NEW YORK, July 18 (Reuters) - Biofuel groups urged the U.S. Environmental Protection Agency on Wednesday to either stop granting exemptions from the nation's biofuel laws to smaller oil refineries or to force larger plants to make up the difference.
The comments came during the first public hearing, held in Michigan, on the agency's proposed 2019 biofuel mandates under the U.S. Renewable Fuel Standard (RFS).
The RFS requires oil refiners to blend biofuels into the nation's fuel pool or buy tradable compliance credits from those who do. The EPA can provide exemptions from the law to refineries who process less than 75,000 barrels-per-day of crude oil and who can prove a disproportionate hardship.
Former EPA administrator Scott Pruitt, who resigned earlier this month, oversaw a surge in small refinery waivers. The EPA put out data last week that said it granted 48 such waivers for the years 2016 and 2017, representing some 2.25 billion gallons of biofuels.
Biofuel groups argued that the waivers reduce demand for biofuels like ethanol and create regulatory uncertainty that dampens investment.
"Small refinery exemptions are a cancer to every RFS category," Lucy Norton, managing director at the Iowa Renewable Fuels Association, told the EPA on Wednesday.
LeAnn Johnson, who represents small refineries, said the EPA needs to continue to follow the law and protect smaller plants from the high regulatory costs. She noted that the agency was following a federal court decision that said the EPA was using too strict a test when evaluating hardship applications.
"In the last six months, we have seen ethanol blending remain robust, and in fact slightly up, compared to the same period from last year. This proves there is no 'demand destruction,' which is logical since many of the small refiners receiving exemptions do not blend their own fuel," Johnson said.
Merchant refiners who sell blended fuel but do not have their own operations, like PBF Energy and Valero , have said that the compliance credits, called RINs, have become too volatile and costly. Though many of them do not own plants that qualify under the small refining waivers, they have benefited from a crash in credit prices driven by the rise in exemptions.
Refiners also want to limit speculation in the trading of credits and allow exports of ethanol and other biofuels to qualify under the program.
"EPA needs to control RFS compliance costs so they don't continue to get out of hand. Over the last year, RIN prices have been as high as a dollar and as low as a quarter," Kary Taylor, Vice President of Marketing and Renewable Fuels at HollyFrontier Corporation, told the EPA on Wednesday.
The volatility has nothing to do with the cost of petroleum or biofuel, but reflects a market that is overly sensitive to political uncertainty and market manipulation, Taylor said.
Reporting by Jarrett Renshaw, Editing by Rosalba O'Brien