Ethanol Blog

STREATOR, Ill. (DTN) -- The Environmental Protection Agency formally announced last week it is developing a rulemaking proposal to be completed by the end of the year that would provide validity assurance for all Renewable Identification Numbers.

Fraudulent biodiesel RINs have been uncovered by the EPA which has caused uncertainty in the biodiesel RIN and fuel market since the fall of 2011, resulting in a lower-RIN-priced market for smaller biodiesel producers.

RINs are generated by renewable fuel producers to represent volumes that meet the requirements for renewable fuel under the Renewable Fuel Standard -- the program mandating renewable fuels are blended into petroleum-based fuels, and administered by the EPA. For example, this year obligated parties, refineries, blenders and importers are required to show they have blended 1 billion gallons of biomass-based diesel into petroleum diesel as part of the total 15.2 billion gallons of renewable fuel blending requirement for 2012.

"However, only RINs that were validly generated by the renewable fuel produces may be transferred or used for compliance purposes," EPA said. The solution, EPA said, is a rule to verify RINs as they are generated.

"The proposal the agency is developing includes a quality assurance program that could be used to verify that RINs have been validly generated," EPA said. The proposal would provide a "recognized means" for independent third parties to audit the production of renewable fuel and the generation of RINs.

The quality assurance plans or QAPs will be developed and implemented by third parties based on the EPA regulations.

At the beginning of 2013, EPA said it is "providing an early draft of the types of QAP requirements that have been under consideration," as EPA develops its Notice of Proposed Rulemaking.

The bill is in response to the biodiesel market uncertainty caused by RIN fraud cases. In November 2011, biodiesel RIN fraud cases were publicized and thus far the EPA has uncovered 140 million fraudulent biodiesel RINs in the marketplace sold in 2010 and 2011 from four producers.

Up to now, the EPA operated under a "buyer beware" policy. In two of four cases identified so far, obligated parties were required this April to pay penalties ranging from a few thousand dollars to a maximum of $350,000. Plus those obligated parties were required to purchase replacement biodiesel RINs. One of those two cases resulted in a criminal conviction this year, and the second criminal trial is pending.

Four Congressmen introduced a bill Sept. 20, H.R. 6444, to require the EPA to police and authenticate RINs, requiring that the EPA provide an "affirmative defense" to obligated parties should they purchase invalid RINs.

Before the bill was drafted, Congressman Gene Green, one of the sponsors of H.R. 6444, wrote a letter in August to the EPA asking the agency to eliminate the fraud problem.

The EPA responded to Green two days later that the EPA is drafting a rule to, in part, create the "affirmative defense" for parties who find they are holding invalid or fraudulent RINs.

"After months of discussion with the administration, EPA's release of a draft RIN verification plan could be a step in the right direction," said Bob Greco, American Petroleum Institute downstream director in a statement to Telvent DTN.

"However, EPA needs to address the issue of RIN validity and restore confidence in the RIN market quickly," Greco added.

Myke Feinman can be reached at myke.feinman@telventdtn.com