In an attempt to reduce concerns about fraudulent renewable identification numbers (RINs) in its renewable fuels standard (RFS) program, the EPA has issued a final rule establishing a voluntary quality assurance plan (QAP) program.

According to the Agency, the program will assist parties obligated to comply with RFS program requirements by providing a level of assurance that their RINs were validly generated, thereby increasing their liquidity in the marketplace.

The federal RFS program requires that petroleum refiners and importers (obligated parties) acquire specified volumes of renewable fuels.  RINs are assigned by the fuel producer or importer to every batch of renewable fuel produced or imported.  Alternatively, an obligated party may acquire just the RINs without the associated fuel. Validly generated RINs show that a certain volume of qualifying renewable fuel was produced or imported.  Once RINs have been generated, they can be transferred between obligated parties and used to show compliance with their volume obligations.

However, cases of fraudulently generated RINs have led to a reduction in the overall liquidity in the RIN market, and smaller renewable fuel producers in particular have had difficulty selling their RINs.

Cost reduction

According to the EPA, obligated parties may exercise the voluntary QAP to supplement to the buyer-beware liability prescribed under existing regulations. The QAP program provides a means for ensuring that RINs are properly generated through audits of renewable fuel production conducted by independent third parties using QAPs, provides an affirmative defense for the transfer or use of invalid RINs that had been verified under an approved QAP, defines the conditions when RINs must be replaced, and a provides a process for determining who will replace the RINs.

“Making the program voluntary allows the regulated parties to choose whether any costs incurred by participating will be less than the current costs in the marketplace resulting from efforts to verify, acquire, trade, and use RINs and the risk of buying fraudulent RINs associated with such activities,” says the EPA.  “Although we cannot say that the voluntary QAP provisions will reduce the cost of the RFS program, we expect that parties will only choose to use these voluntary provisions if they believe doing so will reduce their risk of purchasing fraudulent RINs and possibly save them money when compared to the oversight actions they are currently implementing.”

Interim period

For an interim period only, which runs from February 21, 2013, through December 31, 2014, the EPA rule authorizes the two QAP options—QAP A and QAP B—that had been proposed.  Beginning January 1, 2015, the program will consist of a single QAP option, with its associated verified RINs referred to as Q-RINs. To this end, the Agency is finalizing the following for the single QAP option:

• Minimum requirements for a QAP, including verification of feedstocks, verification that volumes produced are consistent with amount of feedstocks processed, and verification that RINs 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 could assert an affirmative defense to civil liability for transferring or using an invalid RIN;
• Identification of the party or parties responsible for replacing invalid RINs with valid RINs and the timing of such replacement;  
• A limited exemption for calendar years 2014, 2015, and 2016 that exempts 2 percent of a party’s renewable volume obligation from the replacement requirement if the RINs were used for compliance and were verified through a QAP; and
• Changes to the EPA Moderated Transaction System (EMTS) to accommodate the QAP.

The final rule also includes modifications to the exporter provisions of the RFS program to ensure that an appropriate number and type of RINs are retired whenever renewable fuel is exported.  In addition, the EPA had changed RFS regulations governing the transfer and use of RINs that become invalid downstream of the producer.

Final QAP rule