U.S. Oil Companies Look To Skirt Biofuel Quotas

Continuing a national trend, the United States’ second-largest oil refining company has recently requested a biofuel hardship waiver from the Environmental Protection Agency (EPA). The waiver, if granted, would allow refining giant Marathon Petroleum Corp. to exempt one of its facilities from Obama-era federal biofuel quotas.

This move coincides with a recent campaign by the EPA to expand biofuel waivers, to the delight of the oil industry and the equally strong dismay of the corn lobby, who depend on the biofuel standard for sales of alternative corn-based fuels like ethanol. The Renewable Fuel Standard (RFS) has been a huge boon to farmers, creating a 15 billion gallon a year market for corn-based ethanol. On the other hand, over the past few months the EPA has saved the oil industry hundreds of millions of dollars in regulatory costs by way of similar biofuel hardship waivers.

These waivers are given to small refineries who are able to prove that complying with the RFS, which obligates them to mix biofuels (like ethanol) into their fuel, would result in “disproportionate economic hardship.” While the EPA has always had this authority, they have recently been ramping up their grants of these waivers under new administration and Scott Pruitt’s direction.

Now Ohio-based Marathon is pushing the limits of the waiver requisites by making a waiver request for one of their plants, since it certainly is not a “small” refinery by any stretch of the imagination. In fact, Marathon’s smallest refinery, based in Canton, Ohio, has an output of 93,000 barrels per day, well above the cap that the EPA has defined for “small refineries” at 75,000 barrels per day. While Marathon may be able to find a loophole by running the plant under capacity, or perhaps apply for just a portion of one of its larger facilities, the EPA has not publicly made any decision as to whether the request will be granted.

Marathon’s biofuel waiver request is not the first by a major oil industry player claiming hardship. U.S. supermajors ExxonMobil and Chevron, among the most profitable companies in the world, have also petitioned the EPA for hardship waivers. If granted, these requests by Marathon, ExxonMobil, and Chevron also won’t be the first waivers the EPA has approved for a refinery owned by decidedly not small company. Just a few months ago billionaire Carl Icahn was granted a hardship waiver for his 74,500-bpd Wynnewood, Oklahoma, refinery. The plant is owned by Icahn’s CVR Energy. Though he stepped down in August, Icahn was notably a special advisor to President Trump regulatory reform and other related issues.

Reuters has reported that the EPA has granted dozens of small refinery waivers for 2017 in the past months, according to a source from within the agency. This would mean that the rate at which the EPA is granting waivers under President Donald Trump has tripled as compared to past administrations. This has created a major point of contention between the powerful oil and corn lobbies.

The biofuel industry was already struggling before the recent waiver wave, but they were already pointing to the new administration as the culprit for strikingly low ethanol demand based on previous projections. As a result, many refiners have been shuttering or selling off their biofuel facilities.

In the midst of these industry contentions, there has also been a lot of political pressure on the current administration to slow its approval of biofuel waivers and to stop doting on the oil industry. Most notably, Senator Chuck Grassley of Iowa, one of the nation’s biggest corn producers, has been extremely vocal in his condemnation of the direction the EPA has taken under Pruitt, going so far as to call for his resignation in the flood of biofuel wavers doesn’t stop.

Now, however, the Trump administration seems to be changing its tune in order to appease Big Corn, claiming that in an upcoming biofuels policy overhaul the EPA will be significantly scaling back its hardship waiver grants. After hosting a series of meetings between representatives for the corn and oil refining industries, the White House has said that they are in the final stages of creating new biofuel policies and have indicated that an announcement is impending.

Haley Zaremba  for OilPrice.com