EPA Issues Final Rule - Protection for Downstream Blenders and Obligated
New final EPA
rules were released on July 2, 2014 which provide
protection for downstream RIN owners, with a significant
focus on protecting Obligated Parties. Obligated Parties
consist of refiners, importers and fuel reformulators that
are required to meet the Renewable Fuel Standard mandates
on renewable fuel usage each year. Obligated Parties may
achieve mandate levels via wet gallon purchases and/or
through the purchasing of Renewable Fuel Identification
Numbers (RINs).
RINAlliance represents almost 200 blenders, nationwide,
that track RIN activity and RIN marketing events through
the RINAlliance system of record and sell RINs to
Obligated Parties. RINAlliance provides its clients with
EPA required quarterly reporting, attestations and RIN
aggregating/marketing RINs via annual contracts with
Obligated Parties. The RINAlliance program manages 1.5
billion RINs annually with a focus on RFS compliance and
maximizing profits for its Blenders.
The new rules
also included new requirements for fuel Exporters, shifted
some compliance burdens to blenders, and stayed relatively
silent on new RIN separation requirements. EPA also stated
that they are NOT currently finalizing rules which would
require suppliers to disclose biodiesel content of 5% or
less.
These final rules directly impact petroleum
marketers/blenders that are currently accepting RINs on
neat gallons of renewable fuels.
Quality
Assurance Program
First and foremost, the new
rules provide protection against intentional and
unintentional fraudulent and invalid RINs. The final
Quality Assurance Program (Plan) is a voluntary compliance
tool that renewable fuel producers may adopt to show
downstream parties (clients) that RINs have been verified
by a third party engineering firm currently registered
with the EPA under the RFS rules. Final rules state that,
if a RIN is generated under a QAP and is later found to be
invalid, downstream parties cannot be issued a violation
for owning the invalid RIN. Violations under 40CFR Part 80
are as high as $37,500 per occurrence plus any economic
gain from the sale of the RIN.
Interim QAP rules covering
February 21, 2013 through December 31, 2014 have been
finalized and any downstream party that accepted RINs
under these interim QAP protocols (approximately 60
facilities proactively adopted QAP A or QAP B plans) are
also privy to the same affirmative defense against
violations as is found in rules moving forward. Beginning
January 1, 2015, however, there will be only one QAP
(Q-RIN). This QAP will not create a system which will
replace RINs for the Blender or Obligated Party, however,
the new rules include provisions that allow the RIN
generator to replace invalid RINs found in the system.
Numerous administrative steps are, of course, required for
any party replacing RINs, claiming an affirmative defense,
requesting a corrective action, or designating a
Potentially Invalid RIN (PIR).
In the event of a
PIR, the QAP provider must notify the EPA and the RIN
generator within five (5) business days. The QAP program
may prove to create added value on the Q-RINs, creating a
new tier pricing structure.
Improper RIN
Separation
Historically, improper RIN
separation invalidated a RIN. If an Obligated Party used
that invalid RIN, then that was an act of non-compliance
and the Obligated Party would be subject to EPA penalties.
The new rules push the improper RIN separation squarely on
to the party that improperly separated the RIN and this is
now a prohibitive act under the RFS. If the Obligated
Party purchases the invalid RIN, unknowingly of the
improper separation, then the Obligated Party may still
use the RIN to meet it’s renewable fuel volume obligation.
This new rule is effectively shifting more onuses on to
the blender.
RIN Separation Documentation
Draft rules suggested that Blenders would be required to
begin documenting RIN separation events. To do so would
require tracking of all refined and renewable fuel
inventory as well as accurate percent blending with
renewable fuels. EPA chose to “not yet finalize” these
rules during this final adoption.
Transparency of Renewable Fuel Content
Draft
rules suggested that all blended renewable fuel should be
designated and tracked via product transfer documents.
Included was 5% and less biodiesel blends which are
currently viewed as regular diesel meeting ASTM D975. This
particular rule becomes important to downstream blenders
that may be blending biodiesel (B100) gallons on top of
product that may or may not already have biodiesel in the
mix. The fact that product is sold and sold again, would
suggest that multiple parties could be adding 5% to the
volume each time and the cumulative blend may become much
higher than 5% without industry knowing. This rule was
originally proposed to help distinguish renewable fuel
content being exported out of the U.S. During this final
rule, EPA has decided to “not yet finalize” this
provision.
Exporter RIN Retirement
Renewable fuel Exporters (blended and unblended renewable
fuel) must retire an equivalent number of RINs that match
total gallons exported. Historically, the Exporter was
required to separate and retire RINs by the end of the
compliance year and possibly later. In order to prevent
Exporters from separating and selling RINs, and possibly
going out of business before the RINs are retired, new
rules require the Exporter to retire RINs within 30 days
of export. EPA did not, however, create a viable means to
designate blended diesel (especially B5 or less) prior to
Export. Rather, the new rules strongly suggest that
Exporters work with Producers on creating wet gallons
without RINs. If RINs were never generated and attached to
the exported wet gallons, then the Exporter has no
responsibility to retire RINs against an export
obligation. This provision should give the RIN market a
more accurate representation of actual RINs available in
the U.S.
New Cellulosic Pathway – Biogas
to CNG
A secondary portion of the rules
finalized this week include EPA’s opening of the
cellulosic pathway to include models which include biogas
(eg landfill gas capture systems) to compressed natural
gas to transportation fuel. Prior to the final rule, the
biogas-to-transportation fuel created an Advanced D5 RIN.
Final rules allow for these RINs to now be designated as a
cellulosic D3/D7 RIN. RINAlliance is currently working
with industry groups under this growing business model. |
GOT QUESTIONS? CONTACT PMAA Partner Jeff Hove, RINAlliance
1-866-433-7467 or
Jeff@PMCofIowa.com
|
