US Supreme Court ruling to have limited impact on biofuel waivers

A recent ruling by the United States Supreme Court on biofuels reopens the door to extensions for all who want exemptions to biofuel blend requirements. How will the decision impact biodiesel production?

July 1, 2021

A flood of new waivers from US refiners looking for exemptions to biofuel laws is unlikely despite a landmark decision by the US Supreme Court on Friday June 25 that extensions to exemptions are lawful, biofuel interests contend.

A coalition of biofuel and farm groups highlighted in a June 28 webcast meeting that the Supreme Court’s six-to-three ruling in favor of a petition filed by refiners that goes against a decision by the 10th Circuit Court early last year will leave much of the lower court’s ruling intact.

The lobbies were trying to allay some fears of further demand destruction from the issuance of new waivers in a move that could dent demand for ethanol and biodiesel and hurt domestic demand for their main feedstocks, corn and soybeans.

“While [June 25] was a setback it will not reopen the big barn door on mass granting of small refinery exemptions,” Renewable Fuels Association (RFA) chief executive officer and president Geoff Cooper said.

According to the association, there were two facets of the 10th Circuit Court decision that were left untouched by the Supreme Court after the ruling.

“[The Environmental Protection Agency’s] exemption decisions must reconcile the agency’s consistent findings that all refineries recover the costs of compliance with the Renewable Fuel Standard [RFS],” the RFA said, noting that refiners who purchase the compliance credits recover those costs when they sell their product.

The RFA listed a second reason why the Supreme Court ruling will have limited impact, pointing out that the EPA can only use hardship caused by the RFS itself to justify granting exemptions and not external afflictions such as extreme weather or the pandemic.

“These two facets, or ‘pillars,’ remain firmly in place and the EPA must consider them,” Cooper said during the coalition meeting.

“Irrespective of the outcome of [the Supreme Court ruling], we fully expect that the number of smaller refinery exemptions granted by the EPA moving forward will be greatly constrained by these two pillars,” he said.

According to industry estimates, around 4 billion gallons of renewable fuel-blending requirements were lost under the RFS during Donald Trump’s presidency, when scores of small refiner exemptions (SREs) and waivers were issued.

The Supreme Court decision is likely to have more of a direct impact on biodiesel production than on ethanol, according to Bob Lane, senior analyst at Fastmarkets’ the Jacobsen.

“This is because ethanol will always be blended at a 10% rate regardless of a mandate being in place or not, and because biodiesel will not be blended at any percentage level without incentive, so any lost gallons [of biodiesel] due to SREs will remain lost,” Lane said.

This won’t be the case if the EPA follows its own calculus on biofuel blending requirements that allow the agency to estimate the amount of SREs to be granted each year, Lane said, noting that historically this amount has been left blank and this omission has “created a back door for reducing mandates after they are in place.”

This article, by Alexandra Chapman, was first published to agricensus.com on June 29.