets
from their theoretical spot origin points. From the full day spot price assessment, the
service provider then adds current pipeline tariffs based on the distance that product
flows in the line from the spot origin point to the destination rack terminal location. The
price provider then adds in line loss (due to evaporation in the line), terminaling and
storage (transfer) fees if product moves from line to line, an estimated fee for proprietary
additives (when required), a cost of money factor (based upon transit time from origin to
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destination), pipeline security charges and trucking fees for applicable markets where
product requires transportation using vehicles in addition to pipelines. For distillates, the
service provider also approximates the cost of various additives (lubricity, red dye, etc.).
For each date in the analysis the day's SRI shows yesterday's closing spot price delivered
into a specific market. The service provider developed this methodology after more than
a year of discussion with major oil suppliers, marketers, and resellers."198
EPA considers the existence and common use by the refining industry of the SRI as
strong evidence that the prices in local markets are indexed to the seven major U.S. spot markets;
otherwise this tool would be of little use to the industry participants that helped to create and use
it.
Furthermore, because of the highly connected and competitive nature of fuels markets
across the United States, one would expect every fuels market to reflect these same pricing
dynamics. To date, no petitioning small refinery has provided EPA with data that contradict this
position, either in their SRE petitions or in their comments on the Proposed Denial, nor have we
found other data that is in conflict with this expectation. In fact, small refineries that participate
in both larger markets and smaller markets have consistently highlighted to EPA that they are in
direct competition with larger and better resourced refineries regardless of their location. Even in
cases where the small refineries themselves may not distribute fuel beyond a relatively small
geographic area, the large integrated refiners with which they compete in those local markets do
sell fuels into the larger distributed markets. It would not make economic sense for these large
integrated refiners, which have access to larger fuels markets where market prices reflect the cost
of RINs, to choose to sell into the smaller markets occupied by small refineries unless the market
prices in those smaller markets also reflected the RIN cost. Some small refineries asserted that
large refineries engage in predatory pricing (i.e., the illegal act of setting prices low to attempt to
eliminate the competition) in the local markets where the small refineries compete. The U.S.
Federal Trade Commission (FTC) has looked into such claims in the past and has generally
found that in "markets with a large number of sellers, such as gasoline retailing, it is unlikely that
one company could price below cost long enough to drive out a significant number of rivals and
attain a dominant position."199 Even if such claims were true, such predatory pricing would
presumably be for the purpose of increasing the predatory refinery's share of the refined products
market (the thing they produce) and not the renewable fuels market (the thing they also buy). In
other words, such predatory pricing for refined products would not be a basis for EPA to find
DEH due to the cost of compliance with the RFS program. Consistent with the historic findings
of the FTC, EPA in its review of the materials submitted by small refineries in their SRE
petitions and comments has not found a basis to conclude that the wholesale fuel markets are
anything but highly competitive.
Another important observation from these data is that neither the RIN cost nor the
additional revenue a refiner receives for an obligated fuel compared to a non-obligated fuel (the
198 Economic Analysis of Fuel Blending, prepared for the Environmental Protection Agency by Stillwater Associates
LLC, February 9, 2022, p. 3.
199 United States Federal Trade Commission (FTC), "Predatory or Below-Cost Pricing," available at
https://www.flc.gov/advice-gnidance/competition-gnidance/giiide-antitRist-laws/single-firm-condnct/predatore-or-
below-cost-pricing.
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premium for obligated fuel versus a similar non-obligated fuel) are static. There has been
significant variation in these prices from 2017-2021, from approximately $0.10 per gallon in late
2017 and late 2020, to a low of approximately $0.03-0.04 per gallon throughout 2019. RIN
prices have generally held stable in the first quarter of 2021, though they continued to increase in
2021, with prices at the end of 2021 for most RIN categories 50-100% greater than RIN prices at
the end of 2020 (see Figure IV.D.2.d.i-5).200
Figure IV.D.2.d.i-5: RIN Cost Per Gallon by RFS Category (2011-2020)
$0.16
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Alternatively, refineries can try to time their purchases in the RIN market, which may result in
greater or lesser RIN costs. EPA strongly disputes any notion that costs resulting from individual
refinery's business decisions, including the choice to delay RIN procurement in hopes of
receiving an SRE, or an attempt to time the transaction to profit from the fluctuation in the RIN
market prices over time, represent DEH caused by the RFS program.
A number of small refineries have argued that, because the RFS program does not require
RINs to be purchased ratably, EPA is obligated to provide hardship relief if purchasing RINs in
any manner allowed under the RFS program would lead to a small refinery having a higher cost
of compliance than other program participants. EPA does not agree that RFS program
flexibilities, including those that allow refineries to choose when they acquire RINs, can be a
basis for hardship relief. The purpose of the RFS program and the regulations EPA promulgated
to implement it are to "ensure that gasoline sold or introduced into commerce in the United
States, [] on an annual basis, contains the applicable volume of renewable fuel."201 Currently,
these regulations require refineries to ensure that renewable fuel volumes equivalent to
approximately 11-12 percent of their annual gasoline and diesel fuel production are entered into
commerce. In accomplishing that program requirement, the industry as a whole accomplishes
that product mix each day and month of the year with some small variation due to seasonal sales
patterns for some fuels. In the absence of the RIN credit program, refineries would have to
directly ensure renewable fuel blending. In such a program design, a small refinery could, under
the annual compliance provisions, choose to delay any renewable fuel blending until the last
month of the year and then attempt to sell exclusively renewable fuel in the last month of the
year at a volume to meet the obligation it accrued through the preceding 11 months. Such an
approach would almost certainly lead to a much higher cost of compliance than would have
occurred had the small refinery worked to demonstrate compliance on an ongoing basis each
month through the year. As alleged by small refinery commenters, EPA would then be
compelled to provide hardship relief due to the higher cost of RFS compliance for the small
refineries that chose such a compliance mechanism. Such an approach, where the business
decisions of the individual companies are made within the regulations but contrary to the purpose
of the program, does not constitute DEH caused by the cost of compliance with the RFS
program, and therefore cannot be a basis for hardship relief. Otherwise, all small refineries could
simply choose such an impossible compliance approach, and then, having made this choice, be
assured of relief from the RFS obligations. Similarly, individual business decisions made by an
obligated party not to ratably accrue RINs as their obligation accrues, but instead to either
purchase RINs in advance or delay RIN purchases until a later date, are business choices that
companies may lawfully make. However, as discussed in detail in Section III, EPA may not
consider these individual business choices in determining if a small refinery faces DEH due to
compliance with the RFS program. EPA addresses these and other similar comments on the
Proposed Denial in Appendix B.
ii. Assessment of Data on the RIN Discount
To verify that fuel blenders are passing through the RIN discount to wholesale purchasers
through the price of blended fuel as described by Equations 3 and 4, EPA considered information
from a variety of sources, including the information received from commenters. We evaluated
201 CAA section 2ll(o)(2)(A)(i).
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the issue by analyzing market pricing data for petroleum fuel, renewable fuel, RINs, and blended
fuel (including data submitted by petitioners), statements from blenders in publicly-available
earnings reports, and fuel pricing contracts submitted by petitioners. Each of these data sources
support EPA's finding that revenue from RIN sales does not represent a windfall profit for fuel
blenders. Rather, they demonstrate that blenders pass through the full value of the RIN to
wholesale purchasers in discounts on the price of the blended fuel they sell and, therefore, do not
retain any revenue from the sale of RINs. We address the information received from commenters
on the Proposed Denial in Appendix B and in confidential, refinery-specific appendices to this
action.
There are a limited number of markets where prices for each of these fuels are reported,
but all of those we have evaluated confirm our conclusions that fuel blenders are passing through
the RIN discount to wholesale purchasers through the price of blended fuel.202 In 2015, EPA
analyzed market data from Des Moines, Iowa and demonstrated that there was a very strong
correlation between the difference in the posted price for El0 in Des Moines and the calculated
E10 price based on the component fuels (gasoline blendstock and ethanol), and the RIN price per
gallon of El 0.203 These data indicated that fuel blenders are selling blended fuel based on the net
price of the renewable fuel (after accounting for the sale of any associated RINs). This means
that the price of the blended fuel was lower than the cost to purchase the components of the fuel
blend (gasoline blendstock and ethanol with a RIN) and that revenue from RIN sales offset these
costs. The result of this pricing behavior is that 100% of the revenue from RIN sales was passed
on to wholesale purchasers.
Prior to the issuance of the Proposed Denial, two petitioning small refineries submitted
data to EPA on fuel prices in their markets that enabled EPA to analyze current data in additional
markets using a methodology similar to the analysis we conducted for Des Moines in 2015.204
Both parties claimed this data presented supported their claims of DEH. One petitioner used
monthly gasoline and ethanol pricing data from a local terminal, along with RIN pricing data, to
determine a monthly calculated E10 price from 2010 to the present using an equation nearly
identical to Equation 2.205 The petitioner then plotted these calculated E10 prices, which assume
that 100% of the RIN value is passed through to wholesale purchasers through lower prices for
blended fuel, against the posted prices for El0 at that same terminal. The petitioner found an
extremely strong correlation (R2 = 0.9976) between the calculated E10 price (assuming 100%
RIN passthrough) and the posted E10 price, demonstrating for this terminal that the RIN value
has been fully passed through to wholesale purchasers since 2010.206
202 This same point was raised in one small refinery's petition, along with data to illustrate it. The small refinery
claimed its petition and all supporting information as CBI.
203 See Burkholder memo.
204 We do not present the data here because the petitioners have claimed it contains CBI.
205 The only difference between Equation 2 and the equation used by the petitioner to determine the calculated E10
price was that the petitioner included an additional terminating and throughput charge that applies regardless of the
RFS program and is not relevant to this discussion.
206 This petitioner acknowledged that the RIN was used to discount the price of blended fuel at their terminal.
However, the petitioner further argued that the RIN cost could not be recovered in the cost of the gasoline and used
to discount the price of the blended fuel. As discussed further in Section IV.D.2.C, both the economic principles and
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Another petitioning small refinery's fuel pricing data allowed EPA to conduct a similar
analysis for yet another market.207 This petitioner provided daily pricing information for E10
from a local terminal, as well as daily pricing information for gasoline blendstock and ethanol
from a nearby market along with the cost to transport these fuels to the petitioner's local market.
Daily prices were provided from January 1, 2019, through June 21, 2021. EPA used the data to
calculate an E10 price using Equation 2 and compared these calculated E10 prices (assuming the
E10 price was based on the net price of the ethanol, passing through 100% of the RIN in the
discounted price of E10) to the posted E10 prices at the local terminal. As with the data provided
by the other petitioner, we again find an extremely strong correlation (R2 = 0.9991) between
these two prices, further confirming our previous findings that the RIN price is fully passed
through to wholesale purchasers as a discount on the price of the renewable fuel when petroleum
fuel and renewable fuel are blended and then sold.
Support for EPA's finding that the RIN discount is fully reflected in the price of blended
fuels and is accordingly passed through to wholesale purchasers by fuel blenders can also be
found in public statements by the blenders themselves. Several parties directly involved in fuel
blending supported EPA's findings in comments208 on EPA's Point of Obligation denial.209 More
recently, R. Andrew Clyde, President, CEO & Director of Murphy USA, a large fuel blender and
retailer, was asked if the recent high RIN prices positively affected Murphy USA's margins in a
Q1 2021 earnings report. He responded:
The reality is RINs and RIN prices are immaterial to our business. Historically, and you
can look back over the last 3 years annual results, we've made $0.02 to $0.03 per gallon
on product supply and wholesale net of RINs. And so during the quarter on the average,
we generated about the equivalent of $0.07 a gallon per RIN, but net of the negative spot
to rack margins of $0.04, we netted a little bit over $0.03.. If RINs are high, the refiner
gate price is high and like it was in this quarter, our refinery gate spot to rack margin is
negative... So RIN prices don't matter. The product supply margin plus the RINs is going
to be about $0.02 to $0.03.210
Mr. Clyde describes a market dynamic wherein blenders experience negative blending
margins (due to competitive market forces requiring that the RIN price be reflected in the market
price of blended fuel) that are offset by revenue from selling RINs, with total margins (including
fuel blending and RIN sales) relatively stable and independent of RIN prices.211 These dynamics
the market data demonstrate that this is incorrect. Refiners recover the cost of the RIN through the sales of their
petroleum fuel and the RIN is used to discount the price of blended fuel.
207 We do not present the data here because the petitioner has claimed it contains CBI.
208 See Letter from RaceTrac to Administrator McCarthy, August 17, 2016, Docket Item No. EPA-HQ-OAR-2016-
0544-0014; Letter from QuikTrip to Administrator McCarthy, August 17, 2016, Docket Item No. EPA-HQ-OAR-
2016-0544-0013; Presentation from Murphy USA to EPA, August 16, 2016, Docket Item No. EPA-HQ-OAR-2016-
0544-0028.
209 81 FR 83776 (November 22, 2016) and 82 FR 56779 (November 30, 2017).
210 Murphy USA Inc. FQ1 2021 Earnings Call Transcripts (April 29, 2021).
211 Petitioners' claims of "RIN theft" and windfall profits from RIN sales by Murphy USA and other blenders are
further addressed in Section IV.D.2.a.
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are exactly what one would expect to see if blenders are passing through 100% of the RIN price
as a discount to wholesale purchasers in the price of blended fuel.212
Several petitioning small refineries also provided EPA with examples of contracts for
fuel sales.213 While there were some differences among these contracts, they generally showed
that the sales price for blended E10 was discounted by the value of the RIN associated with the
ethanol blended into the fuel blend. Many of the pricing formulas shown in these contracts
looked very similar to Equation 4, with some referencing petroleum fuel and/or ethanol prices in
nearby markets and including transportation costs. In some cases, the contracts stipulated that the
purchase price would be the lower of the calculated price based on the prices of the petroleum
fuel and the net price of ethanol (thus passing through 100% of the RIN price to wholesale
purchasers) or the posted price of E10 at the local terminal, whichever was lower. These
contracts provide yet more evidence that the price of the RIN is reflected in the sales price for
blended fuel, and further that the passthrough of the RIN price to wholesale purchasers is not
limited to any particular market in the United States.
3. EPA Responses to Small Refinery Arguments for Exemption
The petitioning small refineries raise many similar arguments in their petitions and in
supplemental information they submitted to support receiving an exemption from their RFS
obligations. Because these arguments are repeated by most, if not all, SRE petitioners, EPA is
addressing them in this section at a level of generality needed to maintain the claims of CBI
asserted by the small refineries in their respective petitions. The refineries generally argue eight
overarching themes in their petitions and supplemental information. However, EPA recognizes
that this list is not comprehensive. After reviewing the comments submitted in response to the
Proposed Denial, EPA found that the small refineries repeated many of the same arguments that
they had raised in the SRE petitions that were addressed in the Proposed Denial. To the extent
that EPA addressed or responded to these assertions in the Proposed Denial, EPA has not
responded to them again in Appendix B. EPA addresses the unique arguments raised by the
small refineries in their comments on the Proposed Denial in Appendix B and in confidential,
refinery-specific appendices to this action.
The general themes small refineries have articulated are: (a) They face unique challenges
that prevent them from achieving RIN cost passthrough and that EPA must consider their
specific circumstances; (b) EPA's Point of Obligation denial did not address their situations and
does not apply to them; (c) The Point of Obligation denial is out of date and inapplicable; (d) The
revenue from RIN sales allows large retailers to undercut small refineries; (e) Large integrated
refiners set prices in fuels markets, undercutting small refineries on price because of their market
position and because large integrated refiners have lower or no RIN costs; (f) EPA is incorrect
about parity between the cost of obtaining a RIN through blending and the cost of buying a RIN
on the market; (g) Single site refineries are disadvantaged relative to large integrated refiners
because they only have access to a limited market; and (h) Small refineries that produce
212 See supra, Section IV.D.2.b.
213 We do not present the contract data here because the petitioners have claimed it contains CBI.
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primarily diesel fuel are at a disadvantage since they cannot blend as much renewable fuel into
their product as can refineries that produce gasoline.
EPA evaluates and responds to each of these general themes below.
a. Small refineries face unique challenges that prevent them from passing through
their RIN costs. EPA must consider each small refinery's specific situation.
Small refineries assert that "EPA must do more than cite to the Burkholder Report's
conclusion 'that the refining industry as a whole is not burdened by rising RIN prices because
refineries may pass that cost to purchasers of the blended fuel.' Ergon-W. Va., Inc. v. EPA, 896
F.3d 600, 613 (4th Cir. 2018) (emphasis added)."214 The small refineries further assert that EPA
has, in the past, ignored information specific to individual refineries that demonstrates that they
cannot pass through the prices they pay for RINs due to unique operational or local market
circumstances.
The small refineries misstate the holding from EWV-I and completely ignore the
subsequent decision in EWV-II. The court in EWV-I held that EPA had acted arbitrarily and
capriciously when it "failed to squarely address Ergon's petition with regards to RIN costs"215
and instead relied on the Burkholder memo "as the sole basis for its conclusion."216 (emphasis
added). The court found that EPA was not arbitrary and capricious in relying on the Burkholder
memo as one of many factors considered in the decision, but rather, that it failed to adequately
illustrate how the analysis in that study applied to the circumstances at a particular small refinery
(Ergon-West Virginia). On remand, EPA reached the same conclusion as in its first decision and
this action was also challenged by Ergon before the Fourth Circuit. The court, in EWV-II,
reviewed EPA's post-remand denial, which again relied heavily on the Burkholder memo, and
found that "EPA's post-remand discussion of Ergon's evidence connected the dots left
unaddressed in its original decision[,]" because "EPA thoroughly discussed Ergon's purported
evidence of hardship, explained why it rejected Ergon's arguments, and set out other factors that
led it to reach an opposite conclusion."217 Accordingly, in this final action, EPA has evaluated
the question of RIN costs in depth for the petitions at issue, starting with an evaluation of the
underlying structure of the RFS program and RIN system to ascertain whether and how it might
be possible for compliance with the RFS program to cause DEH. EPA then conducted a careful
analysis of how the cost and value of RINs would be expected to flow through to wholesale
purchasers, and analyzed a substantial amount of data, including available local market-specific
data, that show how the findings in the Burkholder memo regarding the refining industry as a
whole are true for all obligated parties, including small refineries in general and individual small
refineries whose SRE petitions are before the Agency in particular.218 However, due to the
confidential nature of much of the information included in SRE petitions, we are presenting
overall findings here and are presenting our responses to any refinery-specific data in
confidential, refinery-specific appendices to this action. We have reviewed the information in the
SRE petitions and the suppmental information provided by small refineries in their comments,
214 Confidential submissions by several small refineries made this assertion.
215 EWV-I, 896 F3d at 613.
216 EWV-II, 980 F.3d at 417, rev'd on other grounds.
211 Id.
218 See supra, Section IV.D.2.
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and nothing presented in them leads us to conclude that the small refineries are affected by RFS
compliance differently than other obligated parties or that they are not able to pass along RFS
compliance costs to wholesale purchasers.
The small refineries also state in their SRE petitions and in comments submitted on the
Proposed Denial that there are many diverse factors that affect each refinery's profitability and
ability to recover the full cost of fuel production, including their RFS compliance costs. The
small refineries cite to the 2011 DOE Study to support their assertion, quoting the following
language:
The degree to which the costs burdening small refineries will be passed through to the
market depends on many factors, including the market power and the relative cost level of a
small refiner relative to other market participants.... The cost for small refiners to comply with
the RFS2 requirements can be substantial.... Their limited product slates coupled with an
inability to blend renewable fuels means that many of the small refiners must enter the market to
buy RINs. The cost to meet their individual RVO makes this aspect the most significant cost of
compliance.219
As explained in Section IV.D.2 and acknowledged by DOE, the 2011 DOE Study did not
evaluate empirical evidence pertaining to RIN cost passthrough. Furthermore, DOE has
concluded that, if EPA's assertion that the cost of compliance is the same whether refineries buy
RINs or blend biofuels to acquire RINs is correct, and EPA's assertion that RFS compliance
costs are passed through in the price of refined products is also correct, small refineries would
not face a "high[er] cost of compliance relative to the industry average.220
The small refineries fail to acknowledge the fact that they may not be profitable or able to
pass through the full cost of their fuel production despite their RIN costs being passed through. It
is important to reiterate that independent market analyses, as well as EPA's own, support the
premise that RIN costs are incorporated into the price of finished fuels.221 This is to say that even
without RFS compliance costs, these small refineries may not be profitable. This kind of
economic hardship is not caused by the RFS program, but rather, by the refinery's business
model, geographic location, business decisions, and/or other factors independent of the RFS
program. The CAA only speaks in terms of DEH caused by compliance with the RFS program.
Congress tied SREs to compliance with the RFS program by using the language "compliance
with the requirements of paragraph (2) would impose a [DEH]"222 and "would be subject to a
[DEH] if required to comply with paragraph (2),"223 The CAA does not authorize or require EPA
to subsidize through compliance exemptions any refinery whose economic hardship is not caused
by compliance with the RFS program no matter the seriousness of the economic conditions the
219 2011 DOE Study at 22-23.
220 See DOE Consultation Memo.
221 See supra, Section IV.D.
222 CAA section 21 l(o)(9)(A)(ii)(I), paragraph (2) refers to the section where Congress provided the annual
applicable renewable volume mandates.
223 CAA section 21 l(o)(9)(A)(ii)(II).
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refinery may face, particularly since the magnitude of the RIN cost per gallon in comparison to
typical refinery margins could turn the least profitable refineries into the most profitable ones.224
Additionally, the DOE language the small refineries quote comes from the "[o]ther
observations from the interview process,"225 which DOE "compiled through interviews with
several industry participants, including two refineries, three importers, a fuel marketer, and a
corn ethanol marketer."226 This section does not state DOE's own conclusions, but rather
summarizes what DOE heard from the stakeholders it reached out to in 2011. This language
cannot be treated as DOE's findings, but rather, DOE's statement of the input it solicited and
considered. Moreover, even is this were a conclusion DOE made, it was based on an analysis
that did not account for RIN cost passthrough.
EPA believes the conclusions in the Burkholder memo are applicable to all gasoline and
diesel fuel markets nationwide, and, therefore, also applicable to all refineries, including small
refineries.227 Nevertheless, some petitioning small refineries have provided refinery-specific
information in comments submitted under claims of confidentiality, attempting to explain why
the conclusions in the Burkholder memo do not apply to them. EPA has analyzed the
supplemental information and found no evidence supporting the assertions from the petitioning
small refineries that their RFS compliance costs are disproportionately greater than for other
refineries or that they are not able to pass along their RFS compliance costs to wholesale
purchasers.228 In fact, the data petitioners provided to EPA reflected the price behavior for both
RINs and finished fuels that EPA would have expected based on economic principles.229 EPA
responds to these comments in Appendix B and in confidential, refinery-specific appendices to
this action. Additionally, other stakeholders with interest and expertise in RIN market behavior
and RFS compliance have provided support for and approved of EPA's analysis and conclusions
regarding RIN cost passthrough.230
b. The small refineries' situations are distinguishable from the findings provided in the
Point of Obligation denial, and the Point of Obligation denial did not address small
refineries.
Petitioners claim that EPA's assessment of RIN cost passthrough in the Point of
Obligation denial covered three categories of parties: integrated refiners, non-obligated fuel
blenders, and merchant refiners. The petitioners note that small refineries as a group do not fit
224 See supra, Section IV.D.2.b. See also infra, Section IV.D.3.e.
225 2011 DOE Study at 22.
226 Id. at 21.
227 See supra, Section IV.D.2.
228 See supra, Section IV.D.2.
229 See supra, Section IV.D.2.
230 See supra, Section IV.D.2. See also Letter from RaceTrac to Administrator McCarthy, August 17, 2016, Docket
Item No. EPA-HQ-OAR-2016-0544-0014; Letter from QuikTrip to Administrator McCarthy, August 17, 2016,
Docket Item No. EPA-HQ-OAR-2016-0544-0013; Presentation from Murphy USA to EPA, August 16, 2016,
Docket Item No. EPA-HQ-OAR-2016-0544-0028. See also comments from API on 2020 RFS Annual Rule, Docket
Item No. EPA-HQ-OAR-2019-0136-0721. See also comments from Chevron, API, BP, Shell, and Citgo on EPA's
Proposed Denial, available in the docket for this action (EPA-HQ-OAR-2021-0566-0029 (Chevron), EPA-HQ-
OAR-2021-0566-0031 (API), EPA-HQ-OAR-2021-0566-0033 (BP), EPA-HQ-OAR-2021-0566-0036 (Shell), EPA-
HQ-OAR-2021-0566-0042 (Citgo)).
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neatly within any of these categories. They further claim that EPA's conclusions about merchant
refiners' ability to recover their RIN costs were based on representations from Valero, which
they note is a large, international refiner with efficiency, geographic range, and pricing power.
The petitioners state that while these types of merchant refiners may be able to recover the cost
of purchased RINs, small refineries without these characteristics cannot.
EPA recognizes that few, if any, small refineries (or any refineries) fit neatly into a single
category of integrated refiner, non-obligated blender, and merchant refiner.231 Rather, we explain
that refiners, whether large or small, may operate as an integrated refiner, non-obligated blender,
and/or a merchant refiner in various fuels markets and in different aspects of their business
operations. EPA demonstrates that because both the RIN cost and the RIN discount are
ultimately passed through to wholesale purchasers for all three categories, the RFS program does
not advantage or disadvantage any of these parties over the others, regardless of how much of
their operations fall into one or more of these categories. Importantly, a small refinery's ability to
recover its RIN costs in the price of the fuel it produces does not depend on factors such as
geographic range or pricing power.232 Instead, the data and analysis EPA presents demonstrate
that the market prices for both refined products and blended fuel reflect the cost of acquiring the
RINs necessary to satisfy the RFS obligation associated with the fuel. Merchant refiners do not
need to exercise market power and demand a price that is higher than the market price to recover
their RIN costs; all parties selling into these competitive markets are recovering the cost of
acquiring RINs when they sell their fuel at the market price. Thus, although size and market
power can be an advantage for reasons other than RFS compliance, they provide no advantage to
non-small refineries in recovering their RFS compliance costs.
c. EPA's assessment in the 2017 Point of Obligation Denial is out of date and not
applicable.
Many petitioners state that EPA could not rely on the conclusions of the assessment
conducted in 2017 in the context of the Point of Obligation denial to evaluate their recent
petitions. The petitioners state that the information considered in 2017 is now out of date and
does not reflect the present realities of the fuels market.
We believe that the analyses conducted in 2017 continue to inform our understanding of
the ways in which the RFS program affects small refineries and other fuels market participants.
The fact that the data reviewed in 2017 were consistent with what would be expected based on
the design of the RFS program with its RIN system and economic principles is strong evidence
that it is highly unlikely that the RFS program will cause DEH, and is strong evidence that the
conclusions in that action remain true today. Our finding in that decision that the fuels market
operates as we would expect in a competitive market remains relevant. As long as the fuels and
RIN markets remain competitive, we do not anticipate that the RFS program will cause DEH on
small refineries.
Nevertheless, in this decision, we have considered more recent data since 2017—
including the additional data the small refinery petitioners themselves submitted in their SRE
231 See supra, Section IV.D.2.C.
232 See infra, Section IV.D.3.e.
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petitions and in comments on the Proposed Denial—and we find that the more recent data are
consistent with the data EPA reviewed in 20 1 7.233 These data continue to support our finding
that both the RIN cost and the RIN discount are passed through to wholesale purchasers and
continue to show that the RIN market works in the same way for all market participants,
including individual small refineries.
d. Revenue from RIN sales allows large retailers to undercut small refineries.
Petitioners claim that EPA had not considered clear evidence that revenue from RIN sales
enabled large retailers such as Murphy USA to undercut the small refineries they compete with
that are unable to sell RINs for a profit. The petitioners argue that large retailers (which are
generally not obligated parties) can sell blended fuel at a lower cost than the cost of the
petroleum fuel and renewable fuel they are composed of because of the revenue they receive by
selling RINs. Small refineries must price their blended fuel at the same price as large retailers to
be competitive, but they do not receive the benefit of revenue from RIN sales.
Contrary to the petitioners' claims, EPA has considered the ability for non-obligated
blenders to sell RINs and to use the RIN sales revenue to discount the price of blended fuel while
remaining profitable.234 We present an illustrative example of how RIN prices affect integrated
refiners (which is the role small refineries are taking in the fuels market when they are blending
the petroleum fuel they produce with renewable fuel) and non-obligated blenders in Section
IV.D.2.C. As shown in Tables IV.D.2.C-2 and 4, neither integrated refiners nor non-obligated
blenders benefit from, or are harmed by, higher RIN prices.
The petitioners' description of blenders using revenue from RIN sales to enable them to
offer lower prices for the blended fuel they sell is consistent with EPA's findings (i.e., the RIN
discount).235 We also recognize that competitive forces require small refineries selling blended
fuel to sell at the market price (which reflects the passthrough of the RIN price as a discount to
wholesale purchasers). In their claims about the advantages that the RFS program provides to
non-obligated blenders, however, the petitioners have not considered the impact of RIN prices on
the market price for fuels.
When small refineries produce and sell blended fuel from the petroleum fuel they
produce, they are acting as integrated refiners for that volume of fuel. Generally speaking,
integrated refiners are not able to sell the RINs associated with the renewable fuel they blend, as
they need these RINs to meet their RFS obligations. But unlike non-obligated blenders,
integrated refiners do not typically purchase petroleum fuel to produce blended fuel; instead,
they are producing the petroleum fuel themselves. This means that for an integrated refiner, the
cost of the petroleum fuel is not the market price for these products (which reflects the marginal
cost of production of the fuels plus the cost of purchasing the RINs needed to satisfy the RFS
obligation associated with the fuel), but rather simply the cost of production for the petroleum
diesel fuel. The lower cost of the petroleum fuel relative to the market price for these products
233 The data, and the conclusions we have drawn from the more recent data, are presented in Section IV.D.2.d. and
our responses to the public comments are provided in Appendix B. Responses to refinery-specific information are
provided in confidential, refinery-specific appendices to this action.
234 See supra, Section IV.D.2.
235 See supra, Section IV.D.2.
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allows the integrated refiner to price its blended fuel competitively with non-obligated blenders
and still maintain a positive margin for producing blended fuel even though they do not realize
revenue from RIN sales.236
Both the economic principles and the data EPA reviewed support our finding that the
RFS program does not advantage non-obligated blenders over integrated refiners. While RIN
sales provide an additional source of revenue for non-obligated blenders, this is offset by the
higher price (which reflects the RIN cost) for the petroleum fuel that the blenders pay to
merchant refiners to produce blended fuel. Integrated refiners, which are producing petroleum
fuel rather than purchasing them at the market price, have access to lower cost petroleum fuel but
do not realize revenue from RIN sales. Thus, while the RFS program impacts these parties in
different ways, neither enjoys an advantage or disadvantage over the other.
e. Large integrated refiners set the prices in fuels markets, undercutting small
refineries on price because of their market position and because the large,
integrated operations have no or lower RIN costs.
Petitioners claim that they compete in markets with large integrated refiners, and that
they have no market pricing power relative to these parties. Petitioners also state that, because
these large integrated refiners have no or lower RIN costs, they are able to undercut small
refineries when they price their product. They further note several other advantages that large
integrated refiners have relative to small refineries, such as a broader range of assets, economies
of scale, and access to more fuels markets (including exports). We address each of these points in
turn.
The market for gasoline and diesel fuel in the United States is extremely competitive.237
EPA's finding that merchant refiners are able to pass through their RIN costs through higher
market prices for the fuel they produce does not depend on merchant refiners having market
pricing power in the markets where they sell fuel. Rather, we find that the market price for fuel
reflects the RIN value, and therefore all parties in all markets that sell fuel recover their RIN
costs when they sell their fuel (RIN cost passthrough).
In Section IV.D.2.C, EPA presented an example of the impact of higher RIN prices on
merchant refiners, integrated refiners, and non-obligated blenders, and discussed the impact on
each of these parties. In short, integrated refiners spend less money to purchase RINs than
merchant refiners; unlike the non-obligated blenders they are competing with in the blended
fuels market (i.e., large fuel retailers without refining or import businesses), they do not benefit
from revenue from RIN sales. Merchant refiners do benefit from the higher market prices for
gasoline and diesel fuel that are the result of higher RIN prices, but they must use this additional
revenue to purchase RINs. Said another way, there is an opportunity cost when these integrated
refiners blend renewable fuel with the petroleum fuel they produce instead of selling it
unblended, as these parties sell blended fuel for a lower price than they could sell the petroleum
236 A further description of the impact of the RFS program on merchant refiners, integrated refiners, and non-
obligated blenders is provided in Section IV.D.2.C.
237 See supra, Section IV.D.2.
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fuel. This opportunity cost is equal to the savings these parties experience from acquiring RINs
by blending renewable fuel rather than purchasing separated RINs.
The many factors mentioned by the petitioners, such as a broader range of assets
(upstream, downstream, etc.), economy of scale, and access to more fuels markets, may in fact
provide a competitive advantage to large integrated refiners. However, the fact that small
refineries have continued to remain in the marketplace and compete with large integrated refiners
is evidence of the fact that small refineries typically have other market advantages, such as
access to local crude supplies and local markets lowering their distribution costs, specialty
products, and niche markets with fewer competitors. None of these market advantages and
disadvantages are the result of the RFS program. Each of these factors offered potential
advantages (and potential liabilities) before the RFS program existed and continue to do so
today. The petitioners have not presented any evidence, nor is EPA aware of any evidence, that
would suggest that the RFS program has exacerbated any of the advantages large integrated
refiners may have over small refineries.238 In other words, the competitiveness of small refineries
in the fuels market, be it favorable or unfavorable, does not change as a result of RFS
compliance obligations.
On the other hand, granting SREs has provided small refineries a unique and significant
competitive advantage. When small refineries are exempted from their RFS obligations, they
continue to sell their petroleum fuel at the market price, which reflects the RIN cost via RIN cost
passthrough. Thus, exempted small refineries recover the cost of the RINs (receive RIN revenue)
through their product sales, but do not have any RIN costs when they are granted an exemption.
The number of small refineries receiving exemptions, the total volume of gasoline and diesel fuel
exempted, the total value of the exemptions, and the value of the exemptions on a per gallon
basis are shown in Table IV.D.3.e-l. This table also shows the average net refining margins (an
indicator of profitability) for the exempted small refineries, for comparison with the value of the
exemptions. The value of the exemptions is typically significant relative to the average net
refining margin. For all exemptions granted from 2013 through 2018, the average value of the
exemptions (6.76 cents per gallon) was approximately 64% of the average net refining margin of
the exempted refineries (10.61 cents per gallon).239 Any exemptions granted in 2022 would
likely be of even greater value since current RIN prices, and therefore the current RIN cost per
gallon of fuel produced, are higher than RIN prices when the exemptions for 2013-2018 were
granted.
238 EPA acknowledges that the Tenth Circuit in Sinclair found that Congress may have understood large integrated
refiners to have certain advantages, and EPA has cited that decision itself in support of its prior approach to SRE
decisions. Sinclair at 989. However, as noted, EPA does not believe that the available evidence supports the
conclusion that small refineries are structurally disadvantaged by the RFS program itself.
239 The 31 remanded 2018 SRE petitions that were initially granted, but are now being denied in this action, are
included in these calculations.
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Table IV.D.3.e-l: Value of SREs (2013-2018)
Volume of
Average Net
Gasoline and
Refining Margin
Number
Diesel Fuel
Total Value of
Value of
for Exempted
Year
of Grants
Issued
Exempted
(billion gallons)
the Exemptions
($ Million)240
Exemptions
(^ per gallon)
Refineries
(^ per gallon)241
2013
8
1.98
118
5.98
-0.65
2014
8
2.30
105
4.57
4.98
2015
7
3.07
171
5.57
12.05
2016
19
7.84
676
8.63
2.11
2017
35
17.05
1,459
8.56
11.76
2018
31
13.42
558
4.16
17.00
Total
108
45.66
3,088
6.76
10.61
f. EPA's conclusion that there is parity between the cost of obtaining a RIN through
blending and the cost of buying a RIN on the market is incorrect. It costs much
more to buy RINs, which many small refineries must do.
Several petitioners note that EPA's analyses are based on the assertion that the cost of
obtaining a RIN through blending and the cost of purchasing a RIN is the same, and that this
assertion is unfounded. To support this claim, the petitioners note that the cost to purchase RINs
increased significantly in recent years, and that the cost to purchase RINs was much greater than
the cost to blend renewable fuel. The petitioners further state that if there was no cost advantage
to blending then there would be no reason for non-obligated parties to continue blending. Rather,
these parties would stop blending if they could not recoup the loss by selling the RINs on the
market.
We are aware that RIN prices increased significantly recently and we extended our
analysis of the impact of RIN prices on the fuels market through the end of 2020 to determine
whether our previous findings on RIN cost passthrough were supported by more recent data.242
We concluded that all the data available to EPA, including data submitted by the petitioners and
data received in comments on the Proposed Denial, continue to support EPA's findings on RIN
cost passthrough. EPA responds to the information received in comments in Appendix B and in
confidential, refinery-specific appendices to this action.
EPA's finding that there is parity between the cost to obtain a RIN through blending and
the price to purchase a RIN is not an unsubstantiated assertion. Rather, it is strongly supported by
both economic principles and fuels market data. As stated previously, the market for blended fuel
240 Based on annual average RIN prices calculated by EPA from OPIS data for D3, D4, D5 and D6 RINs.
241 EPA often grants exemptions in the year(s) following the year for which an exemption is requested. Because of
this time lag, refineries sometimes financially account for the value of their exemption in the following year(s).
Thus, the value of the exemptions for some refineries may be included in the net refining margin for the following
year(s). For example, EPA granted some 2013 exemption in 2014 or lateryears, so the value of some 2013
exemptions may be included in financial statements for 2014 or later.
242 See supra, Section IV.D.2.
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is highly competitive. If the cost of obtaining a RIN by blending renewable fuel was lower than
the market price for a RIN, we would expect to see new blenders enter the market and/or existing
blenders increasing their blending to capitalize on this profit opportunity. This activity would
result in an increase in the supply of RINs for sale until the demand price for a RIN was equal to
the cost of obtaining a RIN through blending. Competitive market situations where the sales
price of a good is appreciably higher than the cost to produce a good are short-lived, as market
participants will increase production to take advantage of this opportunity until the supply price
and demand price are equal.
The market data EPA reviewed support this finding as well.243 The cost to obtain a RIN
by blending renewable fuel is not simply the fixed and operating costs for fuel blending (which
are relatively minor), nor is it simply the price difference between renewable fuel and the
petroleum fuel into which they are blended (e.g., the price difference between ethanol and
gasoline or between biodiesel and diesel fuel). Instead, the cost to a blender to obtain a RIN is
the price difference between the cost of the petroleum fuel (e.g., gasoline or diesel fuel) and the
renewable fuel used to produce blended fuel and the sales price of the blended fuel (e.g., E10 or
B5). The data presented in Section IV.D.2.d demonstrate that the difference between the cost of
the petroleum fuel and the renewable fuel used to produce blended fuel and the sales price of the
blended fuel is equal to the market price for the RINs associated with the blended fuel.244
The finding that there is parity between the cost of obtaining RINs by blending renewable
fuel and purchasing RINs does not mean that RINs do not provide an incentive for the blending
of renewable fuel. While blending renewable fuel does not result in windfall profits for blenders
(since the revenue from RIN sales is passed through to wholesale purchasers in a discount on the
price for blended fuel), RIN revenue lowers the effective cost of renewable fuel, allowing
blenders to offer blended fuel containing renewable fuel at lower prices. The examples presented
in Section IV.D.2.C illustrate this point. In the E10 blending example (Table IV.D.2.C-1), the
price of the gasoline is $1.44 per gallon and the price of ethanol is $1.50 per gallon, which is
higher than the price of the gasoline. However, the RIN discount allows E10 to sell for $1.37 per
gallon, which is lower than the price of the gasoline (line 2-6 from Table IV.D.2.C-2). Similarly,
in the B5 blending example (Table IV.D.2.C-3), the price for ULSD is $1.48 and the price for
biodiesel is $3.66. Here again the RIN revenue, when combined with the federal tax credit,
allows B5 to sell for a lower price ($1.46 from line 4-7 in Table IV.D.2.C-4) than the price of
diesel fuel. Fuel buyers are extremely sensitive to prices. The incentive for blenders to continue
to blend renewable fuel when there is parity between the cost of obtaining a RIN through
blending and the cost to purchase a RIN is not that the revenue from the sale of the RIN
represents a windfall profit, but rather that the RIN discount allows blended fuel to sell at a lower
(competitive) price relative to unblended fuel after passing through the revenue of the RIN sales
to the wholesale purchaser. A fuel blender that declined to offer the cheaper E10, instead selling
only more expensive E0, would quickly find itself at a substantial disadvantage in the highly
competitive gasoline market. The blenders are themselves likely indifferent to offering E10 or
E0, only seeking to offer the mix of fuel products their customers demand based on the price and
value of the fuel blends.
243 See supra, Section IV.D.2.d.
244 See supra, Figures IV.D.2.C-2 and 4.
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g. Single-site refineries only have access to a limited market and are therefore at a
disadvantage relative to large integrated refiners.
Several petitioners claim that because they own a single refinery and have access to
limited markets for their fuels, they are at a disadvantage compared to large integrated refiners.
The petitioners claim that because of their size, they cannot set the market price in such a way as
to recover their RIN costs, nor can they sell their fuel into other markets if their local market
prices are unfavorable.
As previously discussed, a refiner's ability to recover its RIN costs does not depend on
the refiner's ability to set the market price for the fuel it produces.245 Rather, because all parties
have the same cost to acquire RINs, whether they acquire RINs through blending renewable fuel
or by purchasing RINs, the market price for all gasoline and diesel fuel reflects the cost of the
RINs.
We are aware that the economics of refining crude oil to produce transportation fuel
changes over time, and that some fuels markets vary in their profitability relative to other
markets. At times it can be an advantage to be in limited markets, and at other times not.
Refiners with better access to pipelines and other low-cost ways to transport the fuel they
produce are better positioned to react to changes in market dynamics, whether these changes are
positive, negative, short-term, or long-term in nature. These varying circumstances, and any
hardship they might cause to small refineries, are independent of and not caused by compliance
with the RFS program.
We received claims of disadvantage from small refineries in isolated markets where they
were the main supplier of fuel, from small refineries in markets readily accessible to many other
refineries, and from small refineries in every situation in-between. The identical claims from
such a broad diversity of refinery situations demonstrates that a small refinery's market has
nothing to do with potential impacts from the RFS program. As a result of the nationwide RIN
trading program, all refineries have equal access to the RINs they need for compliance with the
RFS program and at the same nationwide price.
h. Refineries that produce primarily diesel fuel are at a disadvantage since they
generally cannot blend as much renewable fuel into their product as can refineries
that produce gasoline.
The claim that small refineries producing a disproportionately high amount of diesel fuel,
relative to the amount of gasoline produced, suffer DEH from the RFS program presumes that
parties that acquire RINs by blending renewable fuel do so at a lower cost than parties that
purchase RINs. These small refineries generally assert that their ability to acquire RINs by
blending biodiesel or renewable diesel is limited relative to their competitors that have the ability
to blend greater quantities of ethanol into the gasoline they produce.
245 See supra, Sections IV.D.2 and IV.D.3.e.
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As previously discussed, all parties have the same cost to acquire RINs, whether they do
so by blending renewable fuel or by purchasing RINs.246 A party's cost of acquiring RINs,
therefore, is unrelated to its ability to blend renewable fuel. Further, it is not necessarily the case
that greater quantities of renewable fuel can be blended into gasoline relative to diesel fuel. With
the exception of very small quantities of higher-level ethanol blends such as El 5 and E85,
blending of ethanol into gasoline is limited to 10% by volume. Conversely, many parties
regularly sell diesel fuel blended with up to 20% biodiesel or renewable diesel.247 Parties
blending 20% biodiesel or renewable diesel into diesel fuel would acquire more RINs than
parties blending 10% ethanol into gasoline, especially after accounting for the higher
equivalence values of biodiesel and renewable diesel.
246 See supra, Sections IV.D.2 and IV.D.3.f.
247 See, e.g., diesel fuel offerings by Pilot Flying J—the largest diesel fuel retailer in the United States—available at
https://pilotflvingi.com/fiiel-prices.
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V. Alternative Compliance Demonstration Approach
In a separate, concurrent action,248 EPA is providing an alternative approach to
demonstrating compliance for the 31 small refineries whose 2018 SRE petitions were originally
granted and are now being denied after remand. As explained in the Compliance Action, there is
a unique confluence of events driving EPA's conclusion that an alternative compliance
demonstaration approach is necessary in order to address RIN market constraints and ensure RFS
program integrity. The Compliance Action is separate and addresses only the compliance
demonstration required subsequent to this final decision to adjudicate the 31 aforementioned
2018 SRE petitions. The Compliance Action does not address any findings of DEH, as those
determinations are made only within this final decision.
248 "April 2022 Alternative RFS Compliance Demonstration Approach for Certain Small Refineries," EPA-420-R-
22-006, April 2022 (hereinafter the "Compliance Action").
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VI. Denial of Petitions and Judicial Review
Section 21 l(o)(9)(B) of the CAA and 40 CFR 80.1441(e)(2) give EPA the authority to
grant an SRE petition only when a small refinery demonstrates it is experiencing DEH caused by
compliance with the RFS program. Based on our detailed evaluation, careful consideration of all
the available information, review of all the additional data and information submitted in
comments on the Proposed Denial, consultation with DOE, and consideration of the DOE study
and other economic factors, EPA finds that none of the 36 pending 2018 SRE petitions have
demonstrated DEH caused by the cost of compliance with the requirements of the RFS program.
The market-based design of the RFS program and the RIN-based compliance system
have equalized the cost of compliance among all market participants, such that no refinery would
face DEH from its RFS obligations.249 We have evaluated an extensive amount of data and
available information and have concluded that the cost of RINs is the same for all obligated
parties, whether the RINs are acquired by blending renewable fuel or by buying them on the
market.250 Hence, small refineries do not face a disproportionate cost of compliance when
compared to other refineries, or to each other. Our analysis further shows that the costs of RFS
compliance (i.e., RINs) are passed through in the prices of refined products. Hence, in recovering
their RIN costs, refineries do not face economic hardship due to compliance with the RFS
program. Finding no disproportionate cost of compliance and no economic hardship due to the
RFS program, we conclude that small refineries do not face DEH. As such, EPA finds that
compliance with the RFS program does not impose DEH on small refineries and, accordingly, is
denying 36 pending SRE petitions in this final action.
Section 307(b)(1) of the CAA governs judicial review of final actions by the EPA. This
section provides, in part, that petitions for review must be filed in the United States Court of
Appeals for the District of Columbia Circuit: (i) when the agency action consists of "nationally
applicable.. .final actions taken by the Administrator," or (ii) when such action is locally or
regionally applicable, but "such action is based on a determination of nationwide scope or effect
and if in taking such action the Administrator finds and publishes that such action is based on
such a determination." For locally or regionally applicable final actions, the CAA reserves to the
EPA complete discretion whether to invoke the exception in (ii) described in the preceding
sentence.
This final action is "nationally applicable" within the meaning of CAA section 307(b)(1).
In the alternative, to the extent a court finds this final action to be locally or regionally
applicable, the Administrator is exercising the complete discretion afforded to him under the
CAA to make and publish a finding that this action is based on a determination of "nationwide
scope or effect" within the meaning of CAA section 307(b)(1).251 This final action denies 36
SRE petitions for exemptions from the RFS program for over 30 small refineries across the
249 See supra, Section II.B.
250 See supra, Section IV.D.2.
251 In deciding whether to invoke the exception by making and publishing a finding that this final action is based on
a determination of nationwide scope or effect, the Administrator has also taken into account a number of policy
considerations, including his judgment balancing the benefit of obtaining the D.C. Circuit's authoritative centralized
review versus allowing development of the issue in other contexts and the best use of Agency resources.
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country and applies to small refineries located within 18 states in 7 of the 10 EPA regions and in
8 different federal judicial circuits.252 This final action is based on EPA's revised interpretation
of the relevant CAA provisions and the RIN discount and RIN cost passthrough principles that
are applicable to all small refineries no matter the location or market in which they operate. For
these reasons, this final action is nationally applicable or, alternatively, the Administrator is
exercising the complete discretion afforded to him by the CAA and hereby finds that this final
action is based on a determination of nationwide scope or effect for purposes of CAA section
307(b)(1) and is hereby publishing that finding in the Federal Register.
Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be
filed in the United States Court of Appeals for the District of Columbia Circuit within 60 days
from the date notice of this final action is published in the Federal Register.
This action is not a rulemaking and is not subject to the various statutory and other
provisions applicable to a rulemaking. This action is immediately effective upon issuance.
252 In the report on the 1977 Amendments that revised section 307(b)(1) of the CAA, Congress noted that the
Administrator's determination that the "nationwide scope or effect" exception applies would be appropriate for any
action that has a scope or effect beyond a single judicial circuit. See H.R. Rep. No. 95-294 at 323, 324, reprinted in
1977 U.S.C.C.A.N. 1402-03.
72
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