federal Renewable Fuel Standard (RFS) was established in the Energy Policy Act
of 2005 (EPAct) and significantly expanded in the Energy Independence and
Security Act of 2007 (EISA). The RFS requires the use of renewable
biofuels in transportation fuel. For 2012, the RFS requires the use of
15.2 billion gallons of renewable fuel. Within the larger mandate, there are
submandates (“carve-outs”) for advanced biofuels, including at least 1
billion gallons of biomassbased diesel fuel (BBD) in 2012. By 2022, the
RFS requires the use of 36 billion gallons of renewable fuels, including
21 billion gallons of advanced biofuels.
The RFS is a market-based compliance system in which obligated parties
(generally refiners and/or terminal operators) must submit credits to
cover their obligations. These credits – Renewable Identification Numbers,
or RINs – are effectively commodities that can be bought or sold like other
commodities. For each gallon of renewable fuel in the RFS program, one RIN is generated.
Each RIN is a 38-digit number, with blocks of digits corresponding to various
data, including the year the RIN was generated, the producer of the fuel,
and the type of fuel. RINs are valid for use in the year they are
generated and the following year.
From the beginning of the RFS program, there have been concerns with RIN
generation and the RIN market. As the RINs are essentially numbers in a
computerized account, there have been errors and opportunities for fraud.
Because of concerns over transposed digits, invalid characters, allegations
of double-counting (intentional or unintentional) and other errors and
inaccuracies, when EPA finalized rules for the RFS as expanded by EISA
(the “RFS2”), EPA also established a new in-house trading system in an
effort to address these concerns. All RIN transactions must be cleared
through this in-house system, called the EPA Moderated Transaction System
(EMTS). From the beginning of the RFS2 EPA has maintained that all due
diligence remains the duty of obligated parties. Under this “buyer beware”
system those purchasing or receiving RINs must certify their validity on
their own, and they are responsible for any fraudulent RINs they pass on to
other buyers or submit to EPA for compliance.
In late 2011 and early 2012, EPA issued Notices of Violations (NOVs) to three
companies that the agency alleges fraudulently generated a combined 140
million biodiesel RINs in 2010 and 2011. Because of these RIN fraud cases,
EPA is looking at establishing a system whereby RINs can be certified by
third parties registered with EPA. (EPA may be considering other options but
this is the only one the agency has publicly discussed.) EPA is
considering whether such certification would provide obligated parties
with an “affirmative defense” if RINs are later found to fraudulent –
i.e., obligated parties would not be liable for penalties under the Clean Air
Act for the use of such RINs. Key questions include whether such an
affirmative defense would also eliminate the requirement to purchase
make-up RINs. EPA expects to issue a proposed rule in late 2012 or early
2013, with a final rule some time in mid-2013.
In addition to agency action, at least one bill has been introduced that would
amend the compliance system. H.R. 6444 would require EPA to establish a
RIN certification system and would preclude the agency from later
invalidating any certified RINs. Thus, under the bill, any RIN found
subsequently to be fraudulent would still count toward an obligated party’s compliance,
Date of Report: November 16, 2012
Number of Pages: 19 Order Number: R42824 Price: $29.95
For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card
number, expiration date, and name on the card. Indicate whether you want e-mail
or postal delivery. Phone orders are preferred and receive priority processing.