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-lawsuit@ (Adds comments, details and background)
March 7 (Reuters) - U.S. environmental regulators quietly changed the way they assess applications from refineries for waivers from the nation's biofuels law, making it possible for highly profitable plants to secure lucrative exemptions, according to court documents filed by a biofuels trade group on Thursday.
The new documents, part of a lawsuit that began last year, could provide the most complete explanation to date of how the Environmental Protection Agency vastly expanded the number of small refinery hardship biofuel waivers under former Administrator Scott Pruitt, including by granting exemptions to oil majors Exxon Mobil and Chevron.
The expansion of the waiver program saved the oil industry hundreds of millions of dollars but angered farmers in the nation's heartland, who said it crushed the credit prices that are an integral part of the ethanol industry.
According to the documents, filed by the Advanced Biofuels Association (ABFA), the EPA in 2017 stopped considering whether compliance with the Renewable Fuel Standard (RFS) would prevent a refinery from making money and being competitive.
Instead, the agency considered primarily whether compliance would cause a "disproportionate" impact on the facility, an easier hurdle to clear.
Under the RFS, refiners must mix biofuels like ethanol with their gasoline and diesel, but smaller refineries can be exempted if they can prove that complying would cause them measurable financial harm.
ABFA, which represents 35 companies responsible for 4.4 billion gallons of renewable fuel production around the globe, is asking a federal judge to rule whether the EPA's expansion of the waiver program was legal, which they argue depresses demand for their biofuel.
The Department of Energy traditionally scored the hardship applications on a two-prong matrix that considered whether the RFS posed a disproportionate hardship, and whether the plant could remain viable if required to comply.
Prior to May 2017, a refinery would have to pass both tests to get an exemption, ABFA alleged, citing EPA correspondence with a refiner it said it had obtained.
"In prior decisions, EPA considered that a small refinery could not show disproportionate economic hardship without showing an effect on viability, but we are changing our approach," the EPA wrote in 2017 to an unnamed refiner, according to an excerpt included in the court filing.
The EPA went on to say that RFS obligations may impose a disproportionate economic hardship when it is disproportionately difficult for a refinery to comply with its RFS obligations even if the refinerys operations are not significantly impaired.
The EPA turned over documents related to 48 applications for waivers to the ABFA as part of the legal discovery process. In 24 cases, the Energy Department gave the applicant a viability score of zero, meaning the RFS would have no impact on the refinery's ability to stay competitive and profitable, but the EPA still granted the waiver, ABFA alleged in the court documents.
The EPA also routinely ignored the department's recommendations to grant partial exemptions and instead granted full exemptions, ABFA alleged in court documents.
An EPA official said the agency had no comment.
The trade group has asked a federal court in Washington to rule on the legality of the expansion of the hardship waivers under Pruitt. The scoring system has faced judicial scrutiny in the past, with judges in different circuits siding with and against the agency.
In an often cited case, the 10th U.S. Circuit Court of Appeals in Denver ruled in 2017 that the EPA had in the past used too strict a definition of viability that required the applicant to prove complying with the RFS would cause the plant to shut or the company to file for bankruptcy.
While the EPA did not announce the changes publicly, the agency clearly sent the message to refiners, ABFA said. Oil majors such as Chevron and Exxon Mobil, who did not apply for waivers in the past, were granted exemptions at their smaller refineries, Reuters previously reported.
Billionaire Carl Icahn, a one-time Trump adviser who helped Pruitt land the job at the EPA, was also granted exemptions at his smaller refineries owned by CVR Energy after previously been denied them by the Obama administration.
In all, the number of exemptions granted went from 7 in 2015 to at least 29 in 2017, EPA data shows.
The EPA is set to decide on 37 additional pending applications for 2018 by the end of the month, a move that will be closely watched by the corn and oil industries. (Reporting by Jarrett Renshaw in New York Editing by Jeffrey Benkoe and Phil Berlowitz)