By Jarrett Renshaw
NEW YORK (Reuters) - The Trump administration made it easier for oil refineries to get waivers from the nation's biofuel law at least four months before a 2017 court decision it often cites to justify the move to the corn lobby, and the move was motivated by a desire to save the oil industry money, Reuters has learned.
The timing and motivation for the Environmental Protection Agency's policy change, revealed through court documents and an interview with a former top agency official, have not been previously reported. This reinforces the concerns of the corn industry that the decision to expand the waiver program was made at the EPA's discretion.
"EPA repeatedly told Congress its hands were tied and blamed the courts. That appears to have been a lie. EPA also said it was following Department of Energy recommendations. We also know that’s bunk. I’m going to get to the bottom of this," U.S. Senator Chuck Grassley, a Republican from the farm state of Iowa, said in a statement on Thursday.
The waivers, granted to small refineries including those run by oil majors Exxon Mobil, Chevron Corp and billionaire investor Carl Icahn, saved the oil industry hundreds of millions of dollars. The waivers angered the corn lobby which argued they hurt farmers by threatening demand for ethanol.
Whether the EPA's moves have hurt ethanol demand has been a topic of fierce debate.
The U.S. Renewable Fuel Standard requires refiners to blend biofuels like ethanol into their fuel or buy credits generated by those who do, but smaller refineries can be exempted if they prove compliance would cause them financial harm.
Trump's EPA granted 35 such waivers for 2017, up sharply from seven in the final year of the Obama administration.
Court documents filed by a biofuels advocacy group show that the EPA changed the policy before May 4, 2017.
On that date, the EPA told a refining company in a letter that "we are changing our approach" to the waiver program by allowing exemptions to refineries even if their operations "are not significantly impaired" by compliance, according to the documents filed by the Advanced Biofuels Association in a challenge of the expanded waiver program.
That puts the policy shift at least four months ahead of an August 2017 U.S. Court of Appeals ruling that found the agency was using too strict a standard when it denied Utah-based Sinclair Oil an exemption. The EPA subsequently withdrew its defense on a similar court case, and lost a third.
Those cases are often cited by EPA officials and refining industry representatives defending the expanded waiver program.
"The courts have clearly told us we have to follow the law, and that's what we are going to do," EPA administrator Andrew Wheeler said in April media interview when pressed about the expansion.
Mandy Gunasekara, who retired as principal deputy assistant administrator at the EPA’s Office of Air and Radiation this year, said the EPA under then-administrator Scott Pruitt had decided to "reinstate" the small refinery waiver program to help an industry that felt ignored by Obama.
She said Pruitt also believed loosening the standards could help lower the cost of compliance credits, known as RINS, which could help the entire industry as opposed to just smaller refiners.
"Certainly, one of the goals was to put downward pressure on the price of RINs," she told Reuters in an interview.
She said the Sinclair case did not influence the changes to the waiver program. "When I saw the Sinclar decision come down, I saw it as a vindication of our changes," she said.
EPA spokesman Michael Abboud did not respond to questions about whether the agency still believes the small refinery program should be used to help manage RIN prices. He maintained that EPA has been consistent in its justification for the expansion of the waiver program.
“The premise of this story is wrong," he said, adding that the waiver program has "been subject to appropriations language and court opinions prior to and during the Trump Administration."
Expansion of waivers drove down RIN prices to multi-year lows last year. This helped refiners like Valero Energy Corp and PBF Energy Inc that had been purchasing them, along with CVR Energy Inc, owned by Icahn.
Icahn came under federal investigation after CVR was seen shorting the credit market in 2017 while he advocated for financial relief from the biofuel program.
Icahn and other merchant refiners had long complained that their profit margins were being squeezed by the law, which is nearly 15 years old. It was intended to help farmers and reduce U.S. reliance on energy imports.
The waiver provision was intended to temporarily exempt smaller refineries so they could invest in biofuel blending equipment.
(Reporting By Jarrett Renshaw; Editing by David Gregorio)