Small Refinery Exemptions: What Are They?

In general, a small refinery exemption is a measure of protection granted to small refineries to exempt them from complying with the requirements of the Renewable Fuel Standard. Starting with the first Renewable Fuel Standard (RFS1), EPA granted Small Refinery Exemptions (SREs) for those refineries considered “small.” For a refinery to be “small,” the refinery had to exist in 2004, employ no more than 1,500 throughout the entire operation, and have a throughput of no more than 155,000 bpcd[1]. Additionally, a small refinery had to prove that complying with the requirements of RFS1 would be a “disproportionate economic hardship.” During this period of time, EPA construed the “disproportionate economic hardship” element fairly narrowly, meaning that the small refinery applying for the exemption had a pretty high burden to prove. EPA’s narrow interpretation of that requirement attempted to single out and provide protection for small refineries that simply couldn’t meet the financial burden of complying with the requirements of the RFS.

Under the second Renewable Fuel Standard (RFS2), the rules changed a little bit, but the underlying sentiment remained. The refinery applying for the exemption still had to meet the definition of small refinery, however, that refinery needed to be a small refinery for the year 2006 rather than the year 2004. Additionally, under RFS2, for a refinery to be considered “small” that refinery had to: (1) exist in 2006; (2) have less than 1,500 for the entire operation in 2006; and (3) have a throughput of less than 155,000 bpcd in 2006[2]. The refinery was still required to prove a “disproportionate economic hardship.” In this period of time, EPA still maintained a fairly stringent standard with the “disproportionate economic hardship.”

The interpretation of SREs changed under the new Trump Administration. From the very beginning, EPA’s narrow interpretation began to rapidly broaden, with 2016 becoming a landmark year for the number of SREs granted[3]. With the seminal court case of Sinclair v. EPA, EPA’s ability to grant SREs became much easier[4]. Sinclair, a large, nation-wide refinery with a small refinery in Wyoming, applied for an SRE. EPA initially denied the SRE, stating that Sinclair did not meet the “disproportionate economic hardship” requirement. Sinclair challenged EPA’s interpretation of the “disproportionate economic hardship” requirement, arguing that EPA did not have the legal authority to interpret that requirement so narrowly. The 10th Circuit decided that EPA had exceeded its “statutory authority under the Clean Air Act in interpreting the hardship exemption to require a threat to a refinery’s survival on an ongoing operation[5].”

Since this court case, and a few other court cases just like it, EPA has used this legal authority to justify granting numerous SREs. Whether Congressional intent exists for EPA to grant so many SREs with such a broad interpretation remains yet to be determined.


[1] 40 CFR § 80.1141; see also 40 CFR § 80.1142

[2] 40 CFR § 80.1441; see also, 40 CFR § 80.1442

[3] < https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rfs-small-refinery-exemptions>

[4] Sinclair v. EPA, pg. 2, No. 16-9532 (10th Cir., 2017).

[5] Id.