By Lauren M. Graham, Ph.D.
On May 10, 2017, the U.S. Environmental Protection Agency (EPA) released Renewable Identification Numbers (RIN) generation data for April 2017, reporting that nearly 1.5 billion RINs were generated during the month.
Nearly 17.3 million D3 cellulosic biofuel RINs were generated in April, bringing the total for 2017 to 49.9 million, including 1.3 million D3 RINs generated for ethanol, 17.9 million generated for renewable liquefied natural gas, and 30.7 million generated for renewable compressed natural gas. Of the 49.9 million RINs, 44.7 million were generated by domestic producers, and 5.2 million were generated by importers.
More than 279.6 million D4 biomass-based diesel RINs were generated in April, resulting in a total of 973.3 million for 2017. The majority of RINs, 736.5 million, were generated for biodiesel, with 235.9 million for non-ester renewable diesel, and 937,219 for renewable jet fuel. Nearly 694.9 million RINs were generated by domestic producers, with 168.5 million generated by importers and nearly 109.9 million generated by foreign entities.
For D5 advanced biofuel, 7.0 million RINs were generated in April, which brought the total for 2017 to nearly 22.7 million. Naphtha accounted for the majority of RINs generated, 10.9 million, with 8.1 million generated for ethanol, 890,603 generated for heating oil, and 2.7 million generated for non-ester renewable diesel. In 2017, all D5 advanced biofuel RINs were generated by domestic producers.
Nearly 1.2 billion RINs were generated for D6 renewable fuel in April, resulting in a total of nearly 4.9 billion for 2017. The majority of RINs were generated for ethanol, nearly 4.8 billion, with nearly 84.8 million generated for non-ester renewable diesel. Nearly 4.8 billion RINs were generated by domestic producers, with 3.8 million generated by importers and nearly 84.8 million generated by foreign entities.
The data indicates that no D7 cellulosic RINs have been generated in 2017.
By Kathleen M. Roberts
On May 9, 2017, Senator Elizabeth Warren (D-MA), along with seven additional Democratic Senators, sent a letter to the Securities and Exchange Commission (SEC), the U.S. Environmental Protection Agency (EPA), and the Commodities Futures Trading Commission (CFTC) requesting an investigation into the activities of Carl Icahn for potential insider trading, market manipulation, and other securities and commodities law violations in the renewable fuel credit market. The letter states that the actions of and the massive profit earned by Icahn raise questions related to conflict-of-interest rules that apply to government officials, and questions regarding insider trading and market manipulation of renewable fuel credits, known as Renewable Identification Numbers (RIN) -- which SEC, EPA, and CFTC have jurisdiction over. EPA oversees the issuance and trading of RINs. CFTC works with EPA to ensure integrity in the RIN market since it has broad authority to prevent insider trading and other market manipulation in commodities markets and futures markets. SEC has jurisdiction to investigate whether Icahn’s actions as a senior adviser to President Trump affected CVR Energy's stock value or the accuracy of the company's annual and quarterly financial reporting and disclosure.
The Senators maintained that RIN insider trading and market manipulation hurts all parties, including biofuel producers and refineries, and requested an investigation by the three agencies based on the publically available information detailed in the letter. The Senators also requested information on whether EPA Administrator Scott Pruitt and SEC Chairman Jay Clayton would recuse themselves from the investigation.
EPA released RIN generation data for December 2016, reporting that more than 1.8 billion RINs were generated during the month. More than 16.8 million D3 cellulosic biofuel RINs were generated in December, bringing the total for 2016 to 178 million, including 3.8 million D3 RINs for ethanol, 66.8 million for renewable liquefied natural gas, and 107.5 million for renewable compressed natural gas. Of the 178 million RINs, nearly 160 million were generated by domestic producers, and nearly 19.2 million were generated by importers.
More than 524 million D4 biomass-based diesel RINs were generated in December, resulting in a total of nearly 4.0 billion for 2016. The majority of RINs (3.28 billion) were generated for biodiesel, with 715 million for non-ester renewable diesel. More than 2.85 billion RINs were generated by domestic producers, with 830 million generated by importers.
For D5 advanced biofuel, 6.0 million RINs were generated in December, which brought the total for 2016 to 97 million. Ethanol accounted for the majority of RINs generated, nearly 61.3 million, with nearly 26.3 million generated for naptha, 1.54 million generated for heating oil, and 7.93 million generated for non-ester renewable diesel. Of the 97 million RINs, 62.6 million were generated by domestic producers, 34.4 million were generated by importers, and 312 million were generated by foreign entities.
Nearly 1.30 billion RINs were generated for D6 renewable fuel in December, resulting in a total of nearly 15.2 billion for 2016. The majority of RINs (14.7 billion) were generated for ethanol, with 169 million generated for biodiesel, and 281 million generated for non-ester renewable diesel. More than 14.7 billion RINs were generated by domestic producers, with 179 million generated by importers, and 281 generated by foreign entities.
The data indicates that no D7 cellulosic RINs were generated in December. In 2017, a total of 534,429 cellulosic RINs were generated for cellulosic heating oil. All of the D7 RINs were generated by importers.
As previously reported in the Biobased and Renewable Products Advocacy Group’s (BRAG®) Biobased and Renewable Products Update of November 11, 2016, the U.S. Environmental Protection Agency (EPA) has issued a notice in the Federal Register of a public hearing for the proposed “Renewables Enhancement and Growth Support Rule.” The proposed rule updates the regulatory structure to allow biofuel producers to process and convert biomass at different facilities, update fuel regulations to allow for more high-ethanol fuel blends in flex fuel vehicles (FFV), and permit cellulosic biofuels to be produced from new feedstock sources. EPA is seeking comment on the programs covered in the proposal, as well as renewable identification number (RIN) generation for renewable transport fuels and regulatory requirements for facilities that could use carbon capture and storage (CCS) in the future production of renewable fuels. More information about the proposed rule is available in the BRAG blog post “ EPA Announces Public Hearing For Proposed Renewables Enhancement and Growth Support Rule. ” The proposed rule was published in the Federal Register on November 16, 2016. Comments are due by January 17, 2017, at 5:00 p.m. (EST).
On October 27, 2016, EPA approved an Efficient Producer petition submitted by Redfield Energy, LLC (Redfield Energy) granting “a pathway for the generation of renewable fuel (D-code 6) Renewable Identification Numbers (RINs) under the Renewable Fuel Standard (RFS) program for the production of non-grandfathered ethanol” produced by dry milling. The Efficient Producer petition process is designed to accelerate the registration process for starch and grain sorghum ethanol producers that exhibit superior process efficiency. Redfield Energy claimed the process achieved a 23.9 percent greenhouse gas (GHG) reduction, which surpassed the 20 percent reduction threshold. The South Dakota plant will be the 63rd to gain approval since EPA introduced the Efficient Producer pathway petition process in 2014.
On July 2, 2014, EPA issued a final rule outlining the elements of a voluntary third party quality assurance program to ensure the validity of renewable identification numbers (RIN) petroleum refiners use to confirm compliance with the annual fuel standard. Under the final rule, petroleum marketers may choose between two options to verify the validity of RINs generated between February 21, 2013, and December 31, 2014. Importantly, the final rule includes an affirmative defense for anyone except the generator of the RIN for any civil liability for a RIN that has been verified by a third party auditor. The final rule is available online.
API, AFPM, and ExxonMobil urged EPA and the Office of Management and Budget (OMB) to eliminate the ability of biodiesel producers to sever RINs from batches of fuels produced as part of an upcoming final rule establishing a quality assurance program for the fuels credit market.
The rule, as proposed, would establish qualifications for third-party auditors who would determine the validity of the RINs. It would also establish audit procedures for renewable fuel production facilities, including minimum frequency, site visits, review of records, and reporting requirements. The rule is open for comment now, and EPA is requesting feedback on whether renewable fuel producers should be allowed to separate and sell their own RINs. The groups emphasized that allowing biodiesel producers to separate and sell fuel credits creates opportunities for fraud in the RIN market.
Biodiesel producers are authorized to sever RINs from fuel batches and sell them as credits to comply with the annual RFS blending mandates. This generates two revenue streams -- one from fuel sales, and another from RIN credit sales. This anomaly resulted from a settlement between 30 refiners and other companies and EPA in April 2013, where $3.65 million was paid to EPA in penalties for purchase of fraudulent credits. The National Biodiesel Board and the Renewable Energy Group emphasized that "[t]he biodiesel marketplace is not as mature as other biofuel markets" and "often the value of the RIN provides biodiesel producers with [their] only opportunity to create a margin."
On April 7, 2014, the U.S. Court of Appeals for the District of Columbia Circuit heard oral arguments in Monroe Energy, LLC v. EPA (No. 13-1265). In the case, Monroe Energy, a subsidiary of Delta Airlines, the American Petroleum Institute (API), and the American Fuel & Petrochemical Manufacturers (AFPM) are challenging EPA's final 2013 RFS rule. The plaintiffs' arguments include that the rule should be overturned because EPA improperly considered the availability of carryover Renewable Identification Numbers and illegally issued the rule in final nine months after the statutory deadline to do so.
Several large biofuels trade associations intervened in the case on behalf of EPA, including the Biotechnology Industry Organization, Renewable Fuels Association, Growth Energy, and the National Biodiesel Board. They asked the court to uphold the 2013 RFS rule, but to not address the bounds of EPA's discretion to reduce RFS volume requirements due to concerns related to the E10 "blendwall."
Plaintiffs have asked the court for an expedited ruling before the June 30, 2014, compliance deadline for the 2013 RFS requirements.
On February 25, 2014, EPA sent its final rule to "Establish a Voluntary Quality Assurance Program for Verifying the Validity of Renewable Identification Numbers Under the RFS2 Program" to the U.S. Office of Management and Budget (OMB) for final review. EPA is expected to take action to release the final rule as soon as OMB completes its review.
As proposed, the rule would be retroactive to January 2013. It is the result of efforts to help restore investor confidence in the Renewable Identification Number (RIN) market and address the argument of some Renewable Fuel Standard (RFS) opponents that RIN fraud indicates a flaw in the RFS policy. Since 2010, there have been five major cases in which millions in fake biodiesel RIN credits have been generated. Under the current system, refiners (not renewable fuel producers) who purchase the credits to meet their annual RFS requirements are responsible for replacing the fraudulent credits and are vulnerable to steep penalties for failure to do so.
Under EPA's proposed RFS Quality Assurance Program (QAP), a voluntary third party quality assurance program would be established that could be used to verify that RINs have been validly generated. The proposal would provide a recognized means for independent third parties to audit the production of renewable fuel and the generation of RINs. It would include among other provisions: minimum requirements for QAPs, including such things as verification of type of feedstocks, verification that volumes produced are consistent with 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; and, conditions under which a regulated party would have an affirmative defense against liability for civil violations for transferring or using invalid RINs. In addition, it would provide two options that would be available for the verification of RINs through a QAP.
Generally, the refining and biodiesel industries are supportive of the proposal. The ethanol industry is generally concerned that it would create unnecessary financial burdens on its producers. Given the market, the proposed voluntary QAP has reportedly already become almost a requirement for all renewable fuel producers, even though the fraudulent cases all involve only biodiesel.
On January 16, 2014, the U.S. Department of Justice (DOJ) announced that it has indicted two individuals in biodiesel fraud schemes worth more than $37 million. A copy of DOJ's press release is available online. James Jariv and Nathan Stoliar have been charged with 57 counts of conspiracy, wire fraud, false statements made under the Clean Air Act, obstruction of justice, and conspiracy to engage in money laundering. In one scheme, the two allegedly generated more than $7 million in fraudulent renewable fuel credits under the federal Renewable Fuel Standard (RFS), which were then sold to obligated parties that needed them to meet their annual renewable volume obligations (RVO) under the RFS. In another, they allegedly failed to provide the U.S. government with $30 million in renewable fuel credits.
This case is significant because it is the fifth major biodiesel Renewable Identification Numbers (RIN) fraud case since 2011. It comes at a time when (1) EPA is working to prepare in final its proposed RFS Quality Assurance Plan to avoid cases of RIN fraud; (2) the biodiesel industry is advocating for increased biodiesel RVOs over what EPA has proposed for 2014 and 2015; and (3) the biofuels industry is fighting to sustain confidence in the RIN market and the statutory RFS RVOs in all renewable fuel categories. It could provide RFS opponents, including many in the refining sector, an additional argument in their quest to repeal the RFS.