## The Secretary of Energy Washington, D

.C . 20585 February 25, 2009 The Honorable Lisa P

. Jackson Administrator Environmental Protection Agency Washington, D.C. 20004 Dear Administrator Jackson: 7!1i^ t~ ~ ? c. .~C7 ~IFl11 J ffl~ I1' 1 4~

Section 211(o)(9)(A)(ii) ofthe Clean Air Act, as revised by the Energy Policy Act of 2005 (EPACT 2005), requires that the Department of Energy (DOE) conduct a study for the Administrator ofthe Environmental Protection Agency (EPA) assessing whether the renewable fuel standard (RFS) would impose a disproportionate economic hardship on small refineries, defined as those facilities with capacities under 75,000 barrels per calendar day. Small refineries encompass a diverse range of businesses . Some will be able to generate credits through blending renewable fuels into their products; others may choose to purchase such credits fromparties that over comply with the standards. There appears to be no shortage of credits available under the current RFS; the market appears to be liquid and competitive. While the Energy Independence and Security Act of 2007 (EISA) increased the volume and added additional categories of renewable fuel, there is no basis at this time to believe that the character of markets for credits will fundamentally change. While credit prices may increase, DOE has no reason to believe that a competitive market would disproportionately disadvantage participants who purchase credits rather than generate themthrough blending renewable fuels into their products. Therefore, DOE believes that the exemption for small refineries should not be extended at this time. Should markets change; small refineries maintain the right under EPACT 2005 to petition EPAfor individual extensions ofthe exemption. Please find enclosed our study presenting DOE'S findings and explaining why DOE does not believe that the extending the exemption for small refineries beyond 2010 is warranted at this time. Should you have any questions, please call Ms. Carmen Difiglio at (202-586-8436) . Sincerely,

Enclosure Steven Chu

Printed with soy ink on recycled paper

# EPACT 2005 Section 1501

Small Refineries Exemption Study

Office of Policy and International Affairs U .S. Department of Energy January 2009

### Small Refinery Exemption Study

Table of Contents Executive Summary . . . . . . . . ... . .. . .. .. . ... . .. . .. . . . . . .. . . . .. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . .. . .. . .. . . . . . .. . . . . . . .. . .. . . . . . 1 Introduction .. . .. . .. . . . . . . . . . . . . . . . . .. . . .. . . . . .. . . . .. . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .. . .. . . . . . . . . . . . .. .. .. . .. . . . .. .. .. . . . . . . 2 The Small Refinery Exemption. . . .. . .. . . . . . . . .. . . . . . .. . . . . . . . . . . .. . . . . .. . .. . .. . . . . . . . .. . .. . . .. . . .. . .. . .. . .. . .. . . . . . . . . 3 Extending the Small Refinery Exemption . .. . ... . . . .. . ... ... . . . ... ... . .. . . . .. . .. . .. . .. . . . . . . . . . . . . . . . . . . . ., . .. . 4 The Impact of EISA 2007 on the DOE study... . . . ... ... . .. . . . . . . .. . .. . . . . ... ... ... .. . . . . . . . . . . .. . . . . .. . ... . . . 5 Compliance Options under the RFS1 and RFS2 Programs. . . . . .. . .. . .. .. . . . . . . .. . ... .. . . . . ... . . .. . . 6 Reviewof the Current Market .. . . . ... .. .. .. . .. . .. . . . . .. . . .. . . . . . . . . . . . . .. . . . . . . . . .. . . . . . . ... ... .. .. . . ... ... . . . . . . 7 Future RFS Compliance Costs. . . .. . .. . . . . .. . . . . .. . .. . . . . .. . .. . . . . . . . .. . . . . . . . . . . .. . .. . . . . . . . .. . .. . . .. .. . . . ... . .. . .. . . . 8 Characteristics of Small Refineries . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . .. . .. . . . . . . . 9 Case Studies Of Refineries Affected By EISA. . . . . . . . . . .. . .. . . . . .. . .. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 11 Marathon Refining St . Paul Park Minnesota . . . . . . . .. . .. . .. . .. . .. . . . . . . . .. . .. . .. . . . . . . . . . . . . . . . . . . . . . . . 11 Country-Mark Cooperative, Mt. Vernon, Indiana. . . . ... .. . . . . . . . .. . .. . .. . .. . . . . . . . . . . . . . . . . . . . .. . . 11 The American Refining Company Bradford, Pennsylvania . .. . .. . ... .. . . . . . . . . . . .. . . . . . . . .. . . 12 Record-keeping Requirements. . . . . . . . .. . .. . . . . .. . ... .. .. . . ... .. . . . . . . . . . . . . . .. . .. . . .. . .. . .. . . . . . . .. . .. . .. . . . . .. . .. . . 12 Discussion of Results.. . .. . . . . .. . .. . . . . . . . .. . ... .. . . . . .. .. . . .. . . . . . . . .. . . . . . . . .. . . . . . . . . . .. . .. . .. . . .. . .. . .. . .. . . . . .. . .. . .. . . 13 Conclusion. .. . .. . .. . .. . . . . . . . . . . . . . . .. .. . . . . . .. . . .. . . . .. . . .. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. . .. . . . . ... . . . .. . . 13 Appendix A

. List of Small Refineries . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . .. . . . . .. . .. . . . . . 15 Table of Figures Figure 1 . RFS I and RFS 2Volume Requirements 2006-2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 2 . Average Monthly RIN Prices May - November 2008. . . . . . .. . .. . . . . . . . . . . . . . . . . . . . . . . ... 7 Figure 3 Monthly Trade Count in the RINSTAR®System . . . . . . ... .. . ... ... . . . . . . . . . . . . . . . . . . ... ... 8 Figure 4 . Annual Energy Outlook 2009Compliance Cost Projections. . . . . . .. . ... . . . .. . .... . . 9Executive Summarv

The Energy Policy Act of 2005 (EPAct 2005) established a Renewable Fuel Standard (RFS) under Section 211(o) of the Clean Air Act (CAA), requiring the incorporation of renewable fuel, such as ethanol, in the transportation fuel mix. EPAct 2005 also exempted certain small refineries fromcompliance with the RFS through 2010 . Under Section 211(o)(9)(A)(ii) of the CAA, DOE is required to determine ifcompliance with the RFS would impose a "disproportionate economic hardship" on small refineries, and convey to the Environmental Protection Agency (EPA) by December 31, 2008, whether the exemption should be extended past 2010 . Under certain scenarios small refineries using the exemption may realize significant economic benefits if they are not required to participate in the RFS program, either by the blending of renewable fuels or the selling of products that have lower production costs than their competitors. Such a scenario could encourage inefficient capital investments in the refinery industry. This study does not assess the potential for disproportionate economic advantages in extending the exemption for small refineries, nor would this be a basis for rejecting the extension ofthe exemption under Section 211(o)(9)(A)(ii) . Obligated parties, such as refineries, may fulfill their renewable fuel requirements through either blending renewable fuels into their products or purchasing credits from other parties who have exceeded their allocation of renewable fuel consumption. Thus, even if a refinery is limited through geography or lack of capital in its ability to generate credits by blending renewable fuels into its products, it may purchase credits fromother parties. As long as credits are available for purchase and the market is competitive, small refineries should not be subject to disproportionate economic hardship fromtheir choice to purchase credits rather than to generate them . Should market conditions change such that small refineries face disproportionate economic hardship, they may still petition the EPAfor an extension oftheir exemption past the statutory date of December 31, 2010.This study examines the current market for credits and projections for their future

price and availability. At the present time, credits are available at a nominal value and compliance volumes have been in excess of the RFS requirements. Under these conditions, it does not appear that small refineries would be subject to disproportionate hardship by the RFS mandate if they are required to participate in the program

. Additionally, the RFS legislation contains flexibility provisions that allowEPA to reduce the RFS volumetric requirements and issue Renewable Identification Numbers (RINs) to ensure that limits do not exceed industry's ability to supply renewable fuels or that implementation ofthe requirements would severely harmthe economy or environment. Therefore, DOE concludes that the RIN market is likely to be competitive and that small refineries will not face disproportionate economic harmby their participation in the RFS program . Introduction Section 1501 of the Energy Policy Act of 2005 (EPAct 2005) amended Section 211 of the Clean Air Act (CAA) by adding Section 211(o), which required the Environmental Protection Agency (EPA) to promulgate regulations implementing a renewable fuels program . EPAct 2005 specified that the regulations must ensure that a specified volume of renewable fuel be used in gasoline sold in the U .S. each year, with the total volume increasing over time. The goals of the programinclude reducing the Nation's dependence on foreign sources of petroleum, increasing domestic sources ofenergy, and assisting in the transition to alternative fuels frompetroleumin the transportation sector. The final Renewable Fuel Standard (RFS) programrule was published on May 1, 2007, and the programbegan on September 1, 20071 . The Renewable Fuel Standard, as specified by the 2007 Final Rule, will be referenced as RFS1 in this document . RFS1 created a specific annual level for minimumrenewable fuel use that increases 1 During 2006 a Renewable Fuel Standard was established usingthe default compliance criteria as specified by EPAct 2005. 2over time -resulting in a requirement that 7.5 billion gallons of renewable fuel be

blended into gasoline (for highway use only) by 2012. Under the RFS1 program, compliance is based on obligated parties meeting their annual Renewable Volume Obligation (RVO) (published annually in the Federal Register by EPA) . Obligated parties include refiners, blenders and importers ofgasoline. The RVOis expressed as a percentage oftotal non-renewable gasoline sold by the obligated party in the specified calendar year. Compliance is demonstrated through the use of Renewable Identification Numbers, or RINs, a 38-digit serial number assigned to each batch of renewable fuel produced. For obligated parties (those who must meet the annual volume percent standard), RINs must be acquired either by blending renewable fuel into gasoline or diesel to showcompliance or by acquisition of RINs fromother parties that have exceeded their RVO . The Small Refinery Exemption Section 211(o)(9)(A)(i) ofthe CAAexempts small refineries fromthe RFSI requirements until the 2011 compliance period. Small refineries are defined under Section 211(o)(9)(A)(ii) ofthe CAAas refineries with average annual crude input below 75,000 barrels per day. Appendix Acontains a list of candidate small refineries that meet the exemption criteria using the Energy Information Administration's (EIA) operable refinery capacity data fromformEI-810, the Monthly Refinery Report. This list is merely illustrative, as additional refineries may meet the exemption criteria if their annual operations are significantly lower than their reported operable capacity. In preparation for the RFS1 rulemaking, EPA convened a Small Business Impact (SUBREFA) panel to examine the impact ofthe RFS1 on small businesses. Subsequent to the discussions ofthe SUBREFA panel, EPA chose to exempt small refiners, defined as refiners producing gasoline fromcrude oil with fewer than 1,500 employees and less than 155,000 barrels per day crude processing capability, as well as small refineries as defined above, fromthe RFS1 mandate through 2010 . Some small refineries belong to large integrated energy companies which do not meet thecriteria for small refiners, while some small refiners have refineries over 100,000

barrels per day capacity which would not qualify for the small refinery exemption. EPA has tentatively concluded that it does not have the authority to extend the duration ofthe exemption period for small refiners as defined under the RFS1 rulemaking2. The statute permits the extension ofthe exemption period for small refineries as defined in Section 211(o)(9)(A)(ii) ofthe CAA beyond its current expiration date of 2010 . This report only evaluates the class of small refineries as directed under Section 211(o)(9)(A)(ii) ofthe CAA . Extendinp- the Small Refinery Exemp tion Congress specifically addressed the potential for an extension of the small refinery exemption in EPAct 2005. Under section 211(o)(9)(A)(ii) of the CAA, the Secretary of Energy is required to conduct a study for the EPAAdministrator to determine whether compliance with the RFS1 would impose a disproportionate economic hardship on small refineries, defined as those facilities with capacities under 75,000 barrels per calendar day. Ifthe study found that a disproportionate economic hardship would occur, EPA is obligated to extend the RFS1 exemption for at least two additional years. In addition, refineries still maintained the right to petition EPA for individual exemption fromthe program . Under certain scenarios, small refineries using the exemption might gain significant economic benefits through blending renewable fuels or selling products that have lower production costs than their competitors if they are not required to participate in the RFS program

. Such a scenario could encourage inefficient capital investments in the refinery industry. This Study does not assess the potential for disproportionate economic advantages in extending the exemption for small refineries, nor would this be a basis for rejecting the extension ofthe exemption under Section 211 (o)(9)(A)(ii) ofthe CAA

.

`' "Final Report of the Small Business Advocacy ReviewPanel on EPA's Planned Proposed Rule Regulation of Fuels and Fuel Additives; Renewable Fuel Standard Program", September 5, 2008. 4The Impact of EISA 2007 on the DOE study

While the underlying programstructure is not expected to change, EISA revised and extended the RFS1 fuels volumes required under EPAct 2005. The revised program, referred to as RFS2, requires 36 billion gallons of renewable fuel by the year 2022 to be introduced into the transportation fuel mix and allows the renewable fuel to be blended into both gasoline and diesel fuel . Obligated parties will also include refiners, blenders and importers of both gasoline and diesel fuel . Unlike the RFS1 program (which only required compliance with one total renewable fuel standard until 2012, and added compliance with a cellulosic biomass standard thereafter), obligated parties must comply with the four "nested" standards. Total renewable fuel, advanced biofuel, cellulosic biofuel, and biomass-based diesel must reach the 36 billion gallon requirement by 2022. Of the 36 billion gallons of total renewable fuels mandated by EISA, 21 billion gallons must be advanced biofuel ; ofthe 21 billion gallons of advanced biofuel required, 16 billion gallons must be cellulosic biofuel and 1 billion gallons must be biomass-based diesel . Figure 1 shows the volume requirements of RFS1 (red line labeled "Old RFS") compared to the volume requirements of RFS2 for the different types of renewable fuels (bar chart), as defined by EISA, from2006 through 2022. The provisions of EISA 2007 will expand requirements on obligated parties. Since there are four types of renewable fuels, obligated parties must obtain and demonstrate compliance with four different mandates using RINs. Second, the universe of obligated parties has been broadened to include both gasoline and diesel producers. Finally, the volumes required by the new mandate are substantially higher than those required in EPAct 2005, stretching the limits ofdomestic capability to produce and incorporate biofuels in the transportation fuel mix.40 35 30 c 0 25 CD 20 0 m 15 10 5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 "Biodiesel 0 0 0 0 .5 0.65 0

.8 1 1 1 1 1 1 1 1 1 1 1 M Any Advanced 0 0 0 0 .1 0 .2 0.3 0

.5 075 1 1 .5 2 2 .5 3 35 3 5 3 5 4 Cellulosic Advanced 0 .1 0 .25 05 1 1 75 3 425 5 5 7 8 5 105 13.5 16 My Renewable Fuels 4 4 7 9 105 12 12.5 13 .2 13.8 14.4 15 15 15 15 15 15 15 15

- Old R

FS 4 4 .7 5 .4 6 1 6

.8 7 4 7.5 7 6 7.7 7,8 7 9 8 1 8 .2 8 3 8.4 85 86 Figure 1 . RFS 1 and RFS 2 Volume Requirements 2006-2022 Compliance Options under the RFS1 andRFS2 Programs The Renewable Fuel Standard programs (RFS1 and RFS2) include inherent flexibility since compliance is based on a nationwide trading program, without any per gallon requirements and without any requirement that the refiner or importer produce the renewable fuel . By purchasing RINs fromother programparticipants that have chosen to over-comply, obligated parties will be able to fulfill their renewable fuel obligation without having to make capital investments that may otherwise be necessary in order to blend renewable fuels into gasoline or diesel fuel . In a competitive market, RINs will be freely traded between parties at the marginal cost of production. In this case, the decision to blend as opposed to purchase credits should not disadvantage small refineries relative to other obligated parties. Based on the performance ofthe current market and forecasts of future market trends, we believe that sufficient RINs will be available at a price not disproportionately above the cost of production. Therefore, refiners without blending capability should pay no more than the marginal cost of production; that is, the cost ofthe most expensive RIN produced by blending. In this case, the absence of physical capability to blend does 6not impose a disproportionate economic hardship on small refineries as compared to

other obligated parties. Reviewof the Current Market The current market is generally over-supplied with RINs. This condition can be seen by examining the traded price of RINs shown in Figure 2. Over the period May - November, 2008, RINprices averaged less than $0.05 per gallon. Such a nominal price suggests that the transaction costs of transferring RINs constitute the majority of the value ofthe RIN

. This implies that the market views blending ethanol as economic, even without the incentive of selling the generated RIN .

May June July Aug Sept Oct Nov Month Figure 2. Average Monthly RIN Prices May - November 2008

Source: Oil Price Information Service (OPIS) While there is no central exchange for trading RINs, various private parties facilitate the exchange of RINs. One such private party is Clean Fuels Clearinghouse, which runs the RINSTAR© Renewable Fuel Registry. As the Renewable VolumeObligation (RVO) increases, more obligated parties are expected to purchase RINs

than generate their own. As more parties become aware of the RFS2 requirements, increased trading will result . Figure 3 shows the monthly trade count fromthe Renewable Fuel Registry starting fromthe program's inception in 2007. The actual number of RIN-gallons (that is the RINs associated with a gallon of renewable fuel) is far greater than the trade count, as a single trade may entail the transfer of RINs for a batch of renewable fuel . Since the Clean Fuels Clearinghouse is a private party, it only has data on its subscribing members, which is a subset ofthe market. The Registry does not attempt price discovery at this time, but merely facilitates the trading among parties and reports transfers to EPA . 

### Monthly Trade Count

Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Figure 3 Monthly Trade Count in the RINSTAR8 SYstem Future RFSCompliance Costs Figure 4 shows a projection ofthe compliance cost per gallon of product, extracted fromthe National Energy Modeling System(NEMS) modeling run used to create the Energy Information Administration's Early Release of the Annual Energy Outlook 2009 (AEO2009) for the period 2009 through 2022. The projected cost represents theweighted average cost of meeting the four compliance categories in dollars per gallon

ofgasoline or diesel fuel, the products covered by the program . EIA projects implementation ofthe RFS2 programshould have a minimal impact on product prices through 2013 of less than $.01 per gallon of product. Even after 2013, the EIA projections show

only two years in which the RFS2 programraises product prices more than $.03 per gallon. Since the credit systemwill be used to transfer compliance costs to consumers, these costs may be used as a proxy to project the value ofcredits. DOE interprets EIA's projections to indicate that credits should be available and that credit prices will not be excessive.



### RFS2 Compliance Cost per Gallon Product W05 , $0.04 -

~ $0.03 - 0 c 0 A a $0.02- $0.01 - $0.00 I2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Year Figure 4 . Annual Energy Outlook 2009 Compliance Cost Projections Characteristics ofSmall Refineries Small refineries comprise a very heterogeneous set oforganizations. Some small refineries are part of large integrated corporations with both upstreamand downstreamactivities. Others, while owning only a few or even one small refinery, are large enterprises with other lines of business. Finally, some companies have asingle small refinery providing the vast majority ofthe value ofthe enterprise. While

any particular small refinery may have geographic or other capital limitations, since the obligated party is the entire company, small refineries have options available to meet their RVOother than by blending in the mandated volumes of renewable fuels. They may allow

other parts ofthe company to over-comply, or they may purchase RINs fromother obligated parties. Table 1 lists a sample of small refineries that DOE has identified that are also owned by small companies, as defined in EPA's SUBREFA process. These refineries would be expected to have the most difficulty complying with the standard by developing facilities to blend renewable fuels into their products. The table shows the company name, location, and size ofthe refinery. Using EIA Form815 data, DOE has identified those refineries that are close to terminals that currently blend ethanol . Since EIA does not track the commercial arrangements of refineries, this is a proxy of whether the refinery may actually use such a terminal to generate credits. Table 1 includes all ofthe refiners fromthe Ad Hoc RFS1 Small Refiner SUBREFA Coalition with the exception of Placid Oil . Placid has recently expanded its operable distillation capacity to 80,000 barrels per day, which may make it ineligible for the small refinery exemption if annual crude oil throughput is below75,000 barrels per day. Table 1 . Select Small Refineries Com p any Name Site State Operable capacity ( 13131.,S/day) Blending

Ca pabili ty AGE REFINING INC SAN ANTONIO Texas 13000 AMERICAN REFINING GROUP BRADFORD Pennsylvania 10000 INC COUNTRYMARK MOUNT Indiana 23000 Y COOPERATIVE INC VERNON FORELAND REFINING CORP EAGLE SPRINGS Nevada 2000 GOODWAY REFINING LLC ATMORE Alabama 4100 KERN OIL & REFININGCO BAKERSFIELD California 26000 Y SAN JOAQUIN REFININGCO BAKERSFIELD California 15000 Y INC SILVER EAGLE REFINING EVANSTON Wyoming 3000 SILVER EAGLE REFINING WOODS CROSS Utah 10250 SOMERSET REFINERY INC SOMERSET Kentucky 5500 US OIL & REFINING CO TACOMA Washington 37850 Y WYNNEWOOD REFININGCO WYNNEWOOD Oklahoma 54000 Y Source: EIA-810and EIA-815 

### 10Case Studies of Refineries Affected By EISA EPAct 2005 defined an exemption for small refineries, not refiners. As illustrated in the examples described in this section, small refineries are extraordinarily diverse in size, capitalization, and role. We examine three small refineries to illustrate the various challenges small refineries might face in complying with the RFS2. Marathon Refining, St. Paul Park, Minnesota This 70,000 barrels per day refinery produces motor gasoline, diesel, and other products . It is part of the Marathon Oil Company, a large integrated energy company which is engaged in exploration and production of oil and oil sands, and refining, transporting, and marketing petroleum products. The refinery is located near numerous sources of ethanol in a state that has a statutory 10-percent-ethanolblending requirement for gasoline. Marathon has over one million barrels per day refining capacity company-wide and had revenues ofover $65 billion in 2007. The company has the ability to blend 1 .2 billion gallons of ethanol annually, and has invested in ethanol production facilities. Therefore, the Marathon St . Paul refinery has many options to comply with its RVO . It may generate RINs through blending, or allow some other portion ofthe company to over-comply. Country-Mark Cooperative, Mt . Vernon, Indiana Country-Mark Cooperative is owned by a number of farmcooperatives. It runs a 26,500 barrels per day refinery in Mt . Vernon, Indiana. The cooperative primarily sells diesel (both on-road and off-road) and gasoline, with profits accruing to the owning cooperatives. Country-Mark owns its own pipeline and four terminals. They already blend both biodiesel and E10 . Therefore, the company has the capability of generating RINs or purchasing them .The American Refining Company Bradford, Pennsylvania

The American Refining Company owns a single refinery in Bradford, Pennsylvania. It processes approximately 10,000 barrels per day of primarily locally-produced Pennsylvania crude, producing diesel and gasoline. The company has no terminals or blending facilities, and no terminals are nearby. Therefore, this company is an example of a refinery at which it would be commercially infeasible to install blending facilities and where RINs would likely be purchased fromother parties. Record-keenina Recruirements Registration, recordkeeping, and reporting are necessary to track compliance with the RFS2 program

. Since the RFS2 programcontains multiple mandates, compliance will require multiple types of RINs, and will necessarily be more complex. The compliance requirements under the RFS2 program will likely be similar to those required under the RFS1 program . Programregistration for the RFS 1 programuses the same basic forms that EPA uses under the reformulated gasoline (RFG) and the Mobile Source Air Toxics (MSAT) anti-dumping programs, as these forms are well known in the regulated community and are simple to fill out. Reporting under the RFS1 programcurrently uses a simplified method of reporting via EPA's Central Data Exchange (CDX), and records related to RIN transactions may be kept in any format . The period of record retention by reporting parties is five years, similar to other EPAfuel programs. As described previously, commercial services exist to handle record-keeping and assignment of RINs. Therefore, costs may be scalable relative to the size or number of RINs needed. At this time, commercial services can provide record-keeping, transfer, andverification of RINs for a nominal fee, thereby reducing the need for additional staff.Discussion of Results

Small refineries encompass a broad category of businesses. Small refineries may be parts of large integrated petroleumcompanies with numerous refineries, a single or small group of refineries within a large diversified corporation, or a stand-alone organization with a single processing plant . Furthermore, as the actual generation of RINs occurs, the RFS2 programwill have a different impact depending upon the corporate structure. Small refineries without access to blending capability may have to enter the RIN market . For stand-alone small refineries, transaction costs may create a significant burden, although third-party services are already available to ease this burden. For small refineries that are subsidiaries of larger companies, this is less of an issue. Finally, for small refineries that are part of integrated major or supermajor energy companies, RINs may be obtained internally or in the open market, and there is no reason to expect that they would be disproportionately harmed by inclusion as obligated parties in the RFS2 program . Conclusion Small refineries comprise a heterogeneous group offacilities. Some will be able to generate RINs through blending renewable fuels into their products; others may choose to purchase RINs fromrefiners with RINs in excess oftheir RVOs. Currently there appears to be no shortage of RINs available under RFS1 . The RFS2 legislation has provided flexibility to ensure that the RFS2 RVOrequirements will not exceed the renewable fuels industries' capabilities to produce renewable fuels and also provides alternative RINs if the RVOvolumes are not economically viable. Markets are developing for the exchange and tracking of RINs. It is too early to project whether these markets will continue to be liquid and competitive; as long as these markets continue to the liquid and competitive, there is no reason to believe small refineries will be disproportionately harmed by inclusion in the RFS2 program . Therefore, DOE has not determined that any small refinery would be subject to disproportionate economic hardship under the RFS2 programand thus has determined that the exemption should not be extended beyond 2010 . However, should 13circumstances change and the RIN markets become non-competitive or illiquid, individual refineries still have a statutory right to petition EPAfor an extension ofthe small refinery exemption.Appendix A . List of Small Refineries and Operable Capacity in BBLS/da Source: ElA _formE1-810 COMPANY NAME SITE STATE_NAME OPERABLE CAPACITY AGE REFINING INC SAN ANTONIO Texas 13000 ALON USA ENERGY INC BIG SPRING Texas 67000 AMERICAN REFINING GROUP INC BRADFORD Pennsylvania 10000 BIG WEST OF CALIFORNIA BAKERSFIELD California 66000 BIG WEST OIL CO NORTH SALT LAKE : Utah 29400 CALCASIEU REFINING CO LAKE CHARLES Louisiana 78000 CALUMET LUBRICANTS CO LP COTTON VALLEY Louisiana 13020 CALUMET LUBRICANTS CO LP PRINCETON Louisiana 8300 CALUMET SHREVEPORT LLC SHREVEPORT Louisiana 42000 CENEX HARVEST STATES COOP LAUREL Montana 55000 CHEVRON USA INC HONOLULU Hawaii 54000 CHEVRON USA INC SALT LAKE CITY Utah 45000 CITGOASPHALT REFININGCO PAULSBORO New Jersey 32000 CITGOASPHALT REFININGCO SAVANNAH Georgia 28000 CONOCOPHILLIPS COMPANY BILLINGS Montana 58000 CONOCOPHILLIPS COMPANY RODEO Califomia 76000 COUNTRYMARK COOPERATIVE INC MOUNT VERNON Indiana 23000 CROSS OIL REFINING & MARKETING INC SMACKOVER Arkansas 7200 DELEK REFINING LTD TYLER Texas 58000 ERGONREFINING INC VICKSBURG Mississippi 23000 ERGON WEST VIRGINIA INC NEWELL (CONGO) West Virginia 20000 EXXONMOBIL REFINING & SUPPLY CO BILLINGS Montana 60000 FORELAND REFININGCORP EAGLE SPRINGS Nevada 2000 FRONTIER REFINING INC CHEYENNE Wyoming 47000 GIANT INDUSTRIES INC BLOOMFIELD NewMexico 16800 GIANT REFINING CO GALLUP NewMexico 20800 GIANT YORKTOWN REFINING YORKTOWN Virginia 59375 GOODWAY REFINING LLC ATMORE Alabama 4100 GULF ATLANTIC OPERATIONS LLC MOBILE Alabama 16700 HOLLY CORP REFINING & MARKETING WOODS CROSS Utah 24700 HUNT REFINING CO TUSCALOOSA Alabama 34500 HUNT SOUTHLANDREFINING CO SANDERSVILLE Mississippi 11000 KERN OIL & REFININGCO BAKERSFIELD California 26000 LION OIL CO ELDORADO Arkansas 70000 LITTLE AMERICA REFININGCO EVANSVII ..L.E (CASPER) Wyoming 24500 MARATHON PETROLEUM CO LLC CANTON Ohio 73000 MARATHON PETROLEUM CO LLC SAINT PAUL PARK Minnesota 70000 MARATHON PETROLEUM CO LLC TEXAS CITY Texas 72000 MONTANA REFINING CO GREAT FALLS Montana 9500 MURPHY OIL USA INC SUPERIOR Wisconsin 34300 PARAMOUNT PETROLEUMCORPORATION PARAMOUNT California 50000 PLACID REFININGCO PORT ALLEN Louisiana 56000 SANJOAQUIN REFINING CO INC BAKERSFIELD California 15000 SHELL CHEM

LP SAINT ROSE Louisiana 55000 SHELL CHEMYABUCOA INC YABUCOA Puerto Rico 77900 SILVER EAGLE REFINING EVANSTON Wyoming 3000 SILVER EAGLE REFINING WOODS CROSS Utah 10250 SINCLAIR OIL CORP SINCLAIR Wyoming 66000 SINCLAIROIL CORP TULSA Oklahoma 70300 SOMERSET REFINERY INC SOMERSET Kentucky 5500 SUNCOR ENERGY (USA) INC COMMERCE CITY Colorado 62000 SUNCOR ENERGY (USA) INC DENVER Colorado 32000 Tesoro West Coast MANDAN North Dakota 58000 Tesoro West Coast SALT LAKE CITY Utah 58000 VENTURA REFINING & TRANS LLC CUSTER Oklahoma 12000 UNITED REFININGCO WARREN Pennsylvania 65000 US OIL & REFINING CO TACOMA Washington 37850 WYNNEWOOD REFININGCO WYNNEWOOD Oklahoma 54000 WYOMING REFININGCO NEWCASTLE Wyoming 14000 15

## UNITED STATES DEPARTMENT OF ENERGY 1000 INDEPENDENCE AVE SW WASHINGTON, D.C. 20585 OFFICIAL BUSINESS 

# ?z-~

The Honorable Lisa P. Jackson Administrator Environmental Protection Agency Washington, DC 20004

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