Beveridge & Diamond
 
Related Practices
Related Practices
Related Industries
Related Industries

EPA Proposes New Voluntary Quality Assurance Program to Verify RIN Validity Under the Renewable Fuel Standard

Beveridge & Diamond, P.C., February 1, 2013

On January 31, 2013, EPA announced a proposal to establish a voluntary quality assurance program for verifying the validity of Renewable Identification Numbers (“RINs”) under the federal Renewable Fuel Standard (“RFS”) program.  Under the proposal, obligated parties who choose to purchase RINs that have been “verified” pursuant to an EPA-approved quality assurance plan (“QAP”) may now be able to assert an affirmative defense against liability under the RFS program if those RINs are later discovered to have been invalidly generated. 

A public hearing on the proposal is scheduled to be held in Washington, D.C. on March 19, 2013.  Public comments must be received no later than 30 days thereafter, or by April 18, 2013.  If you would like to discuss EPA’s new proposal, or if you have any questions about the regulation of renewable fuels more generally, please contact Stephen Richmond at Beveridge & Diamond, PC (srichmond@bdlaw.com or (781) 416-5710) or Alan Sachs, Independent Consultant Attorney to Beveridge & Diamond PC (asachs@bdlaw.com or (410) 230-1345).

Background

The RFS program mandates that EPA set annual benchmarks representing the amount of renewable fuel that must be used by each fuel refiner, blender, or importer (“obligated parties”). In a separate RFS-related proposal also released EPA  on January 31, the Agency has proposed to require an increase in 2013 of more than 1.35 billion gallons of renewable fuel over the amount mandated for 2012, reaching a total of 16.55 billion gallons of renewable fuel that would include 14 million gallons of cellulosic biofuel and 2.75 billion gallons of advanced biofuels. 

Initiated in 2007, the RFS also established a trading market in renewable fuel credits, known as RINs, and includes registration, recordkeeping and reporting requirements for obligated parties as well as all renewable fuel producers.  RINs form the basic “currency” for the RFS program; a RIN must be generated for all renewable fuel produced or imported into the United States, and RINs must be acquired by obligated parties for use in demonstrating compliance with the RFS annual requirements. (For more information about EPA’s administration of the RFS program, please see Beveridge & Diamond, “EPA Issues Final Renewable Fuel Standard Regulations,” available at: http://www.bdlaw.com/assets/attachments/EPA%20Issues%20Final%20RFS%20Regulations.pdf). 

Last year, 30 companies reached settlement agreements with EPA to pay approximately $3.65 million in penalties after they purchased fraudulent RINs.  According to EPA, the fraudulent RIN cases resulted in a reduction in the overall liquidity in the RIN market and made it more difficult for smaller renewable fuel producers to sell their RINs.  Over the past year, both EPA and Congress have been exploring steps that might be implemented to allow obligated parties to assert an affirmative defense to liability associated with the purchase of fraudulent RINs by providing them the option of purchasing RINs with independently certified validity. 

Summary of EPA’s New Proposal

To address these concerns over the purchase and use of invalid RINs, EPA is now proposing to establish a voluntary third party quality assurance program to verify that RINs are validly generated.  If certain conditions are met, parties who purchase, transfer, or use verified RINs will be able to assert an affirmative defense should those RINs be determined invalid.  Establishing the affirmative defense would preclude imposition of civil penalties associated with the transfer or use of the invalid RINs.

Generally, QAPs would be used to verify that the production of renewable fuel at a given facility meets all EPA requirements and that corresponding RINs are validly generated.  While the proposal does not affect the annual volumes of renewable fuel required to be produced or the associated greenhouse gas or energy security benefits of the RFS, it would add a number of new elements to the RFS program, including:

  • Minimum requirements for QAPs, including verification of the type of feedstocks, verification that volumes produced are consistent with the amount of feedstocks processed, and verification that RINs generated are appropriately categorized and match the volumes produced;
  • Qualifications for independent third-party auditors;
  • Requirements for audits of renewable fuel production facilities, including minimum frequency, site visits, review of records, and reporting;
  • Conditions under which a regulated party would have an affirmative defense against liability for civil violations for transferring or using invalid RINs;
  • Identification of the party or parties who are responsible for replacing invalid RINs with valid RINs and the timing of such replacement; and
  • Replacement instruments or other mechanisms that would provide assurance that invalid RINs are replaced with valid RINs

EPA’s proposal includes two options for the verification of RINs through a QAP.  As described by EPA, both options are intended to provide an efficient mechanism for ensuring that RINs are validly generated, and both options would provide the basis for an affirmative defense to liability for transferring or using invalid RINs.  However, the two options would differ in several important respects, including whether invalidly generated RINs may be used for RFS compliance, as well as with respect to which party (the third-party auditor or the obligated party) will be deemed responsible for replacing invalidly generated RINs.

In order to encourage the development and use of QAPs as soon as possible, the proposal would also allow parties to retrospectively verify RINs that are generated in 2013.  Accordingly, EPA has issued a new Interim Enforcement Response Policy (available online at: http://www.epa.gov/enforcement/documents/policies/
erp/secondierp013113.pdf
).  Although the new QAP requirements will not go into effect until EPA reviews public comments and issues a final regulation, the Agency has indicated in this enforcement policy that it does not intend to initiate enforcement actions during the 2013 calendar year against parties who transfer or use invalid 2013 RINs verified by a QAP using the criteria proposed to be adopted by EPA in the pending rule.

Along with the new QAP requirements, EPA is also proposing additional modifications to the exporter provisions of the RFS program, which are intended to ensure that an appropriate number and type of RINs are retired whenever renewable fuel is exported. 

Overview

News

Presentations

Media Contact





Attorney Contacts
Attorney Contacts