By Michael Phillis

Law360 (April 16, 2020, 5:11 PM EDT) -- The governors of five states have asked the U.S. Environmental Protection Agency to issue a waiver of renewable fuel standard obligations for refineries, arguing that the industry is facing a "severe economic hardship" due in part to lower demand caused by the COVID-19 pandemic.

The governors of Louisiana, Oklahoma, Texas, Utah and Wyoming, states with links to the energy industry, on Wednesday signed on to letters to EPA Administrator Andrew Wheeler asking for a general waiver of renewable fuel standard compliance obligations. In these extraordinary times, the EPA should reduce the burden on industry, they said.

Louisiana Gov. John Bel Edwards, a Democrat who sent his own letter, said the EPA must recognize the changed economic circumstances that throw off its assumptions when it set the renewable volume obligation, which determines the amount of renewable fuels that must be mixed into a refiner's fuel supply or the amount of renewable credits, called renewable identification numbers, they must purchase.

"As our country comes to grips with this national emergency, continuing to implement the current RVO imposes an added obligation that would 'severely' harm the section, and consequently harm the economy of the states and the nation," Edwards' letter said.

The governors said the pandemic has lowered demand for gasoline and other fuels, and that the refining sector will struggle until the economy recovers. The states are asking for a general waiver, a broad request that the Renewable Fuels Association, an ethanol industry group, says the EPA has denied in the past.

The association said that granting the request would be detrimental to the economies of states that produce ethanol and will "kill more jobs across rural America." Renewable fuel standards pit ethanol- and biofuel-producing rural states that want higher standards against areas home to the country's refining capacity that want the standards lowered.

"Apparently toilet paper isn't the only thing in short supply in oil states these days — clearly, these governors are experiencing an acute shortage of facts and reality, too," Geoff Cooper, president and CEO of the Renewable Fuels Association, said in a statement.

He said asking for a general waiver twists the purpose of the program. The states claim that demand reductions are driving their request, but blending requirements drop with demand, he said. And the EPA must look at the cause of the economic harm when it considers whether to grant a waiver, since it can only issue the waiver if the problems are due to the RFS itself, Cooper said. 

Cooper added that there is a supply of "low-cost" RINs that refineries can purchase to comply with the EPA's requirements.

"Today, refiners can purchase two or three RIN credits — each representing a gallon of renewable fuel — for the same price as one physical gallon of ethanol," Cooper's statement said. "COVID-19 is exactly the sort of market disruption that EPA had in mind when it developed the RIN credit trading market mechanism."

The governors' letters said the cost of the RINs were part of the reason a waiver should be granted, arguing that the cost of the credits had tripled recently, threatening the industry.

"The 2020 RFS compliance obligations, in their current form, risk transforming the current severe economic harm to existential harm for some of the refineries in our states," the letter from Texas, Utah, Oklahoma and Wyoming said.

The officials added that while the agency in the past hasn't granted waivers when governors have asked for them based on the "adequacy of documentation," this was an extraordinary situation that called for action.

Rich Moskowitz, general counsel for trade association American Fuel & Petrochemical Manufacturers, told Law360 that reducing the price of RINs was essential as demand for refined products plummets. He said refineries provide good jobs and are a key industry that the coronavirus crisis has put in jeopardy.

"If [a waiver] doesn't address this situation, under what situation would it ever be used?" Moskowitz told Law360.

Sen. John Barrasso, R-Wyo., said he supported the governors' "request to reduce" the mandates. The senator has been critical of some of the EPA's RFS-related actions recently. This month, he condemned EPA's decision not to ask for rehearing of a Tenth Circuit decision to junk exemptions the EPA granted to three refineries that temporarily absolved them from having to blend renewable fuels into their products.

An EPA spokesperson said they were watching the situation and "will make the appropriate determination at the appropriate time."

--Editing by Orlando Lorenzo.

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