HollyFrontier 2015 Annual Report Download - page 26

Table of Content
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Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil and
criminal penalties; the imposition of investigatory, remedial or corrective action obligations or the incurrence of capital
expenditures; the occurrence of delays in the permitting, development or expansion of projects, and the issuance of injunctive
relief limiting or prohibiting certain operations. The following is a description of the principal environmental laws applicable to
our operations.
Clean Air Act - Our operations and many of the products we manufacture are subject to certain requirements of the Federal Clean
Air Act (“CAA”) as well as related state and local laws and regulations. Certain CAA regulatory programs applicable to our
refineries require capital expenditures for the installation of certain air pollution control devices. Additionally, the EPA has the
authority under the CAA to modify the formulation of the refined transportation fuel products we manufacture in order to limit
the emissions associated with their final use. In addition, in October 2015, the EPA lowered the National Ambient Air Quality
Standard (“NAAQS”) for ozone from 75 to 70 parts per billion for both the 8-hour primary and secondary standards. State
implementation of the revised NAAQS could result in stricter permitting requirements, delay or prohibit our ability to obtain such
permits, and result in increased expenditures for pollution control equipment, the costs of which could be significant. Also, in
December 2015, the EPA issued a final rule, effective February 2016, that amends three refinery standards already in effect,
imposing additional or, in some cases, new emission control requirements on subject refineries. The final rule requires, among
other things, benzene monitoring at the refinery fence line and submittal of fence line monitoring data to the EPA on a quarterly
basis; upgraded storage tank controls requirements, including new applicability thresholds; enhanced performance requirements
for flares, continuous monitoring of flares and pressure release devices and analysis and remedy of flare release events; and
compliance with emissions standards for delayed coking units. Refineries have up to three years from the effective date of the
final rule to come into compliance with certain requirements of the rule, such as the performance requirements for flares, while
other aspects of the rule require compliance to be achieved at a sooner date. In February 2016, the EPA proposed to give refineries
an additional 18 months to comply with a small subset of the rules. These new rules, as well as subsequent rulemaking under the
CAA or similar laws, or new agency interpretations of existing laws and regulations, may necessitate additional expenditures in
future years and result in increased costs on our operations.
Fuel Quality Regulation - Also, we are subject to the EPA's Control of Hazardous Air Pollutants from Mobile Sources (“MSAT2”)
regulations that impose reductions in the benzene content of our produced gasoline. Our refineries currently purchase a portion
of their benzene credits to meet these requirements. If economically justified or otherwise determined to be beneficial, we could
implement additional benzene reduction projects to eliminate the need to purchase benzene credits.
The Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007 (“EISA”) prescribe certain percentages of
renewable fuels (e.g., ethanol and biofuels) that, where required, must be blended into our produced gasoline and diesel. The
Renewable Fuel Standard 2 (“RFS2”) regulations, finalized by the EPA in 2010 to implement the EISA, requires that most refiners
blend increasing amounts of biofuels with refined products through 2022. Because the EISA requires specified volumes of biofuels,
if the demand for motor fuels decreases in future years, even higher percentages of biofuels may be required. Alternatively, credits
called Renewable Identification Numbers (“RINs”) can be used instead of physically blending biofuels. The price of RINS has
been subject to extreme volatility over the years and costs to purchase RINs can be significant.
On November 30, 2015, the EPA issued final multi-year volume mandates under the RFS2 for 2014 to 2016. While these volume
mandates are generally lower than the statutory mandates, they represent a slight increase over the volumes initially proposed by
the EPA for this three-year period and such volume mandates could be increased in the future. It is possible we could find ourselves
unable to blend sufficient quantities of ethanol and biodiesel to meet our requirements and would, therefore, have to purchase an
increasing number of RINs. It is not possible at this time to predict with certainty what those volumes or costs may be, but given
the potential increase in volumes and the volatile price of RINs, increases in renewable volume requirements could have an adverse
impact on our results of operations.
Additional changes in fuel standards with respect to sulfur content of gasoline, called Tier 3 standards, to reduce vehicle emissions
were finalized in 2014. These new requirements, other requirements of the CAA, and other presently existing or future
environmental regulations may cause us to make substantial capital expenditures and purchase credits at significant cost to enable
our refineries to produce products that meet applicable requirements.