When Congress passed the Renewable Fuel Standard (RFS) in 2005, the intent was clear: balance environmental goals with economic realities by allowing small refineries exemptions (SRE) when compliance costs became too burdensome. The SREs were created so that smaller operations wouldn’t be crushed by mandates designed with giant refineries in mind.
But here’s the twist: The U.S. Environmental Protection Agency (EPA) has proposed reallocating waived RFS volumes from SREs for 2023-2025 into future Renewable Volume Obligations (RVOs) for 2026 and 2027 to maintain renewable fuel demand. This does not actually reduce the overall RVO requirement but instead shifts the burden onto other refineries, forcing them to make up the difference and effectively punishing them for their competitors’ relief.
Senator Mike Lee’s (R-UT) Protect Consumers from Reallocation Costs Act, introduced in September, aims to restore fairness and transparency while keeping costs low for consumers. Lee and four other senators also wrote a letter to EPA Administrator Zeldin last week regarding several of their concerns.
By the EPA’s own calculation, the proposed rule would impose compliance costs of approximately $6.7 billion per year; the American Fuel & Petrochemical Manufacturers estimates the figure is closer to $70 billion. When refineries are hit with extra compliance costs—like transferring forgiven obligations from SREs—they don’t absorb them; they pass them along. That means higher prices at the pump.
Energy costs ripple through every part of the economy. When gas prices rise, so do the costs of food, shipping, travel, and basic goods. Families and businesses will feel the impact. At a time when Americans are already dealing with inflation and economic uncertainty, Washington should not be adding hidden costs to their daily lives.
Energy security would also be undermined. Saddling domestic producers with duplicative mandates discourages investment, weakens competitiveness, and makes the U.S. more reliant on imports.
Nowhere in the Clean Air Act does Congress authorize the EPA to invent new penalties by shifting exemptions. SREs are granted to refineries demonstrating that federal biofuel compliance would cause “disproportionate economic hardship.” Reallocating exempted volumes is rewriting the law.
The letter from the five senators reminds Administrator Zeldin that the Loper Bright Enterprises v. Raimondo decision in 2024 overturned Chevron deference, “completely removing the statutory justification for the proposal.” Agencies can no longer interpret ambiguous laws.
The senators additionally assert the reallocation maneuver is a “handout for the biofuel and agriculture industries at the expense of American refineries and consumers.” Shifting the RVOs into future obligations creates guaranteed and manufactured demand for ethanol and biodiesel fuels, ensuring biofuel producers stay profitable. American households pay through increased prices.
Senator Lee’s legislation aligns with a commonsense principle: exemptions should mean exemptions. Relief for small refineries should not morph into hidden costs for everyone else.
This provision proposal protects Americans from artificially high gas prices by blocking the EPA from forcing refineries to shoulder unfair fines. It also protects jobs in energy-producing states and reinforces Congress’s original intent of the RFS, which is based on balance and not punishment.
Kristen Walker is an energy policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.theamericanconsumer.org or follow us on X @ConsumerPal.