EPA Restores Viability of RFS Small Refinery Exemption, Signals New Policy Approach Moving Forward

On August 22, 2025, the Environmental Protection Agency (“EPA”) announced decisions on 175 small refinery exemption (“SRE”) petitions stretching back over the last four years.¹ EPA’s scorecard reads that 63 petitions were granted full exemptions, 77 received partial (i.e., 50 percent) exemptions, 28 were denied, and 7 were found ineligible. EPA also clarified its framework for evaluating disproportionate economic hardship and charted a path for implementing future exemptions. EPA announced that it would issue relief to SRE recipients in the form of a return of the Renewable Identification Number credits (“RINs”) that were covered by the exemption. Crucially, this relief will not restore the viability of covered RINs which have since expired, meaning that some successful petitioners that retired RINs during now-exempt compliance years functionally received no value from the exemption.

Section 211(o)(9)(B) of the Clean Air Act (“CAA”) authorizes the EPA to exempt small refineries from compliance obligations under the Renewable Fuel Standard (“RFS”) if compliance would cause “disproportionate economic hardship.” Small refineries are defined as refineries with an average aggregate daily crude oil throughput of no more than 75,000 barrels.² In evaluating petitions for SREs, the EPA is instructed to consult the Department of Energy’s (“DOE”) Small Refinery Study along with “other economic factors.”³ The 2011 DOE Study provides a methodology in which refineries are evaluated based on quantifiable “disproportionate impacts” of RFS compliance and whether such compliance threatens the “viability” of the refinery’s business.

The EPA’s announcement signaled a significant departure in policy from the Biden administration’s denial of all SRE petitions, a decision which had received serious blowback from the courts. Under the second Trump administration, the agency will be returning to its use of the two-part “scoring matrix” methodology from the 2011 DOE Study as a “reasonable proxy” for evaluating disproportionate economic hardship. The announcement states that EPA is recognizing a “rebuttable presumption that application of the DOE matrix produces the correct finding,” in a move to potentially shore up future decisions on petitions in the face of a court challenge. Additionally, EPA announced an intention to assess “all available information,” including “refinery-specific information,” and weigh whether this information compels the agency to depart from the recommendation of the DOE methodology. In its assessment of pending petitions, however, the case-by-case analysis did not ultimately lead EPA to draw a different decision from the DOE matrix on any petition.

Relatedly, EPA signaled that it would resume granting partial waivers, exempting refineries from 50 percent of their compliance obligations if the evidence shows disproportionate impacts or a threat to economic viability, but not both. EPA offered an extensive justification of its decision to grant partial waivers, including support from legislative history, the structure of the CAA, and the agency’s prudential considerations.

EPA’s new policy will also incorporate new case law, acknowledging the grant of exclusive venue for SRE petition appeals to the D.C. Circuit due to their nationwide scope.⁴ The agency also addressed the litigation and developments surrounding the RIN cost “pass-through” theory, acknowledging that refineries are “generally” able to pass RIN costs along to customers and recover their compliance costs, but that this cost recovery is, to some degree, incomplete for some obligated parties. EPA has determined that the DOE evaluation matrix adequately considers the ability for small refineries to recover their compliance costs in its assessment of on-site blending capability. The agency added that to accurately evaluate a refiner’s ability to pass its RIN costs onto the customer would require a burdensome, granular analysis involving daily regional market data.

EPA also provided further guidance on its plan for implementing exemptions for refineries that have already demonstrated RFS compliance. EPA plans to return RINs of the vintage according to the compliance years for which the refinery received an exemption — even in situations where such RINs are now expired and have no functional value. Ironically, this approach means that facilities which acquired RINs to achieve RFS compliance during periods that would eventually be exempted are effectively penalized, while refineries that took no steps to achieve RFS compliance will reap the greatest reward. This outcome highlights the importance of timing for refineries considering an SRE petition moving forward, as companies may need to assess when EPA may rule on an SRE petition in evaluating their plans for addressing their compliance obligations during the period while a petition is pending.

In summary, the EPA’s SRE petition decisions have reset the landscape for RFS compliance, once again presenting small refineries with an alternative strategy regarding their RFS obligations. As the EPA clears its backlog and establishes a more transparent approach to SRE petitions, small refineries and other stakeholders should evaluate whether this compliance strategy makes sense for their business. Vinson & Elkins can help clients assess their options in this new landscape.

¹ 90 Fed. Reg. 41829 (Aug. 27, 2025); Env’t Prot. Agency, August 2025 Decisions on Petitions for RFS Small Refinery Exemptions, EPA-420-R-25-010 (Aug. 2025).

² CAA § 211(o)(1)(K).

³ U.S. Dept. of Energy, Off. of Pol’y & Int’l Affs., Small Refinery Exemption Study, An Investigation into Disproportionate Economic Hardship, March 2011 (“2011 DOE Study”).

⁴ EPA v. Calumet Shreveport Refin., LLC, 145 S. Ct. 1735 (2025).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.