Government report finds issues with EPA decisions on SREs, provides recommendations

The U.S. Government Accountability Office issued a report Nov. 3 on its findings regarding how U.S. EPA handles small-refinery exemptions (SREs) under the Renewable Fuel Standard. GAO provided several recommendations for the agency moving forward.

GAO was asked to review issues related to EPA’s and U.S. DOE’s implementation of the SRE program. The Nov. 3 report examines information, policies, and procedures EPA and DOE use to make decisions about exemptions, and the extent to which exemption decisions are timely.

“GAO analyzed data and documents related to exemptions from 2013 through 2021 and interviewed agency officials and industry stakeholders,” GAO stated.

What GAO found is that EPA does not have assurance that its decisions about SREs are based on valid information. In addition, EPA and DOE do not have policies and procedures specifying how they are to consult about and make exemption decisions.

According to GAO, SRE decisions for compliance years 2019 through 2021 were based on an EPA conclusion that small refineries do not experience disproportionate economic hardship from the RFS.

“This conclusion relies on a potentially flawed assumption—that all parties pay and receive one price for the tradeable credits used to demonstrate compliance with the RFS,” GAO stated. “GAO found that EPA has not analyzed whether this assumption is valid. GAO’s analysis showed that small refineries have paid more on average for compliance credits than large refineries. Without reassessing its conclusion, EPA does not have assurance that its SRE decisions are based on valid information.”

On policies and procedures, GAO found that “EPA has no policies or procedures for how it assesses petitions and makes exemption decisions. Similarly, DOE does not have policies or procedures for how it provides consultation to EPA. Administration of the program has been inconsistent, and the number of exemptions granted and denied has varied from year to year. Consequently, agency decisions appear ad hoc, resulting in market uncertainty. This can harm small refineries and renewable fuel producers by undermining their ability to plan for infrastructure upgrades and renewable fuel demand.”

GAO also found that EPA has routinely missed the 90-day statutory deadline for issuing exemption decisions and does not have procedures to ensure that it meets these deadlines.

“In five of the nine years GAO analyzed, EPA took more than 200 days to issue a decision for more than half of the petitions submitted,” GAO stated. “These late decisions diminish the benefit of exemptions, create market uncertainty, discourage investment, and undermine the design of the RFS more broadly.”

GAO made seven recommendations to the agency, including that EPA reassess its conclusion that all small refineries recover their RFS-compliance costs in the price of the gasoline and diesel they sell, DOE and EPA develop documented policies and procedures for making small refinery exemption decisions, and EPA develop procedures to ensure that it meets deadlines.

DOE agreed with GAO’s recommendations while EPA disagreed with one recommendation, and it partially agreed with others. GAO maintained that the recommendations are valid.

Click here to access the full report.