```

[Federal Register Volume 79, Number 138 (Friday, July 18, 2014)]
[Rules and Regulations]
[Pages 42077-42125]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16487]

[[Page 42077]]

Vol. 79

Friday,

No. 138

July 18, 2014

Part II

Environmental Protection Agency

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40 CFR Part 80

RFS Renewable Identification Number (RIN) Quality Assurance Program; 
Final Rule

Federal Register / Vol. 79, No. 138 / Friday, July 18, 2014 / Rules 
and Regulations

[[Page 42078]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2012-0621; FRL-9906-55-OAR]
RIN 2060-AR72

RFS Renewable Identification Number (RIN) Quality Assurance 
Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Under the Renewable Fuel Standard (RFS) program, producers and 
importers of renewable fuel generate Renewable Identification Numbers 
(RINs) that are used by petroleum refiners and importers to demonstrate 
compliance with their renewable fuel volume obligations. Several cases 
of fraudulently generated RINs, however, led to inefficiencies and a 
significant reduction in the overall liquidity in the RIN market, 
resulting in greater difficulty for smaller renewable fuel producers to 
sell their RINs. Today's action finalizes additional regulatory 
provisions that are intended to assure reasonable oversight of RIN 
generation and promote greater liquidity in the RIN market, which in 
turn helps ensure the use of the required renewable fuel volumes. The 
rule includes a voluntary quality assurance program and related 
provisions intended to meet these goals. The program also includes 
elements designed to make it possible to verify the validity of RINs 
from the beginning of 2013. Additionally, we are finalizing a number of 
new regulatory provisions to ensure that RINs are retired for all 
renewable fuel that is exported and to address RINs that become invalid 
downstream of a renewable fuel producer.

DATES: The provisions of this regulatory action become effective 
September 16, 2014. The incorporation by reference of certain 
publications listed in the rule is approved by the Director of the 
Federal Register as of September 16, 2014.

ADDRESSES: The EPA has established a docket for this action under 
Docket ID No. EPA-HQ-OAR-2012-0621. All documents in the docket are 
listed in the www.regulations.gov index. Although listed in the index, 
some information is not publicly available, e.g., CBI or other 
information whose disclosure is restricted by statute. Certain other 
material, such as copyrighted material, will be publicly available only 
in hard copy. Publicly available docket materials are available either 
electronically in www.regulations.gov or in hard copy at the Air and 
Radiation Docket and Information Center, EPA/DC, EPA West, Room 3334, 
1301 Constitution Ave. NW., Washington, DC. The Public Reading Room is 
open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding 
legal holidays. The telephone number for the Public Reading Room is 
(202) 566-1744, and the telephone number for the Air Docket is (202) 
566-1742.

FOR FURTHER INFORMATION CONTACT: Deborah Adler-Reed, Office of 
Transportation and Air Quality, Compliance Division, Environmental 
Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 48105; 
Telephone number: 734-214-4223; Fax number: 734-214-4051; Email 
address: adlerreed.deborah@epa.gov, or the information line for the 
Office of Transportation and Air Quality Compliance Division; telephone 
number (734) 214-4343; Email address complianceinfo@epa.gov.

SUPPLEMENTARY INFORMATION:

Does this action apply to me?

    Entities potentially affected by this final rule are those involved 
with the production, distribution, and sale of transportation fuels, 
including gasoline and diesel fuel or renewable fuels such as ethanol 
and biodiesel. Potentially regulated categories include:

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                                          NAICS \1\     SIC \2\
                Category                    codes        codes                           Examples of potentially regulated entities
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Industry...............................       324110         2911  Petroleum Refineries.
Industry...............................       325193         2869  Ethyl alcohol manufacturing.
Industry...............................       325199         2869  Other basic organic chemical manufacturing.
Industry...............................       424690         5169  Chemical and allied products merchant wholesalers.
Industry...............................       424710         5171  Petroleum bulk stations and terminals.
Industry...............................       424720         5172  Petroleum and petroleum products merchant wholesalers.
Industry...............................       454319         5989  Other fuel dealers.
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\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that the EPA is now 
aware could be regulated by this action. Other types of entities not 
listed in the table could also be regulated. To determine whether your 
activities would be regulated by this action, you should carefully 
examine the applicability criteria in 40 CFR part 80. If you have any 
questions regarding the applicability of this action to a particular 
entity, consult the EPA contact person listed in the preceding section.

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Final Action
    B. Summary of Major Provisions
    C. Impacts
II. Description of the Regulatory Provisions for QAPs and Response 
to Comments Received
    A. QAP Framework
    1. Finalization of a Single QAP Option
    2. Description of the Affirmative Defense, Replacement 
Obligation, and Limited Exemption for the Single QAP
    a. Affirmative Defense
    b. Replacement Obligation for Invalid Q-RINs
    c. Limited Exemption for Q-RINs
    3. Administrative Process for Replacement of Invalidly Generated 
RINs
    4. Producer Separation of RINs
    B. Treatment of Interim Period RINs
    C. Provisions of RIN Verification Under QAP A During the Interim 
Period
    D. Provisions of RIN Verification Under QAP B During the Interim 
Period
    E. Provisions for RIN Verification Under the QAP
    1. Elements of the QAP
    a. Feedstock-Related Components
    b. Production Process-Related Components
    c. RIN Generation-Related Components
    d. RIN Separation-Related Components
    2. Approval and Use of QAPs
    a. Approval of QAPs
    b. Frequency of Updates/Revisions to QAPs
    3. Importers and the Use of a QAP
    F. Auditor Requirements
    1. Who can be an auditor?
    a. Independence
    b. Professionally Qualified To Implement a QAP

[[Page 42079]]

    c. Errors and Omissions Insurance
    2. Registration Requirements
    3. Other Responsibilities of Auditors
    a. Notifying the Agency When There Are Problems
    b. Indentifying Verified RINs in EMTS
    c. Recordkeeping, Reporting, and Attest Engagements
    i. Recordkeeping Requirements
    ii. Reporting Requirements
    iii. Attest Engagements
    d. Prohibited Activities for Third-Party Auditors
    G. Audit Requirements
    1. Document Review and Monitoring
    2. Buyer/Seller Contacts
    3. On-Site Visits
    4. RIN Verification
III. Additional Changes Related to the Definition and Treatment of 
Invalid RINs
    A. Export and Exporter Provisions
    1. Exporter RVO
    2. Require Identification of Renewable Fuel Content
    3. RIN Retirement Requirements
    B. ``Downstream'' Invalidation and Product Transfer Documents
    1. Designation of Intended Renewable Fuel Use
    2. Required Actions Regarding Fuel for Which RINs Have Been 
Generated That Is Redesignated for a Non-Qualifying Fuel Use
    3. RIN Generation for Fuel Made With Renewable Fuel Feedstock
    4. Use of Renewable Fuel in Ocean-Going Vessels
    5. Treatment of Improperly Separated RINs
    C. Treatment of Confidential Business Information
    1. Proposed Disclosure of Certain Registration and Reported 
Information
    2. Treatment of QAPs and Independent Engineering Reviews
    D. Proposed Changes to Section 80.1452--EPA Moderated 
Transaction System (EMTS) Requirements--Alternative Reporting Method 
for Sell and Buy Transactions for Assigned RINs
IV. Impacts
    A. Time and Cost Assumptions
    B. Labor Cost Assumptions
    C. Cost Estimate Results
V. Public Participation
VI. Statutory and Executive Order Review
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132 (Federalism)
    F. Executive Order 13175 (Consultation and Coordination With 
Indian Tribal Governments)
    G. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    H. Executive Order 13211 (Energy Effects)
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
    K. Congressional Review Act
VII. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to 
the requirements in Clean Air Act (CAA) section 211(o) which were added 
through the Energy Policy Act of 2005 (EPAct). The statutory 
requirements for the RFS program were subsequently modified through the 
Energy Independence and Security Act of 2007 (EISA), resulting in the 
publication of major revisions to the regulatory requirements on March 
26, 2010.\1\
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    \1\ 75 FR 14670.
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    The RFS program requires that specified volumes of renewable fuel 
be used as transportation fuel, home heating oil, or jet fuel each 
year. To accomplish this, the EPA publishes applicable percentage 
standards annually that apply to the sum of all gasoline and diesel 
produced or imported into the United States. The percentage standards 
are set so that if every obligated party (refiners and importers of 
gasoline or diesel transportation fuel) meets the percentages, then the 
amount of renewable fuel, cellulosic biofuel, biomass-based diesel, and 
advanced biofuel used are projected to meet the volumes required on a 
nationwide basis.
    Obligated parties demonstrate compliance with the renewable fuel 
volume standards in one of two ways. Obligated parties can demonstrate 
compliance either by acquiring the required volumes of renewable fuels 
together with the associated Renewable Identification Numbers (RINs), 
which are assigned by the renewable fuel producer or importer to every 
batch of renewable fuel produced or imported, or by acquiring just the 
RINs without the associated fuel. Validly generated RINs show that a 
certain volume of qualifying renewable fuel was produced or imported. 
The RFS program also includes provisions stipulating the conditions 
under which RINs are invalid, the liability carried by a party that 
transfers or uses an invalid RIN, and how invalid RINs must be treated. 
In general, all regulated parties are liable for transferring or using 
invalid RINs. As a result, all regulated parties are responsible to 
take the steps they deem appropriate to verify that the RINs they 
acquire are valid. This is generally referred to as a ``buyer beware'' 
approach to RIN validity for the obligated parties.

A. Purpose of This Final Action

    Several cases of fraudulently generated RINs in the last few years 
\2\ led some obligated parties to limit their RIN purchases to 
renewable fuel produced by those parties that they are confident are 
generating valid RINs. In order to ensure that RINs are validly 
generated, individual obligated parties began conducting their own 
audits of renewable fuel production facilities. The time and effort to 
conduct such activities, as well as the large overall number of 
renewable fuel producers and importers, resulted in greater difficulty 
for some of the smallest renewable fuel producers to sell their RINs. 
Initially, the overall liquidity of the RIN market was significantly 
reduced. These circumstances also created inefficiencies in the RIN 
market, as some RINs have been treated as having more value and less 
risk than others. The purpose of today's final action is to address 
these issues by finalizing changes to the regulations that assure 
reasonable oversight of the validity of RIN generation, promote greater 
liquidity in the RIN market, and assure the use of the required 
renewable fuel volumes.
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    \2\ The EPA's Criminal Investigation Division and Office of 
Civil Enforcement issued three Notices of Violation in 2011-2012 
which helped lead to criminal convictions against the fraudulent 
actors. EPA continues to vigilantly investigate cases of potential 
generation of fraudulently generated RINs as they arise.
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    In today's final action we are finalizing a voluntary quality 
assurance program intended to provide regulated parties a structured 
way to ensure that RINs entering commerce are valid. The program 
provides an affirmative defense against liability for civil violations 
under certain conditions for the transfer or use of invalidly generated 
RINs, and specifies both the conditions under which invalid RINs must 
be replaced with valid RINs, and by whom. Quality assurance programs 
enable smaller renewable fuel producers to demonstrate that their RINs 
are valid, reducing the risk that obligated parties believe is 
associated with such RINs. We are finalizing, consistent with the 
proposal, provisions applicable to RINs generated in 2013 through 
December 31, 2014.
    In today's final action, in consideration of comments received on 
the notice of proposed rulemaking (NPRM),\3\ we are also addressing 
export issues and circumstances in which RINs may become invalid 
subsequent to the renewable fuel producer's introduction of the RINs 
into commerce. For instance, exporters of renewable fuel

[[Page 42080]]

may not have been retiring an appropriate number and type of RINs as 
required under the current regulations. In some cases parties may have 
exported diesel fuel containing amounts of biodiesel below levels that 
are currently required to be reported in other contexts, and are merely 
labeled as diesel fuel. Such exports would not have been reported as 
containing renewable fuel, and thus no RINs would have been retired. In 
other cases, exporters may have reported that renewable fuel had been 
exported, but might sell any RINs received and then go out of business 
before RINs are retired. The result of these circumstances could be a 
disparity between the RINs generated and the renewable fuel volume 
consumed in the U.S. We are finalizing modifications to the regulations 
pertaining to exporters of renewable fuel to address these issues. We 
are also finalizing a number of other modifications intended to address 
cases in which parties transfer or use RINs that have become invalid 
after the producer has introduced them into commerce.
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    \3\ 78 FR 12158, February 21, 2013.
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B. Summary of Major Provisions

    Today's final action includes a voluntary third-party quality 
assurance program option for RINs that regulated parties may exercise 
as a supplement to the ``buyer beware'' liability as prescribed under 
existing regulations. The program provides a means for ensuring that 
RINs are properly generated through audits of renewable fuel production 
conducted by independent third-parties using quality assurance plans 
(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 process for determining 
who will replace the RINs.
    For the interim period only, which runs from February 21, 2013 
through December 31, 2014, we are finalizing both of the proposed QAP 
programs, QAP A and QAP B.
    Beginning January 1, 2015, after the interim period is over, the 
program will consist of a single QAP, with its associated verified RINs 
referred to as Q-RINs. To this end, we are finalizing the following for 
the single QAP:

 Minimum requirements for a QAP, including such things as 
verification 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
 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 who are responsible for 
replacing invalid RINs with valid RINs and the timing of such 
replacement
 A two percent limited exemption for calendar years 2014, 2015, 
and 2016 that exempts a small fraction of a party's Renewable Volume 
Obligation (RVO) from the requirement of replacement of invalid RINs 
used for compliance if they were RINs verified through a QAP
 Changes to the EPA Moderated Transaction System (EMTS) that 
would accommodate the quality assurance program
    We are finalizing certain provisions exclusive to QAP A in the 
interim period, such as the RIN replacement mechanism that provides for 
invalid A-RINs to be replaced, the RIN replacement cap for auditor 
replacement of invalid A-RINs, and the elements of an affirmative 
defense specific to A-RINs. Additionally, we are finalizing provisions 
exclusive to QAP B in the interim period, such as the elements of an 
affirmative defense specific to B-RINs, and a two percent limited 
exemption for B-RINs for calendar years 2013 and 2014.
    We are also finalizing modifications to the exporter provisions of 
the RFS program. These modifications will help ensure that an 
appropriate number and type of RINs are retired whenever renewable fuel 
is exported. Finally, we are finalizing a number of changes to other 
aspects of the RFS regulations governing the transfer and use of RINs 
that become invalid downstream of the producer.

C. Impacts

    We anticipate that the quality assurance program will help to 
reduce the number of invalidly generated RINs in distribution, and thus 
help ensure that valid RINs are traded and used for compliance. As a 
result, it will help to ensure that the renewable fuel volumes mandated 
by Congress are actually used. In this respect, then, there will be no 
change to the expected impacts of the RFS program as projected in the 
March 2010 RFS final rulemaking \4\ in terms of volumes of renewable 
fuel consumed or the associated GHG or energy security benefits. The 
primary impacts of the quality assurance program will be improved 
liquidity and efficiency in today's RIN market and improved 
opportunities for smaller renewable fuel producers to sell their RINs.
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    \4\ 75 FR 14670, March 26, 2010.
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    Likewise, the changes to the regulations governing export of 
renewable fuel will ensure that the appropriate number and type of RINs 
are retired for every gallon of renewable fuel exported, consistent 
with the intent of the program.
    The quality assurance program that we are finalizing in today's 
action will be voluntary. Even though the program is voluntary, there 
will likely be costs associated with an individual party's 
participation in the quality assurance program, and in Section IV we 
have provided estimates of some elements of the costs of participation. 
However, the fact that the quality assurance program will be voluntary 
means that a decision to participate will be made independently by each 
regulated party. 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. 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.

II. Description of the Regulatory Provisions for QAPs and Response to 
Comments Received

A. QAP Framework

1. Finalization of a Single QAP Option
    The NPRM proposed two new compliance options (``Option A'' and 
``Option B'') in addition to the existing ``buyer beware'' approach. 
Each of the two proposed options contained provisions for: A quality 
assurance plan (``QAP'') that would be created and applied by an 
independent third-party auditor to verify the validity of RIN 
generation; an affirmative defense to civil liability for transfer or 
use of a verified but invalidly generated RINs; identification of the 
party responsible for replacement of verified but invalidly generated 
RINs, and limitations on the extent of that responsibility. Under both 
options, verification under an EPA-

[[Page 42081]]

approved QAP would provide the basis for the defense to civil liability 
for any prohibited acts premised on the RIN's invalidly generated 
status. In today's rule, we are finalizing a single QAP closely 
resembling the proposed Option B, with its associated verified RINs 
referred to as Q-RINs. Option A and Option B are only being finalized 
with respect to interim period RINs, which are addressed in section 
II.B of this preamble.
    Under the proposal for Option A, the QAP requirements were very 
stringent, requiring for example continuous monitoring of renewable 
fuel production facilities and documentation of RIN generation. Also 
under Option A, the QAP auditor would be responsible for replacing any 
invalidly generated RINs it had verified, if the RIN generator itself 
failed to replace. The auditor's liability for replacement would be 
capped at two percent of the A-RINs it had verified in that compliance 
year and the previous four compliance years, and the auditor would be 
required to maintain a RIN replacement mechanism capable of immediately 
replacing any invalid RINs up to the amount of the auditor's potential 
liability at any given point in time. Under Option B, the QAP 
requirements were less stringent, requiring quarterly site monitoring 
and document review, among other features. Also under Option B, the 
obligated party bore the responsibility to retire or (if already 
transfered or retired for compliance) to replace any invalidly 
generated B-RINs, but only if the number of such invalid RINs exceeded 
two percent of the obligated party's RVO for the compliance year in 
which the invalid RINs were generated. A major difference between 
Option A and Option B, then, was the identification of and parameters 
for the replacement of RINs that were invalidly generated but 
nonetheless verified under an EPA-approved QAP. Under Option A, the 
replacement responsibility rested on the QAP auditor, effectively 
eliminating any risk of replacing invalid verified RINs for the 
obligated party, while under option B, the obligated party bore the 
risk of having to replace invalid verified RINs if the quantity of such 
RINs was greater than two percent of its RVO. There were also some 
important differences in the requirements of the audit program.
    During the period between publication of the NPRM and this final 
rulemaking, the EPA worked with a number of potential QAP auditors as 
they developed proposals for their QAPs and began implementation of 
their auditing services. To facilitate the verification of RINs 
generated in 2013 prior to the final rule's effective date, the EPA 
developed an informal pre-registration process. The EPA reviewed 
auditors' registration information and proposed QAPs, and provided 
guidance on whether the plans appeared to satisfy the proposed 
requirements. The EPA identified those auditors whose submissions were 
consistent with the requirements in the proposed regulations as part of 
this informal pre-registration process. RINs audited prior to the 
effective date of the final rule through a QAP which the EPA had 
informally pre-registered could be informally verified by the auditor, 
but they would only be formally verified after the final rule goes into 
effect, and after the EPA approved the QAP that was used in the audit 
process. Several auditors made use of this informal process.
    Based on these ongoing interactions, the EPA collected significant 
data on the potential utility and feasibility of both Option A and 
Option B QAPs. For many auditors, a major barrier to development of an 
Option A QAP was the expense and risk associated with establishment and 
maintenance of an acceptable RIN replacement mechanism. The NPRM 
required, for instance, that the RIN replacement mechanism be outside 
of the sole operational control of the QAP auditor, requiring a third 
party's involvement and control. As discussed in the NPRM, many 
traditional forms of financial assurance would not be suitable for a 
RIN replacement mechanism and those that would fulfill the program 
requirements would likely be very expensive for auditors to maintain. 
These difficulties were clearly borne out in the experience of auditors 
attempting to set up Option A QAPs in the interim period. One of the 
informally pre-registered Option A QAP providers suggested that if a 
producer could not afford to have all its RINs audited as A-RINs, the 
same A-RIN protocols minus the RIN replacement mechanism should be 
counted as a B-RIN audit.\5\ This comment underscores the significant 
expense associated with the RIN replacement mechanism and the auditors' 
perspective that many producers will not be able to utilize the Option 
A system simply because of this expense. In addition to the expense of 
the RIN replacement mechanism, one commenter also asserted that the RIN 
replacement mechanism could artificially skew demand for RINs and drive 
market prices up, if an auditor were to stockpile RINs (instead of a 
cash escrow) to fulfill the replacement mechanism requirement. Looking 
beyond the RIN replacement mechanism, the additional oversight and 
review required in QAP A also inflates the cost of providing Option A 
auditing services, when compared to the less onerous Option B QAP 
requirements. The challenge of installing a continuous monitoring 
system requires significant capital investment and ongoing time and 
financial resources.
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    \5\ See docket document EPA-HQ-OAR-2012-0621-0040 at page 9.
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    Of the four auditors informally pre-registering Option A QAPs, only 
one actually used the Option A QAP to informally verify RINs in the 
interim period. Further, out of nearly 480 million RINs informally 
verified or pending informal verification through February 2014, less 
than 20 percent of them were Option A RINs (by the one informally pre-
registered Option A auditor). This demonstrates a lower level of buy-in 
and lower utility of the Option A QAP when compared to the Option B 
QAP.
    Most obligated party comments on Option A were consistent with 
auditors' experiences in attempting to set up the Option A QAPs. They 
asserted that given the increased stringency of the Option A auditing 
requirements and the replacement mechanism, the cost of these expenses 
would be passed through and reflected in the price of A-RINs. While A-
RINs would indeed be seen as less risky than B-RINs or non-audited 
RINs, the decreased risk might not be worth the cost. Many commenters 
stated that the stringency of QAP B would be sufficient to guarantee 
the validity of audited RINs and the increased stringency of A was 
``overly rigorous'' and not worth the additional expense.
    Many small biodiesel producers also commented that they feared the 
Option A QAP would be too expensive for them to utilize. As discussed 
in the NPRM, the EPA hoped that the Option A QAP would improve 
liquidity for small producers on the RIN market, because the auditor 
replacement feature would eliminate any fear of a replacement 
obligation for RIN purchasers. Given the increased costs required to 
set up and run an Option A QAP program, however, many small producers 
do not expect they would be able to afford the cost of these services, 
even considering the speculative potential of increased value that A-
RIN status might give to their RINs.
    Given the difficulty experienced by auditors in setting up Option A 
QAPs, the apparent lack of use of the Option A QAP in the interim 
period, and the overwhelmingly negative comments regarding Option A by 
producers and obligated parties alike, we are not

[[Page 42082]]

finalizing Option A as a compliance alternative for use after the 
interim period.\6\ Instead, we are finalizing a single QAP for use 
after the interim period that closely resembles the proposed Option B. 
The full description of the terms and conditions of this compliance 
program is found in sections II.A.2 and II.E of this preamble.
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    \6\ As discussed in section II.C, Option A will be available for 
RINs generated during the interim period, as discussed at the 
proposal. This recognizes that there has been some informal use of 
this option during the interim period to date, even if limited. 
Finalizing Option A for just the interim period will avoid 
penalizing the parties who have informally verified RINs under this 
option to date, and the parties who have purchased such RINs.
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    In addition to the issues raised by parties in comment, the EPA 
also considered the higher implementation costs for the Agency to 
administer both QAP A and QAP B. While this was not the Agency's 
primary consideration in reaching this decision we do note that 
directionally this decision will also reduce the cost to the government 
to implement and provide ongoing maintenance of and support for QAP A. 
Lastly, we would note that many of the financial features of QAP A can 
be offered through private contracts and financial instruments without 
the need for EPA involvement.
2. Description of the Affirmative Defense, Replacement Obligation, and 
Limited Exemption for the Single QAP
a. Affirmative Defense
    Based on the reasoning and discussion detailed below, for the 
single QAP for use after the interim period (with its associated 
verified RINs referred to as Q-RINs), the Agency is finalizing an 
affirmative defense to civil liability for RIN owners like was proposed 
for QAP B in the NPRM, except for the notification element which we 
increased from one to five business days. See Sec.  80.1473(e) of the 
regulations for more details.
    The affirmative defense in this final rule will be modeled from the 
proposed affirmative defense for QAP B.\7\ Note that there will be an 
affirmative defense for A-RINs and B-RINs informally verified during 
the interim period. See Sec.  80.1473 (c) and (d) of the regulations 
for more details.
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    \7\ For more information regarding the rationale as to why an 
affirmative defense is being offered, please see the NPRM (78 FR 
12176-12177 (February 21, 2013)).
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    The affirmative defense will only be available to RIN owners for 
RINs that were verified by an independent third-party auditor using an 
EPA-approved QAP.
    Additionally, it is our intent that the affirmative defenses will 
not be available to the generator of an invalid RIN. Since the quality 
assurance program will be voluntary, parties could still purchase RINs 
not verified by an EPA-approved QAP and transfer or use these 
unverified RINs, but they could not assert an affirmative defense if 
the RINs were found to be invalid, regardless of their level of good 
faith.
    Once a RIN has been verified by the auditor, any person, other than 
the generator of the RIN, who transfers or uses that verified RIN will 
be eligible to assert an affirmative defense if the RIN was invalidly 
generated and the person then transferred it to another party or used 
it for compliance purposes. The QAPs will be designed to verify valid 
generation of RINs, and the assertion of an affirmative defense will be 
limited to the prohibited acts of transferring and using invalidly 
generated RINs. The affirmative defense addresses violations of 40 CFR 
80.1460(b)(2) and the use violation of 40 CFR 80.1460(c)(1). 40 CFR 
80.1460(b)(2) prohibits any person from transferring to any other 
person a RIN that is invalid. 40 CFR 80.1460(c)(1) provides that no 
person shall use invalid RINs to meet the person's RVO, or fail to 
acquire sufficient RINs to meet the person's RVO. The affirmative 
defense will apply to violations arising from a person's use of invalid 
RINs whether or not his/her use of the invalid RINs caused them to fail 
to acquire sufficient RINs to meet their RVOs.
    We finalized new regulations in Section III.B to ensure that 
properly generated RINs cannot become invalid downstream of the RIN 
generator. It should again be noted that an affirmative defense is not 
available for a RIN that was not verified under an EPA-approved QAP. In 
other words, the ``buyer beware'' system as it exists under the current 
regulations will continue to be an option for obligated parties who do 
not wish to purchase RINs verified through a QAP.
    When we proposed an affirmative defense in the NPRM, the Agency 
stated that the affirmative defense mechanism would allow any party, 
other than the generator of an invalid RIN, who holds invalidly 
generated RINs verified through a QAP to avoid civil liability for a 
prohibited act involving the transfer or use of invalid RINs for 
purposes of fulfilling an RVO. This approach is similar but not 
identical to the defense mechanisms used in other fuels regulation 
programs, such as the Diesel Fuel Sulfur Control regulations, 40 CFR 
80.613(a), and the Reformulated Gasoline regulations, 40 CFR 
80.79(b)(1). In order to establish this affirmative defense under the 
QAP, a party will be required to prove six elements by a preponderance 
of evidence. This means that each element was more likely than not to 
have been met. A person asserting an affirmative defense also must 
submit a written report to the EPA, along with any necessary supporting 
documentation, demonstrating that the elements have been met. The 
written report will need to be submitted within 30 days of the person 
discovering the invalidity of the RIN. An affirmative defense is a 
defense that precludes liability even if all of the elements of a claim 
are proven, and generally is asserted in an administrative or judicial 
enforcement proceeding. We have included an explicit reporting 
requirement to allow the EPA to evaluate affirmative defense claims 
before deciding whether or not to commence an enforcement action.
    In the event that invalidly generated Q-RINs are transferred or 
used, the elements that must be established for an affirmative defense 
to the prohibited act of transferring or using the invalid Q-RINs for 
compliance with an RVO are as follows and are described in Sec.  
80.1473:
    1. The RINs in question were verified in accordance with an EPA-
approved QAP as defined in the EPA regulations in Sec.  80.1469;
    2. The RIN owner did not know or have reason to know that the RINs 
were invalidly generated at the time of transfer or use for compliance, 
unless the RIN generator replaced the RIN pursuant to Sec.  80.1474;
    3. The QAP provider or RIN owner informs the Agency via the EMTS 
technical support line (/support.com">support.com">support@epamts-support.com) within five 
business days of discovering that the RINs in question were invalidly 
generated;
    4. The RIN owner did not cause the invalidity;
    5. The RIN owner did not have a financial interest in the company 
that generated the invalid RIN; and
    6. If the RIN owner used the invalid RINs for compliance, the RIN 
owner adjusted its records, reports, and compliance calculations in 
which the invalid RIN was used as required by regulations (see Sec.  
80.1431), unless the RIN generator replaced the RIN pursuant to Sec.  
80.1474.
    Further rationale for several of the elements required for 
asserting an affirmative defense are discussed in more depth below. In 
regard to element 2, owners of verified Q-RINs must not have known nor 
had reason to know of the invalidity of the RIN at the time they either 
transferred a RIN or used a RIN for compliance purposes unless the RIN 
generator had replaced the RIN per the

[[Page 42083]]

regulations. See 40 CFR 80.1474. Since the obligated party has the 
replacement obligation under the QAP, it would not be appropriate for 
it to knowingly commit a prohibited act but still have an affirmative 
defense to civil liability. Similarly, we do not believe it would be 
appropriate to allow a RIN owner to transfer an invalid RIN to a third 
party if it knew the RIN was invalid. A transfer of the RIN with such 
knowledge would subvert the purpose of the quality assurance program, 
which is to help ensure the integrity of the RINs used for compliance 
purposes and to promote greater liquidity in the market. Knowing 
transfer of invalid RINs is inconsistent with these purposes. For these 
reasons, the owner of an invalid but verified Q-RIN cannot assert an 
affirmative defense if it knows or has reason to know of its invalidity 
at the time it transfers or uses the RIN for compliance purposes.
    In regard to element 3, any party attempting to establish an 
affirmative defense will be required to inform the Agency within five 
business days of identifying that RINs were invalidly generated. This 
requirement should allow a reasonable and adequate amount of time for 
RIN owners to communicate this information internally first before 
communicating the discovery to the EPA while minimizing the amount of 
time available to capitalize on any incentives or financial advantages 
that might be gained from intentionally hiding invalidity or waiting to 
report. The Agency's primary goal to maintain and meet the annual RFS 
volume mandates would be frustrated by delayed reporting of invalidly 
generated RINs. The reporting requirement will therefore be both an 
element of good faith and a practical safeguard to meet the annual RFS 
volume mandates.
    In regard to element 5, requiring that the RIN owner did not have 
any financial interest in the RIN generator's company ensures that the 
RIN owner did not receive and had no intention of receiving a financial 
benefit from the generation of invalid RINs. In regard to element 6, we 
have determined that the affirmative defense for Q-RINs should be 
contingent upon obligated parties taking the invalid Q-RINs out of the 
system or demonstrating that the producer implemented a remedial action 
\8\ by retiring an equivalent number of replacement Q-RINs. This will 
help the Agency efficiently ensure that the environmental goals of the 
RFS program are achieved.
---------------------------------------------------------------------------

    \8\ A remedial action is an action taken by a party to remedy 
certain specific RIN violations of the RFS2 regulations. See the 
following link to the RFS2 Remedial Action Guidance page of the EPA 
Web site for further information on remedial actions as well as 
specific instructions: http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2remedialactions.htm.
---------------------------------------------------------------------------

    Finally, two requirements of an affirmative defense are that the 
RIN was verified under an approved QAP, element 1, and that the party 
did not cause the invalidity of the RIN in question, element 4.
    The Agency did receive comments regarding the affirmative defense 
provision. All comments were supportive of including an affirmative 
defense to civil liability for RIN owners.
    Some biofuel producers commented that the affirmative defense 
should be available to RIN generators as well because RINs may be 
generated improperly through no fault of the producer due to feedstock 
supplier issues as well as the general complexity of the regulations. 
The EPA is not extending the affirmative defense to RIN generators. The 
affirmative defense provides protection from civil liability in the 
event that RIN owners performed adequate oversight by way of 
implementing a QAP, yet a RIN was deemed invalid nonetheless. This is 
appropriate as the person who owns the RIN after it has been generated 
generally has no control over the actual production of the renewable 
fuel. Renewable fuel producers, however, have control over the actual 
production of fuel and are in a much better position to know if the 
RINs associated with that fuel are valid. With this greater control 
comes greater responsibility and the associated liability to ensure 
valid generation of the RINs. Renewable fuel producers still have 
remedial actions at their disposal to correct certain errors that occur 
in regard to RIN generation.
    Some obligated parties commented that an affirmative defense should 
be available to unverified RINs as well. This would undermine efforts 
to minimize the generation of fraudulent RINs, of which the QAP program 
is an important element. The structured parameters of the QAP provide a 
framework for a specified degree of oversight of RIN generation by RIN 
owners when it comes to the RINs they purchase. The Agency defined this 
framework and determined that if this degree of oversight and the other 
elements of the affirmative defense are met, then an affirmative 
defense to RIN owners for RINs that have been verified through an 
Agency-designed system is appropriate. RINs outside of that system can 
be subjected to whatever degree of oversight the RIN owner may view as 
appropriate for their own risk management. It would not be appropriate 
to provide an affirmative defense to unverified RINs that do not meet 
the specified degree of oversight provided by the QAP, and have not 
gone through the process that the EPA has established for efficient 
administration of the affirmative defense. For example, auditors and 
their QAP plans must be approved by the EPA, and the EPA can monitor 
compliance by auditors with their responsibilities, providing 
confidence that the oversight will be implemented in practice. This 
does not occur outside of the RIN verification process established in 
this rule. It should be noted that the EPA considers a number of 
factors when deciding what action, if any, to take against a person who 
transfers or uses unverified invalid RINs.
    Multiple commenters suggested that the EPA extend the timeframe to 
notify the Agency of discovery of a RIN that was invalidly generated. 
In element (3), the timeframe for notification was proposed to be 
within the next business day. The EPA agrees with extending the 
timeframe. The EPA acknowledges that it may take some time for a RIN 
owner to adequately communicate within its organizational structure 
that it is in possession of an invalid RIN. Therefore, the EPA is 
extending the notification timeframe to five business days. This should 
allow enough time for the corporate officers to be informed while 
providing prompt notification to the Agency to guard against any 
incentives for delaying reporting for illicit gains. There is an 
administrative process detailed in Section II.A.3 that deals with many 
of the concerns of commenters regarding whether a RIN is 
``potentially'' invalid. Element (3) of the affirmative defense arises 
upon discovery that the RIN in possession has definitively been deemed 
``invalid'' and it is then that the QAP provider or RIN owner must 
notify the Agency for the purposes of the affirmative defense. The QAP 
provider and renewable fuel producer still have the ability to correct 
any errors and/or perform a remedial action prior to the RIN being 
deemed ``invalid'' and the RIN owner being made aware of this fact.
b. Replacement Obligation for Invalid Q-RINs
    Based on the discussion below and the comments received, the Agency 
is finalizing a QAP where invalid Q-RINs may not be used to demonstrate 
compliance with a Renewable Volume Obligation (RVO), just as invalid 
RINs may not be used under the current ``buyer beware'' program for 
unverified RINs. It should be noted that the Agency is also finalizing 
an administrative process for replacement of invalidly

[[Page 42084]]

generated RINs where the RIN generator is initially responsible for 
replacement of invalidly generated RINs. The administrative process 
details who has the responsibility to replace invalidly generated RINs 
and when those responsibilities begin. For RINs that have been retired 
for compliance, obligated parties must replace invalidly generated RINs 
when the RIN generator has not fulfilled their replacement obligation 
under the administrative process in order to remain in compliance. See 
Sec.  80.1474 of the regulations for further details on the 
administrative process.
    Regulated parties that purchase Q-RINs will not be subject to 
liability for a civil violation if a Q-RIN transferred or used for 
compliance purposes was later found to have been invalidly generated, 
if the elements of an affirmative defense were successfully asserted. 
See Section II.A.2.a. However, obligated parties will be responsible 
for replacing any invalidly generated Q-RINs used for compliance 
purposes. Obligated parties will be free to contract with producers, 
independent third-party auditors, or other parties, such as brokers, to 
limit their exposure for replacement of invalidly generated Q-RINs. 
Obligated parties will not be permitted to transfer or use Q-RINs they 
know or have reason to know have been invalidly generated. Any such 
transfer or use will be a prohibited act, pursuant to Sec.  80.1460.
    The QAP provides flexibility for obligated parties, producers, and 
third-party auditors to minimize the cost of verification services for 
RINs. Obligated parties that want the protection of an affirmative 
defense but would rather contract on their own terms regarding 
replacement of invalidly generated RINs should find this approach more 
flexible and appealing. Additionally, smaller producers could be drawn 
to this because the cost to participate in the quality assurance 
program under the QAP would be relatively small.
    The Agency received comments from obligated parties and their trade 
associations that they should never have to replace invalid RINs that 
were a result of another party's malfeasance. The EPA is rejecting this 
approach, as retaining the replacement obligation is important to both 
ensure compliance with the renewable fuel volumes specified by Congress 
and to ensure that obligated parties take responsibility to make sure 
compliant fuel is purchased and introduced into commerce by either 
introducing compliant fuel themselves or by validating RIN integrity 
before buying RINs. QAP RIN replacement by obligated parties is meant 
to create the same ``buyer beware'' type of scrutiny of third-party 
auditor performance by obligated parties. By retaining the replacement 
obligation under the QAP, obligated parties have the incentive to 
provide significant robust oversight of the quality of third-party 
auditors, which in turn increases the likelihood of valid RINs and 
compliant fuel being introduced into the marketplace.
    The Agency also received numerous comments mirroring the EPA's view 
on replacement obligation discussed above. Commenters noted that for 
the RFS program to properly function, the obligated parties needed to 
retain the obligation to replace invalid RINs, which would ensure that 
their individual RVOs would be met as well as the renewable fuel 
volumes specified by Congress.
c. Limited Exemption for Q-RINs
    Based on the discussion below and the comments received, we are 
finalizing a two percent limited exemption for the QAP as was proposed 
for QAP B, except for the fact that it will only apply in calendar 
years 2014, 2015, and 2016.
    The limited exemption exempts a small fraction of a party's RVO 
from the requirement for RIN replacement if QAP RINs up to the limit 
later turn out to be invalid. Given the perceived concerns about RINs 
generated by the smallest producers, a limited exemption, during the 
beginning of the program while auditors are learning to implement QAPs, 
could make obligated parties more willing to buy RINs from smaller, 
less well known biofuel producers. The limited exemption will be 
available only to obligated parties that are required to replace 
invalid RINs, not renewable fuel producers that are required to replace 
invalid RINs.
    As described at proposal, we are setting the limit on the limited 
exemption for invalid Q-RIN replacement at two percent based on the 
uncertainty inherent in the gasoline/diesel production market as 
determined by comparing EIA's Short Term Energy Outlook projections 
versus actual production of the same year.\9\ We have concluded this 
level of exemption is both rational relative to the uncertainty 
inherent in the standards process and sufficient to incentivize the use 
of QAPs.
---------------------------------------------------------------------------

    \9\ For a more detailed description of the calculation of the 2% 
limited exemption, see the NPRM ((78 FR 12184-12187 (February 21, 
2013)).
---------------------------------------------------------------------------

    The limited exemption will apply separately to each of the four 
standards under the RFS program: cellulosic biofuel; biomass-based 
diesel; advanced biofuel; and total renewable fuel.
    The limited exemption will apply separately to each obligated party 
that is responsible for replacing invalid Q-RINs rather than to the 
industry as a whole. For instance, an obligated party would apply the 
two percent limited exemption to each of its four Renewable Volume 
Obligations (RVOs) to determine the number of Q-RINs of each of the 
four types that would not need to be replaced should they be found to 
be invalidly generated.
    The limited exemption is a threshold below which invalid RINs will 
not be required to be replaced; it is not a trigger that determines 
when all invalid RINs must be replaced. Under this threshold approach, 
an obligated party will know at the beginning of each year that two 
percent of the RINs needed to meet each of its RVOs will not need to be 
replaced if those RINs were Q-RINs and were determined to be invalidly 
generated. Under this threshold approach, the number of Q-RINs that an 
obligated party will be required to replace will be those in excess of 
the applicable limited exemption (LE) as calculated. See Sec.  
80.1474(f) for more details on calculation of the limited exemption.
    Finally, the limited exemption will be applicable for Q-RINs 
verified under the QAP during the calendar years of 2014, 2015, and 
2016 of the quality assurance program. We think the limited exemption 
is an important incentive, but at the same time we also recognize it 
may reduce the total volume of renewable fuel produced under the 
program. As noted below, we intend to monitor the use of the provision 
during these years and will propose to extend its use in the future if 
we decide, based on the experience gained from 2014-2016, that the 
limited exemption, on balance, is valuable to the overall success of 
the RFS program.
    Generally, obligated parties and small producers supported the 
limited exemption and its methodology. Other comments the Agency 
received regarding a limited exemption included: The limited exemption 
should apply to unverified RINs as well, and the limited exemption 
should be made permanent as the uncertainty it is based on will not 
cease after two years. The Agency did receive a comment from a producer 
trade association that said that the limited exemption exceeded the 
EPA's authority and would effectively be a waiver.
    The Agency believes that it would not be appropriate to apply the 
limited exemption to RINs that are not verified by an EPA-approved 
independent auditor. The limited exemption for RIN

[[Page 42085]]

replacement is a useful component of the voluntary QAP process and 
other measures aimed at achieving a regulatory structure that 
facilitates reasonable oversight of RIN generation, adequate assurance 
that invalid RINs will be replaced, and a market for RINs where the 
opportunity to produce and sell RINs is spread broadly across 
producers, including small producers. Outside of the QAP program, the 
limited exemption does not facilitate any of the functions and benefits 
achieved by the QAP process. Outside the QAP program, obligated parties 
retain full discretion to conduct the oversight they deem appropriate, 
and to establish appropriate contract indemnification or other risk 
reduction measures. There is no clear reason that a limited exemption 
is needed under these circumstances to provide relief to obligated 
parties, and providing the limited exemption outside the QAP program 
would provide none of the benefits from facilitating the introduction 
period of the QAP program. Thus the EPA is not expanding the limited 
exemption outside of the QAP program.
    Additionally, in response to making the limited exemption 
permanent, we expect regulated parties to be working to optimize 
implementation of the quality assurance program for several years. The 
limited exemption can help to ensure that the RIN market is more liquid 
as the program starts up. But as the program matures, we believe that 
there will be much less need for a limited exemption as obligated 
parties will gain experience in the first few years of the program with 
the QAP, and we would expect their confidence in the validity of Q-RINs 
to grow over this timeframe as well. Accordingly, the Agency sees the 
work needed by industry to optimize implementation of the QAP 
continuing for some time past the proposed 2014 sunset, but not 
permanently. The Agency is committed to monitoring the situation 
surrounding the limited exemption and its use. We will assess whether 
the provision is working as intended and whether it has encouraged the 
use of small producer RINs. We will evaluate based on the circumstances 
whether it is appropriate to extend the limited exemption past 2016. In 
response to the comment that the limited exemption exceeded the EPA's 
authority because it would effectively be a waiver, the Agency views 
implementing a limited exemption over several years as falling under 
the Agency's ability to use reasonable discretion to ensure that volume 
mandates are met. There remains an obligation on the renewable fuel 
producer to replace the RIN. A limited exemption will properly 
incentivize obligated parties to use the QAP, which in turn will 
increase the likelihood of valid RINs and compliant fuel being 
introduced into the marketplace. This is a reasonable way to ensure 
compliance with the volume mandates. It is not a waiver of a national 
volume or a waiver of the standards; instead it is a reasonable, 
temporary mechanism for determining compliance by an individual party 
with their individual RVO.
3. Administrative Process for Replacement of Invalidly Generated RINs
    Based on the discussion below and the comments received, the Agency 
is finalizing the administrative process for replacement of invalidly 
generated RINs as proposed with minor changes and clarification. The 
Agency is changing the notification window from 24 hours to ``within 
five business days''. The Agency understands that identification may 
occur on a weekend, a holiday, or other period of time when the 
responsible corporate official is unavailable. This revision accounts 
for those situations where notification within 24 hours would not be 
practicable. Additionally, the Agency is clarifying that it is only 
asking for email notification of potentially invalid RINs (``PIRs'') 
via the EMTS support line (/support.com">support.com">support@epamts-support.com), along with a 
brief initial explanation of why the RIN is believed to be a PIR. The 
Agency understands that resolution of the problem will take additional 
time in most instances, thus the requirement that the RIN generator has 
30 days upon self-identification or notification by the QAP auditor of 
a PIR to take a corrective action, which still includes the remedial 
actions currently available to industry. See Sec.  80.1474 of the 
regulations for details of the administrative process for replacement 
of invalid RINs.
    The administrative process for replacement of invalid RINs places 
initial responsibility to replace invalidly generated RINs on the RIN 
generator responsible for causing the invalidity, regardless of who 
actually owns the invalid RINs at the time that the invalidity is 
discovered. In the event that the RIN generator does not replace the 
invalidly generated RINs according to the administrative process, the 
obligated party will be required to replace the invalid RINs if the 
RINs were verified under the QAP or were unverified. Thus, for 
invalidly generated RINs verified by a QAP and for unverified RINs, the 
obligated party who owns the RINs will bear the replacement 
responsibility. The administrative process for replacement of invalid 
RINs does not, in any way, limit the ability of the United States to 
exercise any other authority to bring an enforcement action under 
Section 211 of the Clean Air Act, or the fuels regulations at 40 CFR 
part 80. Thus, in the event that regulated parties fail to implement 
the administrative process for replacement of any RINs, the EPA could 
bring an enforcement action seeking injunctive relief and civil 
penalties against any or all of the parties that were required to 
replace the invalid RINs. The EPA understands obligated parties would 
retain the ability to contest the invalidity of RINs in any enforcement 
action commenced.
    As an example, the process (fully detailed in the regulations in 
Sec.  80.1474) for replacing invalidly generated RINs, whether Q-RINs 
or unverified, is outlined below. In general, verified potentially 
invalid RINs cannot be transferred or used for compliance purposes.
    In the event that the EPA or the independent third-party auditor 
identifies a RIN that may have been invalidly generated, the RIN will 
be a PIR. The RIN generator will be required to take one of three 
possible corrective actions within 30 days of being notified of the 
PIR:
     If the RIN generator no longer has the PIR in its 
possession, it must retire a valid RIN of the same D-code as the PIR, 
either by purchasing it or by generating a new valid RIN and separating 
it from the physical volume it represents;
     If the RIN generator still has the PIR in its possession, 
it must retire the PIR; or
     If the RIN generator believes the PIR was in fact validly 
generated, it must submit a written demonstration providing a basis for 
its claim of validity to the third-party auditor and the EPA. If the 
third-party auditor determines that the demonstration is sufficient, 
the RIN will no longer be a PIR, and will not need to be replaced; 
however, the EPA will reserve the right to make a determination 
regarding the validity of the RIN. If the EPA determines that the 
demonstration is sufficient, the RIN will not need to be replaced. 
However, if the third-party auditor determines the demonstration is not 
sufficient and if the EPA confirms that determination, or if the EPA 
determines the demonstration is not sufficient, it will notify the RIN 
generator of that finding and again require the RIN generator to 
replace the invalid RIN within 30 days.
    In order to allow a producer to replace a PIR with a new valid RIN 
from

[[Page 42086]]

renewable fuel that it has generated, we are finalizing a new provision 
in Sec.  80.1429 that will permit producers to separate RINs from 
volume they produced for the specific purpose of retiring RINs to 
replace a PIR deemed invalid. If the RIN generator retired a valid RIN 
to replace a PIR deemed invalid, the invalid RIN that it replaced can 
continue to be transferred or used for compliance by any party. 
However, if the RIN generator for any reason failed to replace the PIR 
deemed invalid, the RIN owner will be notified of the failure and will 
be required to retire the invalid RIN within 60 days. If the PIR deemed 
invalid had already been used for compliance with its RVO, the 
obligated party will be required instead to correct its compliance 
reports by removing the invalid RINs from its reports and replacing the 
invalid RINs with valid RINs. Unless and until the PIR deemed invalid 
is replaced, either by the RIN generator or the obligated party, it 
will remain an invalid RIN and cannot be transferred or used for 
compliance purposes.
    When an auditor or the EPA determines that a PIR is invalid, the 
RIN generator will be notified directly. At this point, the process of 
retiring an appropriate valid RIN will begin.
    There will be two forms of invalid RIN replacement:
    (1) If a party that is required to replace an invalid verified RIN 
owns the RIN in question, it may be retired through EMTS in the same 
way that invalid RINs under the current regulations are retired.
    (2) If a party that is required to replace an invalid verified RIN 
does not own the RIN in question, or the RIN has already been used for 
compliance, the party will be required to acquire a valid RIN and 
retire it in place of the invalid RIN. In this case, since it will be a 
valid RIN that is being retired, a new retirement code reason has been 
created in EMTS for this purpose.
    The Agency received multiple comments regarding one particular 
element of the administrative process for replacement of invalidly 
generated RINs. In the administrative process, RIN generators and 
independent third-party auditors are required to notify the EPA of 
their identification of PIRs within 24 hours. The commenters felt that 
24-hour notice of PIRs to the EPA was too short of a window and did not 
allow sufficient time for proper investigation of the PIR and 
subsequent resolution of the problem. Commenters suggested being 
allowed anywhere between three and 30 days to notify the EPA of a PIR. 
The Agency's goal of this element is simply identification and 
notification of the PIR to the EPA, not resolution of the problem, if 
one exists, with the PIR. Therefore, the Agency is changing the 
notification window from 24 hours to ``within five business days''. The 
Agency understands that identification may occur on the weekend or 
holidays or while the responsible corporate official is unavailable. 
This revision accounts for those situations where notification within 
24 hours would not be practicable.
    Multiple commenters suggested that the administrative process 
should revolve around ``confirmed'' problems with RIN validity as 
opposed to ``potential'' problems with RIN validity. Commenters 
reasoned that if it applied to ``confirmed'' problems as opposed to 
``potential'' problems, auditors and producers would have time to fix 
any associated problems and that many ``potential'' problems do not 
result in invalid RINs. The Agency is clarifying that it is only asking 
for email notification of PIRs via the EMTS support line, along with a 
brief initial explanation of why the RIN is believed to be a PIR. The 
goal of this element is simply identification and notification of the 
PIR to the EPA, not resolution of the problem, if one exists, with the 
PIR. The Agency understands that resolution of the problem will take 
additional time in most instances; thus the requirement that the RIN 
generator has 30 days upon identification or notification of a PIR to 
take a corrective action, which still includes the remedial actions 
currently available to industry. Additionally, only once the 
``potential'' problem is ``confirmed'' and the RIN is invalid would the 
owner of that RIN be notified, so there will be no effect on liquidity 
in the market or any market disruptions for notifying the EPA of 
potential problems with RIN validity.
    Additionally, the Agency originally proposed that an invalid 
verified RIN must be replaced by a valid verified RIN of the same D 
code. After receiving and reviewing several comments that any valid 
RIN, whether verified or unverified, should be able to replace an 
invalid verified RIN as long as they were of the same D code, the 
Agency agrees with this assessment. The purpose of replacement of 
invalid RINs is to ensure that a valid RIN has been retired in its 
stead to meet an RVO. The key is the validity of the RIN, not whether 
it was verified or not. Therefore, the Agency is finalizing that 
replacement of invalid verified RINs may be completed with either valid 
verified RINs of the same D code or valid unverified RINs of the same D 
code.
4. Producer Separation of RINs
    We did not propose but requested comment on a regulatory change in 
which renewable fuel producers would be prohibited from separating 
RINs. Based on the discussion below and comments received, the Agency 
is keeping the separation provisions of the regulations as currently 
written, and producers will retain the ability to separate RINs under 
the limited circumstances specified in Sec.  80.1429(b)(4).
    Under the current regulations, RINs generally cannot be separated 
from the wet gallons they represent until the point of fuel blending or 
fuel purchase by an obligated party. However, a renewable fuel producer 
can separate RINs from their associated volumes of renewable fuel under 
the limited conditions specified in Sec.  80.1429(b)(4), including 
where the fuel in question has been designated for a conforming use 
(i.e., for transportation fuel, heating oil or jet fuel) and is in fact 
used for such a conforming use, without further blending. In this 
circumstance, any owner of the RIN and associated gallon (including the 
producer of the fuel) may separate the RIN from the fuel. The intent of 
this provision was to avoid situations in which RINs were never 
separated from renewable fuel due to its use in neat form or some 
atypical blend.
    In the fraud cases that occurred in 2011-2012, some registered 
biodiesel producers exploited this provision and generated, separated, 
and sold invalid RINs without an associated volume of renewable fuel. 
Some have argued that removing this option and prohibiting producers 
from separating RINs from the volumes they produce would reduce the 
ability of producers to generate fraudulent RINs without the knowledge 
of other parties in the RIN market.
    While this mechanism might reduce the problem of producer fraud (of 
the type already seen), it would not eliminate the number of other ways 
invalid RINs could be generated at the point of production. Moreover, 
it could create new concerns, as legitimate cases of producers 
separating RINs from volume would be prohibited. This would only be a 
partial solution to the problem of fraud and invalid RIN production. We 
solicited comment on the benefits of producers' ability to separate 
RINs from wet gallons in the limited circumstances that are currently 
permitted, and whether these benefits outweigh the potential added risk 
of fraudulent RINs in the market.
    The Agency received comments from obligated parties that removing 
producers' ability to separate RINs

[[Page 42087]]

would greatly reduce the ability of producers to generate fraudulent 
RINs. The Agency also received comments from producers, particularly 
small producers, as well as their trade associations, that the ability 
of small producers to separate RINs is vital to their livelihood. These 
comments stated that many of the gallons sold by small producers, 
particularly in local and regional markets, are sold to end-users who 
use the biodiesel directly and are not obligated parties under the RFS 
and do not want to be in the business of owning or selling RINs. These 
small producers often sell fuel directly to farmers or municipalities, 
and separate the RIN from the wet gallon so the buying party does not 
have to deal with the RIN. The producer comments also noted that 
allowing producers to separate RINs allows for easier compliance with 
the RFS volume requirements as the fuel can be used locally rather than 
shipped to obligated parties. The Agency agrees that allowing 
producers, particularly small producers, to separate RINs under certain 
circumstances is critical to their keeping their businesses viable.
    The Agency notes that the percentage of RIN separations for neat 
use is extremely small when compared to the percentage of RIN 
separations by obligated parties and blenders. For example, through 
September 2013, for biomass-based diesel (D4 RINs), the percentage of 
RIN separations attributed to neat use was 1.7%, while the percentage 
of RIN separations attributed to obligated parties and blenders was 
92.2%. Additionally, the implementation of QAPs will provide an added 
layer of scrutiny on producers to ensure they are producing actual 
gallons of fuel with the associated RINs. Overall, the EPA believes the 
benefits of continuing to allow producer separation of RINs under the 
conditions specified in the regulations outweighs the reduction in risk 
of invalid RIN generation.

B. Treatment of Interim Period RINs

    In the proposed rulemaking, the EPA set forth guidelines for an 
informal ``pre-registration'' process to facilitate the development and 
implementation of QAPs in the interim period between publication of the 
NPRM and the final rule's effective date. The EPA reviewed auditors' 
registration information and proposed QAPs, and provided guidance on 
whether the plans appeared to satisfy the proposed requirements. The 
EPA identified those auditors whose submissions were consistent with 
the requirements in the proposed regulations as part of this informal 
pre-registration process. RINs audited prior to the effective date of 
the final rule through a QAP which the EPA had informally pre-
registered could be informally verified by the auditor, but they would 
only be formally verified after the final rule goes into effect, and 
after the EPA approved the QAP that was used in the audit process. 
Several auditors made use of this informal process. The names of those 
auditors and QAPs whose submissions were consistent with the applicable 
requirements in the proposed regulations were published on the EPA's 
Web site (http://www.epa.gov/otaq/fuels/renewablefuels/qap.htm).
    Furthermore, given the short time period of RIN generation at issue 
in the period between publication of the NPRM and the final rule's 
effective date and the desire to have QAP plans start up as quickly as 
possible, the EPA allowed auditors to verify RINs generated before the 
date the audit was completed. This ``retrospective'' RIN verification 
was only available prior to the effective date of the final rule, was 
only allowed for auditors whose QAPs were already in place and fully 
operational, and could only be performed once per producer. In other 
words, the one-time retrospective audit, if used, had to be completed 
prior to the effective date of the final rule. These limitations were 
intended to ensure that auditors were not inappropriately misusing this 
flexibility by doing all retrospective audits until the final rule's 
effective date. Instead, they were encouraged to get QAP-based audits 
up and running in their intended prospective form as soon as possible, 
while allowing reasonable flexibility to account for the start-up lag.
    The EPA's review of proposed QAPs and the informal pre-registration 
process was not a final agency decision or approval of any auditor or 
QAP. The EPA's initial review of auditors' proposed QAPs provided 
guidance as to whether the EPA had any concerns about the plans and 
whether they were consistent with the requirements in the proposed 
regulations. Publication of the auditors' names and available QAPs was 
intended to provide useful information for outside parties who were 
evaluating the risk associated with RINs audited prior to the effective 
date of the final rule. The EPA's guidance or feedback to the auditors 
conferred no legal rights or privileges to the auditors, or to the 
production facilities and RINs they reviewed prior to the final rule's 
effective date.
    Through this pre-registration process, the auditors began to market 
their QAP services and review RINs for purchasers, with a great deal of 
confidence that those RINs would receive all the benefits of QAP-
verified RINs after the final rule became effective. We noted in the 
NPRM that if the requirements or structure of the QAP program should be 
altered in the final rule, we expected that RINs reviewed by auditors 
prior to the final rule according to the requirements set out in the 
NPRM would still be eligible for treatment as QAP-verified RINs.
    Since publication of the NPRM, the EPA received and reviewed a 
number of QAP plans from prospective auditors and informally pre-
registered six of them. These auditors have been developing a clientele 
of producers and RIN purchasers and applying their QAP procedures to 
RINs. The review and development of the proposed QAPs has been an 
iterative process between the EPA and the potential auditors. This 
process has been extremely useful both for the auditors in developing a 
QAP that is consistent with the NPRM's standards and also for the EPA 
in developing the final rule. Both QAP A and QAP B procedures were 
developed and applied to RINs during this period, with the vast 
majority being QAP B RINs.
    As further discussed in section II.A.1 of this preamble, we are 
finalizing only a single QAP for use as of January 1, 2015, with RIN 
owners retaining replacement obligation for invalid verified RINs. 
However, any RINs audited and informally verified according to a QAP A 
or QAP B as proposed in the NPRM prior to the final rule's effective 
date will still receive the treatment proposed for QAP A or QAP B RINs 
in the NPRM if the auditor's registration and QAP are approved by the 
EPA after the final rule is effective. The EPA will review all pre-
registered QAPs after the final rule's effective date and any RINs that 
were informally verified under a pre-registered QAP by a registered 
auditor will be treated consistently with the proposed provisions for 
A-RINs and B-RINs in the NPRM. Also, any RINs generated from the 
effective date of the final rule through December 31, 2014 that are 
audited and verified according to a registered QAP A or B will also 
receive the treatment proposed for QAP A or QAP B RINs in the NPRM. In 
other words, all RINs verified by a QAP that is registered as an A or B 
QAP after the effective date of the final rule and that are generated 
prior to January 1, 2015, are considered ``interim RINs'' because the 
``interim period'' is defined as the period from publication of the 
NPRM through December 31, 2014. We determined that in order to 
facilitate a

[[Page 42088]]

smooth transition to EMTS and allow sufficient time for user testing 
and development, the interim period (in which auditors can continue to 
verify RINs according to an Option A or Option B QAP) would have to be 
extended beyond the effective date of the final rule. Auditors applying 
Option A and Option B QAPs will continue to maintain records of their 
activities and of RINs verified through their QAPs, just as they did in 
the period before the final rule's effective date. A-RINs and B-RINs 
will not be reflected in any way in EMTS reporting. If the EMTS system 
is capable of fully handling the ``tagging'' of RINs as Q-RINs prior to 
the end of the interim period, the EPA may offer auditors the 
opportunity to begin verifying RINs under the final ``Q-RIN'' protocol 
prior to January 1, 2015.
    For A-RINs generated in the interim period, the applicable 
provisions, discussed further in section II.C of this preamble, include 
an affirmative defense to civil penalties for owners of invalid QAP-
verified RINs who unknowingly transferred or retired the RINs for 
compliance with their RVOs. They also include the auditor's replacement 
responsibility for any invalid verified A-RINs that are not replaced by 
the producer up to a two percent cap, and the RIN owner's corresponding 
lack of replacement responsibility for those RINs. Auditors who 
verified these interim period A-RINs are obligated to maintain the 
replacement mechanism sufficient to meet their potential replacement 
responsibility, as set forth in the NPRM. Auditors who marketed and 
applied Option A QAP procedures during the interim period are not 
required to submit their QAP as an Option A QAP after the final rule, 
but may submit it as an Option B QAP. This may be preferable if, for 
instance, the auditor does not wish to maintain the replacement 
mechanism responsibility for the required 5 year period. The Option A 
QAP requirements set out in the NPRM were inclusive of all Option B 
requirements, so any QAP fulfilling the Option A requirements would 
also fulfill the Option B requirements.
    RINs audited and informally verified according to a QAP B during 
the interim period will receive the treatment proposed for B-RINs in 
the NPRM, which is the same treatment proscribed generally for verified 
``Q-RINs'' in the final rule. Once the EPA registers a QAP B auditor 
and approves their QAP, then any RINs that were informally verified 
during the interim period by that auditor using that QAP will be 
treated as QAP B verified RINs under the final rule, and will receive 
the benefits for QAP B verified RINs, including an affirmative defense 
to civil penalties for owners of invalid B-RINs who unknowingly 
transferred or retired the RINs for compliance with their RVOs. They 
also include a limited exemption for the RIN owner's obligation to 
replace up to two percent of the invalid verified RINs, if the producer 
does not replace them first. These provisions are further described in 
section II.D of this Preamble.

C. Provisions of RIN Verification Under QAP A During the Interim Period

    Given that there will be only a single QAP finalized, the 
provisions and elements of QAP A that were proposed in the NPRM will be 
finalized for a QAP A used in the interim period. A number of comments 
were raised regarding QAP A which has led the Agency to not finalize it 
outside of the interim period. However, in considering those same 
comments for the interim period, we have concluded that it is 
appropriate to finalize QAP A as proposed since any benefits to 
changing QAP A in response to comments would not be outweighed by the 
significant complexity it would entail. This is especially true when 
considering parties have already implemented QAP A as proposed during 
the interim period. The discussion for why only a single QAP is being 
finalized is discussed in Section II.A.1.
    We are finalizing the provisions of RIN verification under a QAP A 
used during the interim period as was proposed in the NPRM except for 
one element of the affirmative defense.\10\ For consistency in 
affirmative defense elements of QAP A and the single QAP after the 
effective date of this final rule, the Agency is increasing the 
notification timeframe for QAP A from ``within 24 hours'' to ``within 
five business days'' as it did for the single QAP. A QAP A used during 
the interim period will include an affirmative defense (see Sec.  
80.1473(c) of the regulations), a RIN replacement mechanism held by the 
auditor (see Sec.  80.1470(b) of the regulations), a cap on auditor 
replacement of invalid A-RINs (see Sec.  80.1470(c) of the 
regulations), and a process for determining who will replace any 
invalid RINs (see Sec.  80.1474 of the regulations).
---------------------------------------------------------------------------

    \10\ Please see 78 FR 12158 (February 21, 2013) for a detailed 
description of QAP A as proposed.
---------------------------------------------------------------------------

    With regard to the required RIN replacement mechanism, it must 
provide coverage for two percent of each D code of A-RINs verified by 
an auditor in the current year and (up to) the previous four years. For 
example, the RIN replacement mechanism for A-RINs verified during the 
interim period in 2013 should be capable of replacing those A-RINs 
until the end of 2017. Likewise, the RIN replacement mechanism for A-
RINs verified during the interim period in 2014 should be capable of 
replacing those A-RINs until the end of 2018. Note that the interim 
period for verifying RINs under QAP A ends December 31, 2014. However, 
the RIN replacement mechanism must be capable of replacement of A-RINs 
until the aforementioned dates.
    We also believe it is appropriate to cap the number of A-RINs that 
each auditor must replace at two percent of the A-RINs it has verified 
in the interim period. In other words, the RIN replacement cap should 
be equal to the minimum replacement coverage required for Option A 
auditors. Given that QAP A is only available during the interim period 
and will cease after December 31, 2014, the cap will apply to all A-
RINs that have been verified by an auditor during the interim period.

D. Provisions of RIN Verification Under QAP B During the Interim Period

    Given that there will be only a single, new QAP finalized after the 
interim period, the provisions and elements of QAP B that were proposed 
in the NPRM will be finalized for a QAP B used during the interim 
period. The majority of commenters did not address individual elements 
of QAP B, and were in favor of the affirmative defense and limited 
exemption provisions. For consistency in affirmative defense elements 
of QAP B and the single QAP after the effective date of this final 
rule, the Agency is increasing the notification timeframe for QAP B 
from ``within 24 hours'' to ``within five business days'' as it did for 
the single QAP. As a result, in the final rule, the Agency is 
finalizing a single new QAP that incorporates the majority of the 
characteristics of QAP B (there will be one additional verification 
component under RIN generation). The finalization of QAP B for the 
interim period reflects the fact that parties have already implemented 
QAP B as proposed during the interim period. The discussion for why 
only a single QAP is being finalized is discussed in Section II.A.1.
    Again, we are finalizing the provisions of RIN verification under a 
QAP B used during the interim period as was proposed in the NPRM.\11\ A 
QAP B used during the interim period will include an affirmative 
defense (see Sec.  80.1473(d) of the regulations), a two percent 
limited exemption in calendar

[[Page 42089]]

years 2013 and 2014 (see Sec.  80.1474(e) of the regulations), and a 
process for determining who will replace any invalid RINs (see Sec.  
80.1474 of the regulations).
---------------------------------------------------------------------------

    \11\ Please see 78 FR 12158 (February 21, 2013) for a detailed 
description of QAP B as proposed.
---------------------------------------------------------------------------

E. Provisions for RIN Verification Under the QAP

1. Elements of the QAP
    We are finalizing the elements for the QAP based on QAP B as 
proposed with one additional element. See Section II.E.1.c, RIN 
generation-related components, for this additional element. We are also 
removing the requirement that the production process is consistent with 
the D code being used. The existence of the element requiring that the 
production process is consistent with what is reported in EMTS (see 
Table II.D.1.b-1, element 2-1) renders it unnecessary. The QAP will be 
used by EPA-approved independent third-party auditors to audit 
renewable fuel production. The QAP will have to include a list of 
elements that the auditor will check to verify that the RINs generated 
by a renewable fuel producer or importer are appropriate given the 
feedstock, production process and fuel for which RINs were generated. 
Therefore, each QAP must identify the specific RIN-generating pathway 
from Table 1 to Sec.  80.1426 or a petition granted pursuant to Sec.  
80.1416 that it is designed to audit.
    We requested comment on these proposed elements, including detailed 
descriptions of any elements not mentioned below. We also requested 
comment on whether quarterly monitoring is appropriate, or whether 
different components could or should be subject to different schedules 
(e.g., monthly, biannually, etc.), and what those schedules should be, 
and why. Some commenters were against the quarterly requirement for 
various components of the QAP, stating that there is no reason to 
review documentation more frequently than annually if it does not 
change regularly. The EPA disagrees with these comments, as verifying 
quarterly that procedures and processes have not changed is an 
essential part of the QAP. Since RINs will be verified only for the 
period following an audit, allowing more time between reviews may 
increase the likelihood of fraud and reduce the effectiveness of the 
QAP. The one exception to this is the annual attest report, which is 
submitted annually, and therefore can be reviewed annually. Other 
comments expressed concern over the QAP covering elements of production 
that were not required under RFS2. We feel that the requirements are 
balanced and give assurance that the production process from feedstock 
to RIN generation was performed appropriately, and thus, are finalizing 
all requirements for the single, new QAP as were proposed for QAP B.
    Additional comments and the required elements of the QAP are 
discussed below.
a. Feedstock-Related Components
    There are eight required elements in the QAP designed to ensure 
that the feedstocks used in the production of renewable fuel qualify to 
generate RINs. First, for each batch of renewable fuel, the QAP must 
verify that feedstocks meet the definition of ``renewable biomass,'' 
and identify which renewable biomass per Sec.  80.1401.
    There are specific required elements depending on the type of 
feedstock. For instance, if the feedstock is separated yard waste, 
separated food waste, or separated MSW, the QAP must verify that a 
separation plan has been submitted and accepted or approved, as 
applicable, as part of the registration requirements under Sec.  
80.1450, and meets the requirements of Sec.  80.1426(f)(5), and that 
all feedstocks being processed meet the requirements of the separation 
plan. If the renewable fuel producer claims that the feedstocks qualify 
under the aggregate compliance approach, the QAP will verify that the 
feedstocks are planted crops or crop residue that meet the requirements 
of Sec.  80.1454(g).
    The QAP must verify that the feedstocks used to produce renewable 
fuel are valid for the D code being claimed under Sec.  80.1426 (or 
have an approved petition under Sec.  80.1416) and must be consistent 
with the information reported in EMTS. The QAP will verify that the 
feedstock used to produce renewable fuel is not a renewable fuel from 
which RINs were already generated, unless the fuel is produced pursuant 
to an EPA-approved petition under Sec.  80.1416 and the petition and 
approval includes an enforceable mechanism to prevent double counting 
of RINs.
    Finally, the QAP must verify the accuracy of all feedstock-related 
factors used in calculation of the feedstock energy used under Sec.  
80.1426(f)(3)(vi) or (f)(4), as applicable, including the average 
moisture content of the feedstock, in mass percent, and the energy 
content of the components of the feedstock that are converted to 
renewable fuel, in Btu/lb. The feedstock-related elements required for 
the QAP are shown in the table below. All items will be required to be 
monitored on a quarterly basis.

      Table II.E.1.a-1--QAP Monitoring Frequency--Feedstock-Related
------------------------------------------------------------------------
                                                 Component
------------------------------------------------------------------------
1-1.............................  Feedstocks are renewable biomass.
1-2.............................  Separation plan for food or yard waste
                                   submitted and accepted.
1-3.............................  Separation plan for municipal solid
                                   waste submitted and approved.
1-4.............................  Feedstocks meet separation plan.
1-5.............................  Cropand/or crop residue feedstocks
                                   meet land use restrictions.
1-6.............................  Feedstock valid for D code, consistent
                                   with EMTS.
1-7.............................  Feedstock is not renewable fuel where
                                   RINs generated.
1-8.............................  Accuracy of feedstock energy
                                   calculation.
------------------------------------------------------------------------

b. Production Process-Related Components
    There are four required elements in the QAP designed to ensure that 
the renewable fuel production process is appropriate for the RINs being 
generated. Auditors submitting QAPs for EPA approval will be required 
to provide a list of specific steps they will take to audit all four 
elements.
    First, the QAP must verify that production process technology and 
capacity used matches information reported in EMTS and in the 
facility's RFS2 registration. The QAP also must verify that the 
production process is capable of producing, and is producing, renewable 
fuel of the type being claimed, i.e., is consistent with the D code 
being used as permitted under Table 1 to Sec.  80.1426 or a petition 
approved through Sec.  80.1416.
    For each batch of renewable fuel, the QAP requires mass and energy 
balances of the production process, and must verify that the results 
match expectations for the type of facility being audited (e.g., 
biodiesel from soybean oil may have different expectations than 
biodiesel from non-food grade corn oil) based on typical values from 
prior input/output values, or similar facilities if prior values are 
not available. Energy inputs from on-site energy creation (e.g., 
propane, natural gas, coal, biodiesel, heating oil, diesel, gasoline, 
etc.) and/or energy bills, and mass inputs/outputs such as feedstocks, 
additional chemicals, water, etc., are required as part of the mass and 
energy balances.
    Finally, the QAP must verify the accuracy of all process-related 
factors used in calculation of the feedstock energy (FE) under Sec.  
80.1426(f)(3)(vi) or (f)(4), as applicable. The production process-
related elements for the QAP are shown in the table below. All items 
shall be monitored on a quarterly basis.

[[Page 42090]]

 Table II.E.1.b-1--QAP Monitoring Frequency--Production Process-Related
------------------------------------------------------------------------
                                                 Component
------------------------------------------------------------------------
2-1.............................  Production process consistent with
                                   EMTS.
2-2.............................  Mass and energy balances appropriate.
2-3.............................  Accuracy of process-related factors
                                   used in feedstock energy (FE)
                                   calculation.
------------------------------------------------------------------------

c. RIN Generation-related Components
    There are eight required elements in the QAP designed to ensure 
that the renewable fuel being produced qualifies to generate RINs, and 
that the number of RINs generated is accurate. In finalizing the 
elements for the QAP, we have added one requirement to the regulations 
that we proposed. The additional requirement is that auditors must 
verify that RIN generation is consistent with wet gallons produced. See 
the discussion below for more information.
    For each batch of renewable fuel, the QAP must verify that volumes 
of renewable fuel for which RINs are being generated are designated for 
use as transportation fuel, heating oil, or jet fuel in the 48 
contiguous states and Hawaii. This verification should also take into 
account the additional Product Transfer Document (PTD) designation 
requirements for all renewable fuels, and registration, reporting and 
recordkeeping requirements for fuels not typically used as 
transportation fuel, heating oil, or jet fuel. See section III.B.1 of 
this preamble for further discussion of these additional requirements.
    The QAP must verify a number of things related to the fuel type. 
For instance, the QAP will include verification of the existence of 
certificates of analysis demonstrating that the renewable fuel being 
produced meets any applicable specifications and/or definitions in 
Sec.  80.1401, and verify contracts with lab(s) for certificates of 
analysis, unless a facility has an on-site laboratory. If on-site, the 
QAP must verify lab procedures and test methods. The QAP must verify 
that renewable fuel being produced at the facility and that can be 
produced, matches information in RFS2 registration in terms of chemical 
composition, and must sample and test the final fuel and compare to any 
applicable specifications. The QAP must verify that renewable fuel 
being produced matches the D code being claimed under Sec.  80.1426, or 
approved petition under Sec.  80.1416.
    The QAP must verify a number of things related to the volume of 
renewable fuel produced, including a check to ensure that volume 
temperature correction procedures are followed correctly. The QAP must 
verify that the volume of renewable fuel produced matches expectations 
for the amount of feedstock being processed. The QAP also must verify 
the accuracy of all fuel-related factors used in calculation of the 
feedstock energy, as applicable, including equivalence value for the 
batch of renewable fuel and the renewable fraction of the fuel as 
measured by a carbon-14 dating test method.
    The QAP must verify that the production volume being claimed 
matches storage and/or distribution capacity and that actual volume 
production capacity matches the value specified in the facility's RFS 
registration. Finally, the QAP must verify that appropriate RIN 
generation calculations are being followed under Sec.  80.1426(f)(3), 
(4), or (5) as applicable, and that RIN generation was consistent with 
wet gallons produced. We are also specifying in the regulations that 
the auditor must verify that RIN generation was consistent with wet 
gallons produced. While this was discussed in the proposal (see 78 FR 
12182), it was not explicit in the regulations. We are making it 
explicit in the final regulations. The RIN generation-related elements 
for QAPs are shown in the table below. All items will be required to be 
monitored on a quarterly basis.

   Table II.E.1.c-1--QAP Monitoring Frequency--RIN Generation-Related
------------------------------------------------------------------------
                                                 Component
------------------------------------------------------------------------
3-1.............................  Renewable fuel designated for
                                   qualifying uses.
3-2.............................  Certificates of analysis.
3-3.............................  Renewable fuel matches D code or
                                   petition.
3-4.............................  Renewable content R is accurate.
3-5.............................  Equivalence value EV is accurate,
                                   appropriate.
3-6.............................  Volume production capacity is
                                   consistent with registration.
3-7.............................  RIN generation calculations.
3-8.............................  RIN generation consistent with wet
                                   gallons.
------------------------------------------------------------------------

d. RIN Separation-Related Components
    There are three required elements in the QAP to verify that RINs 
were separated properly. First, under the limited circumstances where a 
renewable fuel producer or importer separates RINs, the QAP will be 
required to verify that any RIN separation being done by the producer 
was done according to the requirements of Sec.  80.1429, was reported 
to EMTS accurately and in a timely manner, and is supported by records. 
The QAP will be required to ensure that renewable fuel producers who 
export renewable fuel, or cause the export of renewable fuel, do not 
generate RINs, or alternatively that any RINs generated were 
appropriately retired. Finally, the QAP must verify the accuracy of the 
annual attestation.
    The RIN separation-related elements for the QAP are shown in the 
table below. All items must be monitored on a quarterly basis, except 
for the annual attestation review, which must be monitored yearly.

   Table II.E.1.d-1--QAP Monitoring Frequency--RIN Separation-Related
------------------------------------------------------------------------
                                                 Component
------------------------------------------------------------------------
4-1.............................  Verify RIN separation.
4-2.............................  Exported fuel not used to generate
                                   RINs.
4-3.............................  Verify accuracy of annual attestation.
------------------------------------------------------------------------

2. Approval and Use of QAPs
a. Approval of QAPs
    A third-party auditor choosing to verify RINs under the quality 
assurance program must submit a QAP to the EPA for approval. A separate 
QAP is required for each different feedstock/production process/fuel 
type combination (i.e., pathway). A QAP for a given pathway may be used 
for multiple facilities for which that pathway applies. A QAP must be 
submitted for approval annually. A QAP will be deemed valid for one 
year from the date the EPA notifies the submitting party that its QAP 
has been approved. Only an EPA-approved QAP can be used by a third-
party auditor to provide audit services to renewable fuel producers.
b. Frequency of Updates/Revisions to QAPs
    We are finalizing a ``general'' and ``pathway-specific'' QAP 
arrangement, where the general QAP will cover the common elements of 
the QAP and the pathway-specific QAP will cover elements that require 
additional verification steps outside of the general QAP. We are also 
finalizing that QAP plans are pathway-specific, and auditors may verify 
RINs for any facility that uses a pathway for which they have been 
approved. This is consistent with what was proposed in the NPRM, and is 
simply a clarification of the method for implementation.

[[Page 42091]]

    We requested comment on what changes would require a new QAP to be 
submitted for approval. Specifically, we requested comment on whether a 
new QAP should be required to be submitted to the EPA if the audited 
facility changes operations, feedstock, fuel type, etc. Based on 
comments received, we would like to clarify the process for updating 
and/or revising a QAP.
    Potential QAP auditors must submit a ``general'' QAP to the agency 
that outlines the plan for verifying each of the elements of the QAP. 
In addition to the general QAP, a ``pathway-specific'' QAP must be 
submitted for each of the pathways they intend to audit. For example, a 
general QAP might outline the steps the auditor will use to verify that 
equivalence value is appropriate for all producers, whereas a pathway-
specific QAP may outline the steps to verify that a separated food 
waste plan has been submitted for producers using used cooking oil as a 
feedstock to produce biodiesel. If an auditor feels that a section of 
the general or pathway-specific QAP does not apply, they may indicate 
``Not Applicable'' in that section of their QAP. An example might be an 
auditor that does not intend to audit any facilities that require 
testing of renewable content according to Sec.  80.1426(f)(9), and 
would therefore indicate in the general QAP that it did not apply.
    Once general and pathway-specific plans have been approved for a 
potential auditor by the agency, the auditor may verify production for 
any facility using one of their approved pathways. The auditor does not 
need to submit any additional information to the agency if they add 
producers who use a pathway for which they are approved. If, however, a 
producer chooses to use a pathway for which the auditor does not have 
approval, then any RINs generated by that producer will not be verified 
until the auditor submits an application for that pathway, and it is 
subsequently approved. Renewable fuel produced prior to the acceptance 
of a pathway for a QAP auditor may later be verified, as long as the 
QAP auditor followed the verification steps outlined in the submitted 
pathway-specific QAP, and the fuel is still within the eligible RIN 
generation window.
    If an auditor finds that it is necessary to make a change to their 
QAP, they may submit an updated plan to the EPA for approval. In an 
effort to avoid penalizing producers for being proactive in their 
ongoing QAP development, submitting a change to the EPA will not affect 
the status of any current QAP plans. Rather, the change will be queued, 
and the current QAP will remain in effect until approval or rejection 
of the updated submittal. If the agency chooses to reject the update, 
the existing QAP will remain in place and be unaffected by the attempt 
to update. If no QAP is in place, then RINs may not be verified until 
the QAP is approved.
3. Importers and the Use of a QAP
    We are finalizing that foreign producers may participate in the QAP 
under the same production requirements as a domestic producer, although 
the method of implementation for each of the requirements may vary 
based on circumstances for each producer, domestic or foreign.
    We requested comment on the likelihood of such producers 
participating in the quality assurance program, any difficulties to 
participating they might encounter, and any issues that could affect 
the integrity of the proposed program.
    The quality assurance program will also apply to RINs generated for 
foreign-produced renewable fuel. Foreign producers of renewable fuel 
must be approved by the EPA and must meet all requirements applicable 
to non-foreign producers, i.e., the provisions of Subpart M. Such 
producers can engage a registered third-party auditor to audit their 
facility in accordance with the proposed quality assurance program. 
However, RINs generated from imported fuel will only be considered 
verified under the quality assurance program if both the associated 
foreign renewable fuel production facility, and the corresponding 
importer, are audited under the same EPA-approved QAP. If multiple 
auditors are involved in the verification process, the procedure for 
verification must be explicitly spelled out in a single associated QAP. 
In addition, the party submitting the QAP must accept responsibility 
for the entire QAP process, even if sections are performed by a partner 
organization. If a pre-determined arrangement is not a part of the QAP, 
then RINs from foreign producers may not be audited by multiple parties 
(for example, Auditor A verifies the foreign renewable fuel production 
and Auditor B verifies the importer RIN generation).
    Some commenters indicated that foreign producers should be allowed 
to use existing documentation to prove the validity of fuel produced. 
While the EPA does not intend to place any additional burdens on 
foreign producers above what is required for domestic producers, we do 
intend to require foreign producers to be bound by the same QAP 
guidelines and verification requirements as domestic producers, 
although implementation for these elements (such as the verification of 
RIN generation) may vary considerably. For example, an auditor 
verifying production for a foreign RIN generating producer will need to 
ensure that the recordkeeping and bond requirements under Sec. Sec.  
80.1466 and 80.1467 are being met. It will also include verifying any 
certificates of fuel transfer, as well as port of entry testing, none 
of which are required for domestic RIN generation. This is by no means 
an exhaustive list, but rather an example to show that there may be 
significant differences in the requirements to verify a RIN, based on 
the location of the producer and the type of RIN generation. With these 
additional requirements, we believe foreign-produced RINs verified 
through a QAP can be treated in the same manner as any RINs verified 
from domestically produced fuel.

F. Auditor Requirements

    In the NPRM, we outlined a number of proposed requirements for the 
independent third-party auditors that use approved quality assurance 
plans (QAPs) to audit renewable fuel production to verify that RINs 
were validly generated by the producer. We recognized that qualified, 
independent third-party auditors are integral to the successful 
implementation of the quality assurance program. Therefore, based on 
feedback from public comments and reasons discussed below, we are 
finalizing several requirements for third-party auditors in today's 
rulemaking. First, all third-party auditors are required to annually 
register with the EPA. We also will require that third-party auditors 
have professional liability errors and omissions insurance (E&O 
insurance). After the EPA has approved a QAP and registered the third-
party auditor, the auditor can flag RINs in EMTS as verified and notify 
the EPA of potentially invalid RINs as QAPs are implemented. Finally, 
in order to ensure that QAPs are appropriately implemented, we are also 
finalizing recordkeeping, reporting, and attest engagement requirements 
on third-party auditors consistent with similar requirements on other 
parties in RFS.
1. Who can be an auditor?
    One key element of the QAP process is the minimum qualifications 
that the auditors conducting facility visits must have. In the NPRM, we 
proposed three minimum qualifications for an auditor in order to 
implement a QAP and verify RINs. First, as is required of independent 
third-parties that conduct engineering reviews for renewable fuel

[[Page 42092]]

producers under RFS, we proposed that auditors be independent of the 
renewable fuel producers that they are auditing. Second, we proposed 
that auditors have the professional expertise to effectively implement 
QAPs by having a professional engineer participate in the 
implementation of an EPA-approved QAP. Third, we proposed that third-
party auditors carry E&O insurance. The EPA continues to believe that 
these key qualifications provide reasonable assurances that auditors 
can successfully implement QAPs and help avoid the generation of 
invalid RINs at the fuel producer level.
a. Independence
    One of the most important requirements for auditors is that they 
remain independent of renewable fuel producers. Independence of the 
auditor from RIN generators is necessary to ensure that RINs are not 
inappropriately validated due to a conflict of interest between the 
third-party auditor and the renewable fuel producer. In the NPRM, we 
proposed that third-party auditors be subject to the same independence 
definition that exists for independent professional engineers that 
conduct engineering reviews. In the March 2010 RFS final rule, we 
defined an independent third-party as a party that was not operated by 
the renewable fuel producer (or any subsidiary or employee of the 
producer) and free from any interest in the renewable fuel producer's 
business (See 75 FR 14670, March 26, 2010).
    Recognizing the importance of preventing conflicts of interest to 
the successful implementation of the QAP program, we sought comment on 
whether our proposed definition of independence should be expanded to 
ensure that third-party auditors were free from interests from other 
parties regulated by the RFS (e.g., RIN owners and obligated parties). 
We also sought comment on whether we should preclude parties that have 
performed other services, like engineering reviews, attest engagements 
or acting as an agent for the RIN generator, from also implementing 
QAPs for the same RIN generator. For example, we recognized that 
portions of the QAP may involve investigating previous services 
provided by a third-party auditor to RIN generators, and third-party 
auditors may be hesitant to highlight issues that call into question 
their professional reputations creating a potential conflict of 
interest. We did not propose further requirements, however, as we did 
not believe they were necessary, they could interfere with existing 
efforts to ensure compliance, and there could be problems given the 
limited number of parties that could be available for approval as an 
auditor.
    Public comments overwhelmingly agreed that ensuring the 
independence of third-party auditors is paramount to the successful 
implementation of effective QAPs. Commenters noted that third-party 
auditors that had conflicts of interests with audited producers and 
importers or direct or indirect financial interest in RIN markets more 
generally could undermine the QAP program and potentially the entirety 
of the RFS program by failing to report potential issues and 
potentially participating in the perpetuation of fraudulent activities. 
Commenters noted that the EPA should do whatever it could to ensure 
that third-party auditors remained independent by providing meaningful 
oversight and limiting the services that third-party auditors may 
provide for audited RIN generators.
    We received several comments asking that we expand the scope of 
independence to include independence from various parties and 
activities outside of audited RIN generators. Almost all comments that 
addressed the question of third-party auditor independence stated that 
the third-party auditors should be precluded from owning and trading 
RINs. Many commenters expressed concerns that RIN ownership may provide 
a clear financial incentive for third-party auditors to not report 
potential issues, especially if they owned RINs from facilities they 
are auditing. Additionally, commenters argued that allowing third-party 
auditors to own RINs would add one more source of uncertainty in an 
already turbulent RIN market and that the EPA should preclude third-
party auditors from owning and trading RINs. Some commenters argued 
further that third-party auditors should not only be precluded from 
owning RINs, but should also be free from interest in parties that own 
RINs since an auditor could improperly verify RINs to allow the owners 
of those RINs to enjoy the benefits of the QAP program despite the fact 
that those RINs may be invalid. On the other hand, one commenter urged 
the EPA to allow third-party auditors to trade RINs since that would 
make them statutorily responsible for the validity of the RINs. The 
commenter argued that the potential civil liabilities from being 
convicted of RIN fraud would outweigh the EPA's conflict of interest 
concerns.
    We agree with commenters that allowing third-party auditors to own 
or trade RINs could lead to a potential conflict of interest that may 
inhibit an auditor's ability to effectively implement a QAP. The 
benefits to the auditor from allowing third-party auditors to own and 
trade RINs does not outweigh our conflict of interest concerns since 
third-party auditors are in the best position to identify potentially 
invalid RINs and without the proper implementation of a QAP, invalid or 
fraudulent RINs may never be identified, especially if the third-party 
auditor has an incentive to ignore potential issues because they have a 
financial interest in whether RINs are valid. Third-party auditors 
could also use their access to confidential business information for a 
number of RIN generators to speculate on unverified RINs from audited 
RIN generators. Therefore, we are finalizing requirements that preclude 
third-party auditors from owning and trading of RINs.
    Some commenters argued that the EPA should expand the independence 
criterion for third-party auditors to include conflicts of interest 
with obligated parties. In the NPRM, the EPA suggested that it did not 
want to interfere with existing efforts by obligated parties or other 
intermediaries that may ensure compliance with RFS requirements and 
that such interference may hamper existing efforts by industry to 
mitigate invalid RIN generation. One commenter argued against this by 
pointing out that the EPA initially created the QAP program to be 
voluntary so that obligated parties could decide between the level of 
assurance in the quality of RINs outside the QAP program (i.e. under 
``buyer beware'') or participate in the QAP program. They conclude that 
in order to promote consistency in the review for which an affirmative 
defense is available, third-party auditors must be independent even 
from obligated parties. We also received comments that suggested that 
we should allow the quality assurance efforts of an obligated party to 
be used in lieu of a QAP provided by an independent third-party auditor 
if the obligated party's quality assurance efforts satisfied all the 
elements of a QAP.
    Although we recognize that obligated parties have historically 
implemented similar downstream quality assurance programs with great 
success, we also recognize the potential for conflict of interests to 
arise if obligated parties implemented a QAP for a producer or 
importer. If we treated RINs verified outside of a QAP by the obligated 
parties themselves the same as RINs verified by an approved QAP, there 
is a clear potential for the obligated party to verify RINs that are 
invalid to take advantage of the affirmative defense

[[Page 42093]]

elements and take advantage of, and possible even exploit, the 
flexibility of the limited exemption for RIN replacement. This is not 
an appropriate situation, and the EPA is not providing for it. Under 
the voluntary program adopted in this rulemaking, obligated parties 
will have to determine whether their existing quality assurance 
measures provide them adequate assurance to purchase RINs under the 
``buyer beware'' program or in the alternative they can contract the 
services of independent third-party auditors to provide QAP services 
and take advantage of today's QAP program. For the same reasons, we are 
requiring that QAP auditors be independent from obligated parties the 
same way they are required to be independent from the RIN generator.
    We also specifically sought comment on whether third-party auditors 
could act as agents for RIN generators that they were auditing.\12\ We 
received many comments across the spectrum of support for auditor 
agency. Many commenters argued that allowing such a relationship 
between third-party auditors and audited RIN generators could increase 
the likelihood for the verification of invalid RINs. Some commenters 
pointed out that an auditor acting as an agent for an audited RIN 
generator could over generate RINs in collusion with the RIN generator 
since there may be little policing of QAP providers and the QAP 
provider could financially gain from the sale of the additional RINs. 
Other commenters stated that providing these services on behalf of RIN 
generators financially tied third-party auditors too closely to the 
continued success and potentially expansion of audited RIN generators, 
which may inhibit the ability for third-party auditors to impartially 
implement a QAP.
---------------------------------------------------------------------------

    \12\ For purposes of this preamble, agents are persons that act 
on behalf of a regulated party, in this case RIN generators, to 
complete requirements under the RFS program (e.g. generate RINs, 
submit periodic compliance reports, etc.).
---------------------------------------------------------------------------

    Other comments supported the notion that third-party auditors 
should be allowed to serve as agents for audited RIN generators since 
being an associated agent would allow the third-party auditor to have 
full access to oversee RIN generation data to compare with ongoing QAP 
implementation. This access would also allow third-party auditors to 
help producers with corrective actions as they are identified via QAPs. 
This would allow producers to reduce compliance costs. Some commenters 
argued even further suggesting that the EPA require that third-party 
auditors serve as agents to take advantage of the benefits of being an 
associated agent for an audited RIN generator.
    Some commenters suggested that the EPA stop short of allowing 
third-party auditors to act as agents in a RIN generating capacity for 
audited RIN generators, but allow third-party auditors to submit 
compliance reports on behalf of audited RIN generators so long as the 
RIN generator signs off on the report. Such an approach would avoid the 
potential for collusion by allowing third-party auditors to generate 
RINs while saving time and reducing costs for audited RIN generators.
    We believe, and one commenter also noted, that third-party auditors 
need not be agents of audited RIN generators to obtain access to RIN 
generation data since we can provide ``read-only'' access to auditors 
in EMTS which should provide enough information for auditors to 
effectively implement a QAP. Additionally, in the NPRM, we identified 
serious concerns about whether third-party auditors would be free from 
conflicts of interest if they were allowed to generate RINs for audited 
RIN generators. However, the EPA recognizes that submitting compliance 
reports, with assurances from the RIN generator of the accuracy and 
authenticity of required reported information, may provide an 
opportunity to reduce overall compliance costs for RIN generators 
without jeopardizing the independence of third-party auditors. 
Therefore, we are not allowing third-party auditors to generate RINs 
for audited RIN generators, but we are allowing third-party auditors to 
submit periodic compliance reports on behalf of audited RIN generators.
    Some commenters noted that however the EPA designs the QAP program, 
auditors have an inherent conflict of interest since RIN generators 
must pay third-party auditors to enjoy the benefits of the program. 
This creates an incentive for auditors to ensure that their customers 
continue to produce RINs by not reporting potential issues arising from 
audits. The comment suggested that we should expand our definition to 
include that auditors should avoid even the appearance of a conflict of 
interest.
    One commenter suggested that we adopt the conflict of interest 
standard outlined under rule 101 of the American Institute of CPAs. The 
commenter stated that the central articulation of this rule is that an 
auditor may have no direct or material indirect financial interest in 
the client. They argued that this clear and well-established 
requirement should be observed since it would better preserve the 
integrity of the QAP program compared to the proposed requirement.
    We agree that today's QAP program imposes an implicit conflict of 
interest since third-party auditors' services are paid for by RIN 
generators, or for that matter any similar situation that applies to 
any independent party required under the RFS regulations (e.g. 
engineering reviews and attest engagements). We do not agree that the 
independence criterion for third-party auditors should be limited to 
strictly direct and indirect financial conflicts of interest. We 
believe by interpreting conflict of interest more broadly, we will 
raise the standard of independence in the QAP program to a higher level 
than that seen in other portions of the EPA regulations, especially 
considering the importance of maintaining an effective QAP. Therefore, 
we are modifying the independence requirements for third-party auditors 
to preclude the appearance of a conflict of interest. This does not 
preclude third-party auditors from being paid by RIN generators to 
provide auditing services. An example of a situation that serves as a 
potential appearance of a conflict of interest is if a third-party 
auditor has provided consultative engineering services in the 
development and construction of a renewable fuel production facility 
and then later is selected to implement a QAP at the same facility. 
Several elements of the QAP would require the third-party auditor to 
verify services previously provided to the producer that owned the 
facility and would appear to be a conflict of interest since the third-
party auditor may not wish to tarnish its reputation by reporting 
potential issues related to its previous engineering services. 
Furthermore, as discussed in greater detail below, we are finalizing 
requirements to try to mitigate the inherent conflict of interest in 
the QAP program to provide both the EPA and third-party oversight of 
third-party auditors.
    We received many comments that addressed the potential for conflict 
of interests to arise from a singular party that offered a variety of 
services including a QAP for a RIN generator. Some commenters pointed 
out that many parties that may serve as third-party auditors have acted 
or currently act as consultants for RIN generators and this would 
equate to a vested interest by the auditor in the continued success of 
the RIN generators being audited. Other commenters highlighted that 
some potential third-party auditors have provided numerous services to 
a single RIN generator including initial engineering reviews, annual 
attest

[[Page 42094]]

engagements, the submission of periodic compliance reports on behalf of 
RIN generators, and serving as an agent to generate RINs on behalf of 
the RIN generator. These comments argue that allowing a single party to 
provide ``cradle to grave'' services that will now include the 
verification of RINs via a QAP for a RIN generator provides a 
substantial financial incentive for third-party auditors to ignore 
potential issues that may have occurred during prior services and 
identified through a QAP. A third-party auditor that reported such 
potential issues may call into question the validity of all prior work 
for other RIN generators creating a possibility for cascading losses 
for the auditor and RIN generators. Ultimately, these commenters 
concluded that such incentives could possibly undermine the QAP program 
and lead to more RIN fraud.
    The commenters generally offered two suggestions for the EPA in the 
final rule. First, these comments suggested that the EPA limit the 
services a third-party auditor can from provide a RIN generator if they 
are implementing a QAP for a RIN generator. Comments varied on which 
services an auditor should be precluded from providing. For example, 
some comments suggested that third-party auditors not be allowed to 
have conducted the initial engineering review. Others suggested that 
different independent parties should provide each separate requirement 
in RFS that calls for an independent third-party to conduct an action. 
Other comments argued even further that auditors only be allowed to 
implement a QAP and therefore, not allowed to provide any other service 
involving RFS requirements for a RIN generator. This would include 
providing consultation services to aid RIN generators with registration 
paperwork, submitting compliance reports to the EPA or otherwise acting 
as an agent for RIN generators.
    Second, these comments generally advocated that the EPA ensure that 
a system of checks and balances or a ``check the checker'' program 
exist to help ensure that auditors are appropriately implementing QAPs 
and free from conflicts of interest.
    On the other hand, other comments argued that RIN generators that 
participate in the QAP program should receive relief from requirements 
that they believed would be duplicated by the implementation of a QAP 
at a facility. For example, many commenters felt that the burdensome 
periodic facility audits and documentation reviews should displace 
existing requirements for the triennial engineering reviews and annual 
attest engagements since much of the information gleaned from these 
activities will be available through QAP implementation at a facility. 
These commenters pointed out that providing relief for these 
requirements would decrease overall compliance costs to facilities 
participating in the QAP program which may ultimately increase 
participation by facilities in the QAP program. One commenter suggested 
that the EPA not go as far as to eliminate triennial engineering review 
requirements, but rather allow third party auditors to incorporate the 
engineering review within periodic facility audits to reduce some of 
the compliance burden on audited RIN generators.
    Commenters also alluded to the EPA's stated concern in the NPRM 
that excluding third-party auditors that had conducted initial 
engineering reviews for a facility from providing auditing services 
would limit the number of qualified independent-third parties with 
appropriate knowledge of the RFS program, which may delay the adoption 
of QAPs by facilities. Some comments pointed out that this may harm 
existing third parties and provide an advantage to late entry third 
parties since many of the most knowledgeable third-party firms have 
historically provided engineering review and/or annual attest 
requirements. These comments concluded that establishing new 
relationships with third-party auditors with limited RFS expertise 
could increase compliance costs for participating RIN generators and 
decrease the overall quality of assurance provided by the QAP program.
    We are not removing the annual attest engagement and triennial 
engineering review requirements for audited producers and importers. We 
believe, as some commenters pointed out, that these requirements differ 
substantially from QAP audits enough that there is significant value in 
the information provided in these activities that are not captured as 
part of a QAP.
    We continue to be concerned that allowing one party to perform most 
if not all regulatory requirements involving a separate party including 
engineering reviews, attest engagements, and QAP implementation will 
tie an auditor's financial interests too closely to the RIN generators 
being audited. We do not want a program that incentivizes third-party 
auditors to fail to report potentially invalid RINs. Furthermore, even 
if a third-party did not intend to verify a potentially invalid RIN due 
to a potential conflict of interest, having more than one independent 
party provide required services under RFS serves to ``check the 
checker'' promoting better quality assurance and ensuring that the 
goals of the RFS continue to be met. However, we also want to promote 
the participation of RIN generators in this program because we believe 
that an effectively implemented QAP will also help fulfill RFS goals. 
Additionally, we do not want to exclude potential third-party auditors 
that have significant knowledge of the RFS program and renewable fuel 
production facilities from participating in the QAP program by 
establishing provisions that exclude such parties from implementing 
QAPs.
    Therefore, in general we are not precluding third-party auditors 
from providing QAP services to a RIN generator such as initial 
engineering reviews and annual attest engagements. We are, however, 
prohibiting third-party auditors from continuing to provide both annual 
attest engagements and QAP implementation to the same audited RIN 
generator. This means that annual attest engagements and QAP 
implementation must be performed by two separate independent parties, 
i.e. the QAP auditor can perform one but not both of these services. 
For initial and triennial engineering reviews, a third-party auditor 
may conduct engineering reviews and QAP auditing services to the same 
RIN generator, and to reduce costs to the RIN generator, the third-
party auditor may perform engineering reviews as part of a site visit 
required under the QAP.
    For the reasons discussed above, we are finalizing independence 
requirements for third-party auditors based on the proposal with some 
amendments. We are expanding the independence requirement to include a 
prohibition on the buying and trading of RINs by third-party auditors. 
We are also modifying the definition of conflict of interest to include 
even the appearance of a conflict of interest between a third-party 
auditor and an audited RIN generator. This modified definition of 
conflict of interest will preclude third-party auditors from generating 
RINs for audited RIN generators. However, third-party auditors may 
still submit periodic compliance reports. Additionally, in order to 
both ``check the checker'' and preclude a single entity from providing 
all RFS services to a producer or importer, third-party auditors shall 
not be the same party that provides annual attest engagement services 
to producers or importers under Sec.  80.1464. Having previously 
provided an attest engagement for a producer or importer does not 
preclude the third-party auditor from implementing a QAP for

[[Page 42095]]

that producer or importer. Third-party auditors can continue to provide 
engineering review services for audited producers and importers and may 
integrate those services with QAP implementation to the same producer 
or importer to reduce costs. We feel that this approach strikes the 
correct balance of maintaining auditors that are truly independent from 
producers and importers being audited while not excluding knowledgeable 
and capable potential third-party auditors from providing valuable QAP 
services.
b. Professionally Qualified to Implement a QAP
    Another key element to ensure the effective implementation of QAPs 
at renewable fuel production facilities is that auditors have the 
necessary professional expertise and credentials. We require that each 
renewable fuel production facility undergo an engineering review by a 
licensed professional engineer as part of registration. In the NPRM, we 
proposed a similar requirement for auditors since the verification of 
production capabilities of a quality assurance program should be 
similar to the type of review conducted in the engineering review 
process for RFS registration. We proposed that independent third-party 
auditors would demonstrate that they possess the required professional 
expertise during registration. We also proposed to not require that 
companies that register as a third-party auditor be solely constituted 
of professional engineers to implement an EPA-approved QAP and conduct 
facility audits; however, a licensed professional engineer must 
supervise and or work in a team with other employees of the third-party 
auditing company. We also sought comment on whether we should require 
additional expertise (e.g. have third-party auditors have a certified 
public accountant on staff or under contract) and whether to establish 
a RFS competency requirement similar to requirements outlined in 
voluntary consensus standards (established by a voluntary consensus 
standards body) for greenhouse gas verification.
    One commenter suggested that the QAP audits be designed by a 
professional engineer while the audit can be conducted by a team 
supervised by a professional engineer. While many commenters pointed 
out that although some portions of the facility site visits require 
similar expertise to engineering reviews (i.e. would require the 
services of a certified professional engineer), reviewing bills of 
lading and other records would require the expertise of a certified 
public accountant. Other commenters suggested that having a breadth of 
expertise on audit teams will increase the overall effectiveness of 
third-party auditors' ability to implement QAPs. Some argued further 
that the periodic hiring of a third-party auditor to help supervise or 
conduct site visits would be prohibitively costly to audited producers 
and importers. On the other hand, one commenter expressed concern about 
allowing the third-party auditor to only be required to have a 
professional engineer design the audits, but not supervise or attend 
the audit. This commenter highlighted that such a responsibility may be 
delegated to personnel not qualified to successfully implement a QAP 
and ultimately undermine the integrity of a QAP.
    We agree that there are certain elements of the QAPs that would 
better be served by third-party auditors with appropriate professional 
backgrounds in recordkeeping auditing such as a certified public 
accountant. Some of the elements required as a part of a QAP resemble, 
but do not mimic entirely, elements that are currently part of annual 
attest engagements, for which we require an independent certified 
public accountant. However, some elements more closely resemble the 
elements required under engineering reviews and thus necessitating a 
professional engineer. Since an effective QAP involves the technical 
experiences of both professional engineers and certified public 
accountants, we are finalizing requirements that third-party auditors 
have both the qualifications of a professional engineer and a certified 
public accountant.
    We also recognize that third-party auditors may incur substantial 
cost if they have to tender the services of both a professional 
engineer and a certified public accountant for every periodic site 
visit or records review.\13\ We did not intend that every member of a 
team be constituted of professional engineers or certified public 
accountants, but rather that these qualified professionals would 
oversee the development and conducting of site visits and record 
reviews. We believe that qualified professionals will naturally take an 
active interest and participate in auditing activities since it is 
their professional reputations on the line and they may be liable for 
potential violations specified in the prohibited activities section at 
Sec.  80.1460 and for making false statements to the government under 
18 U.S.C. 1001. Therefore, although we are not requiring qualified 
professionals on-site to conduct audits at facilities, they do need to 
certify audit reports generated from those site visits.
---------------------------------------------------------------------------

    \13\ For this preamble, qualified professionals refers to 
certified professional engineers and certified public accountants 
that work for or that are acting on behalf of a third-party auditor 
to implement a QAP.
---------------------------------------------------------------------------

    One commenter suggested that each member of audit teams have a 
four-year college degree. We disagree with this comment since 
professional licensure and E&O insurance requirements for those 
supervising should serve as a check to help ensure that auditing teams 
are composed of competent personnel. The technical nature of auditing 
in general and auditing renewable fuel production facilities under RFS 
necessitates an appropriate educational background.
    One commenter suggested that audit teams collectively have at least 
20 years experience in RFS or related fields to perform audits. 
Although we feel that it is most beneficial to the program to have 
experience in RFS or related fields to perform audits, a 20 year 
experience requirement would be very difficult to monitor and enforce. 
The existing professional engineer requirements already include 
language that a professional engineer must have professional experience 
in the chemical engineering field or related to renewable fuel 
production. Based on our experience with third-party auditors that have 
informally pre-registered through the interim period and discussions 
with other potential third-party auditors, we believe that any third-
party auditor would have to have a significant amount of experience in 
RFS or related fields to simply put together a QAP that satisfies 
today's requirements. Therefore, we are not adopting a minimum 
experience threshold for third-party auditor qualification.
    A few commenters supported requiring third-party auditors to adhere 
to a standards established by a voluntary consensus standard body \14\ 
or that the Agency create its own third-party auditor competency 
standard. Others noted that EPA could develop a periodic examination of 
RFS standards to gauge the expertise of third-party auditors. However, 
while supportive, many commenters noted that the development of such a 
standard, which currently does not exist, could significantly delay the 
implementation of the QAP program. As we noted in the NPRM, ``several 
independent third-parties have developed sufficient expertise with RFS 
to provide useful

[[Page 42096]]

validation services. . .and we believe that there exist adequate 
incentives for parties to ensure that third-party auditors understand 
the RFS program sufficiently.'' \15\ We believe that based on our 
experience informally pre-registering third-party auditors, that most 
potential auditors have an appropriate amount of experience to 
successfully implement a QAP. In addition, while we believe that it is 
generally good to have professional competency standards, it would take 
a significant amount of time to develop such standards, which would 
hinder the development of today's QAP program. Therefore, we will 
continue to monitor the quality and expertise of third-party auditors 
that register to implement QAPs, and may revisit the idea of 
establishing a professional competency standard or exam in the future.
---------------------------------------------------------------------------

    \14\ For example, ISO 17024 provides a standard for the 
professional certification of greenhouse gas emissions.
    \15\ See 78 FR 12188 (February 21, 2013).
---------------------------------------------------------------------------

    For reasons discussed above, we are finalizing professional 
licensure qualifications to include that third-party auditors have 
access to both a professional engineer and certified public accountant. 
We feel that this combination of expertise would allow third-party 
auditors to most effectively implement QAPs. We are also not finalizing 
other professional competency standards at this time (i.e. those 
specified in a standard established by a voluntary consensus standard 
body). We will continue to monitor the effectiveness of third-party 
auditors through the annual registration renewable process discussed 
below, and may revisit the idea of incorporating additional third-party 
auditor professional qualifications or competency exams if necessary.
c. Errors and Omissions Insurance
    Based on the comments received and the discussion below, the Agency 
is finalizing a requirement of Errors and Omissions (``E&O'') insurance 
for independent third-party auditors from an insurance provider that 
possess a financial strength rating in the top four categories from 
either Standard & Poor's or Moody's (i.e., AAA, AA, A or BBB for 
Standard & Poor's and Aaa, Aa, A, or Baa for Moody's). Auditors will 
obtain coverage as they see fit to cover their professional liability 
exposure. Additionally, auditors will be required to disclose the level 
of E&O coverage they possess in a clause in every contract they enter 
into when providing RIN verification services.
    We proposed that to ensure the effective implementation of QAPs at 
renewable fuel production facilities, independent third-party auditors 
would be required to maintain professional liability insurance 
(commonly known as E&O insurance) if offering a QAP. The amount of 
insurance was proposed to be, at a minimum, equal to two percent of the 
RINs the auditor verifies in a year to cover the replacement of any 
RINs verified by an auditor that turn out to be invalid as a result of 
auditor error, omission, or negligence. Additionally, we proposed that 
independent third-party auditors would be required to use insurance 
providers that possess a financial strength rating in the top four 
categories from either Standard & Poor's or Moody's (i.e., AAA, AA, A 
or BBB for Standard & Poor's and Aaa, Aa, A, or Baa for Moody's). We 
explained that requiring E&O insurance would help to achieve the level 
of professionalism necessary for the quality assurance program to work 
as intended. Possession of E&O insurance would lend business and 
financial credibility to a potential QAP auditor.
    The Agency received multiple comments in support of the requirement 
that auditors maintain E&O insurance. There were several comments 
regarding the levels at which it should be maintained and how those 
levels should be calculated. One comment suggested a minimum of 
$1,000,000 in E&O insurance, with increases in coverage tied to 
increases in the number of RINs an auditor verifies. Another commenter 
suggested that E&O coverage be grouped into ``buckets''. For example, 
if an auditor verifies less than 10MM RINs, coverage should be $2MM, 
and if the auditor verifies between 10MM and 50MM RINs, coverage should 
be $5MM, etc. Commenters suggested that given the volatility in the 
prices of RINs, the amount of coverage should be tied to number of RINs 
verified as opposed to an amount equal to a percentage of RINs 
verified, which would vary based on the current price of RINs. The 
Agency agrees with this comment that any specified coverage would be 
better tied to the number of RINs verified as opposed to a set 
percentage of RINs verified.
    In response to comments, the Agency sees the possession of E&O 
insurance primarily as an additional layer of auditor scrutiny. In 
order to obtain E&O insurance, auditors will have to undergo a robust 
underwriting examination that will look at the auditor's business 
expertise and financial status, among other factors. It may be that not 
all prospective auditors will be able to obtain a policy from an 
insurance provider with the required financial strength rating. This 
will help ensure that the auditors that do provide QAP services are 
qualified and have a track record of success as a company. Moreover, 
the Agency views E&O coverage as a market business decision that should 
be in the hands of the participants in the market. Auditors can assess 
the level of professional liability insurance they feel comfortable 
maintaining and their customers can judge that level accordingly in 
deciding whether to employ their service or choosing another competing 
auditor. The Agency feels it is best that it does not prescribe a 
certain level of E&O coverage, but rather simply require that a QAP 
provider disclose the level of E&O coverage they possess in a clause in 
every contract they enter into when providing RIN verification 
services. Customers of QAPs will be fully informed at the time of 
entering into a service agreement exactly what level of professional 
liability the QAP provider possesses. The disclosure of the level of 
coverage would increase transparency of auditors and boost the 
integrity of the burgeoning RIN verification market. Finally, by only 
requiring possession of E&O coverage, the Agency will not be tasked 
with continually calculating and monitoring the level of E&O coverage 
maintained by auditors offering a QAP, and will thus be better able to 
focus on effective implementation of other key parts of the quality 
assurance program.
2. Registration Requirements
    In order to implement and enforce the new quality assurance 
program, we proposed that third-party auditors become regulated parties 
under the RFS program. To do this, we proposed registration, 
recordkeeping, and reporting requirements on third-party auditors to 
ensure that appropriate QAPs are executed according to the requirements 
specified in the regulations. This would allow the EPA and affected 
parties to monitor and have confidence that third-party auditors are 
implementing QAPs appropriately. These requirements are similar to 
those that we require for other regulated parties under the RFS 
program. We proposed that during initial registration third-party 
auditors would provide basic company information, copies of E&O 
insurance policies, certification of professional qualifications, QAPs 
for EPA approval, and a signed affidavit that states that the third-
party auditor is independent of and free from any conflicts of interest 
with any renewable fuel producer for which they intend to verify RINs. 
We also proposed that during registration third-party auditors would 
also identify which facilities they intended to audit, if known, and 
that auditors would update their registration

[[Page 42097]]

information each time they intend to provide QAP services for a new 
facility.
    Recognizing that foreign third-party auditors may have unique 
challenges compared with domestic third-party auditors, we proposed 
additional registration requirements for foreign third-party auditors. 
In the March 2010 RFS rulemaking (75 FR 14670, March 26, 2010), we 
outlined a number of requirements that applied to foreign RIN owners 
(see 40 CFR 80.1467). These additional requirements are designed to 
ensure enforcement of RFS regulations at the foreign RIN owner's place 
of business and are similar to requirements for foreign parties under 
other fuels regulations. For example, foreign RIN owners must submit 
reports in English and provide translated documents in English upon 
demand from the EPA inspectors or auditors, must submit themselves to 
administrative and judicial enforcement powers and provisions of the 
United States without limitation based on sovereign immunity, and post 
a bond covering a portion of the gallon-RINs that a foreign RIN owner 
owns.
    We also proposed that third-party auditors would have to renew 
their registration on an annual basis. The effectiveness of this 
program is contingent on the integrity of the third-party auditors and 
their ability to competently implement approved QAPs. The registration 
process is designed to help ensure that QAPs are implemented by 
competent, qualified and independent third-party auditors. A third-
party auditor may only verify RINs under the voluntary quality 
assurance program if the auditor is registered with the EPA. The 
renewed registration submissions must include updates to information 
required for initial registration and an affidavit by the auditor that 
it is in full compliance with applicable QAP regulations. The affidavit 
would include a specific certified statement that the third-party 
auditor: (1) Has only verified RINs that it reviewed under an EPA-
approved QAP, (2) has informed the EPA and RIN generators of all 
potentially invalid RINs that it discovered, and (3) has fulfilled its 
RIN replacement obligation if applicable. Third-party auditors that 
fail to accurately and completely renew their registrations will no 
longer be registered and therefore can no longer implement QAPs and 
verify RINs.
    Finally, we proposed requirements that would preclude the hiring by 
third-party auditors of persons that had formerly been employed by a 
third-party auditor whose registration had been revoked. We believed 
that such a provision was necessary to ensure that third-party auditors 
employed competent persons of integrity. We also reserved the right to 
revoke a third-party auditor's registration at any time if we determine 
that the third-party auditor has failed to meet its regulatory 
requirements.
    We received a number of comments on all aspects of the registration 
process for third-party auditors. Several commenters were concerned 
that the annual registration renewal process for third-party auditors 
would overburden the Agency and that the Agency would have difficulty 
approving many auditors before the start of new calendar years. This 
could potentially disrupt the verification of RINs at facilities that 
had an EPA-approved QAP implemented by a previously registered third-
party auditor. These commenters suggested that the EPA should alter the 
requirements to automatically approve registration renewals for third-
party auditors if the auditor had not heard back from the Agency after 
a period of time, for example 30 or 60 days. This would help ensure the 
continued implementation of QAPs and the verification of RINs. We agree 
that this would provide more certainty to audited RIN generators and 
third-party auditors; therefore, we are modifying the annual 
registration renewal requirements to automatically approve third-party 
auditor registration renewals if a previously registered third-party 
auditor has not received notice of a deficiency from the EPA regarding 
its registration renewal materials.
    Many commenters noted that in most ways foreign third-party 
auditors should be treated similarly to domestic third-party auditors. 
Several comments called upon the EPA to recognize foreign credentials 
(i.e., foreign professional engineer certifications) of potentially 
third-party auditors. Others supported the EPA's proposal to have 
similar bonding and English language requirements to those required by 
foreign RIN owners. We agree that foreign professional credentials can 
be used to satisfy the professional competency requirements outlined 
above, and we are finalizing the additional foreign third-party auditor 
requirements as proposed.
    One commenter suggested that the requirement for third-party 
auditors to submit a signed affidavit declaring their independence from 
audited RIN generators is superfluous. Another commenter suggested that 
we expand the affidavit requirement to include any documentation to 
support statements in the affidavit and make clear that the affidavit 
must be under oath. Such an approach would allow the EPA to go under 
the covers of the affidavit statements to ensure that all potential 
conflicts of interest are disclosed.
    The affidavit requirement declaring independence is an important 
piece of registration and potentially valuable if we have to pursue 
actions arising from alleged conflicts of interests. We also recognize 
that there are concerns that some parties that have informally pre-
registered during the interim period contract or subcontract out 
significant amount of auditing services, and that a simple affidavit 
that only applies to the third-party auditor's company may not cover 
the parties responsible for actually conducting much of the QAP 
implementation work. Therefore, we are expanding the independence 
affidavit requirement to include that third-party auditors assert that 
contractors and subcontractors employed to facilitate QAP 
implementation also adhere to the same conflict of interest standards 
in today's action.
    One commenter asked for clarification about the list of facilities 
that needed to be supplied during registration that an auditor intended 
to audit. The commenter correctly noted that it would be unreasonable 
for a third-party auditor to anticipate all facilities they may audit 
during a year since they may sign up new clients. To clarify, we intend 
for the auditor to report at the time of registration only facilities 
that they know they will audit and for which they are seeking to have 
an EPA-approved QAP. Auditors will make updates to their registration 
information in accordance with the regulations when they sign up new 
clients and report that information during annual registration 
renewals.
    Some commenters expressed concerns about the ability of the EPA to 
deny the registration of third-party that employ persons that were 
previously employed by an auditor whose registration was revoked. These 
commenters were worried that the EPA would unduly deny the registration 
of third-party auditors simply for hiring employees previously employed 
by an auditor with a revoked QAP even though the person in question may 
have had nothing to do with the circumstances that resulted in the 
revocation of the a registration for a previous employer. These 
commenters suggested further that the EPA only deny registrations for 
third-party auditors if a third-party auditor hires an employee where 
the preponderance of data demonstrates that the person was directly 
responsible for the revocation of the previous third-party auditor's 
QAP.
    We agree that some employees of former third-party auditors whose 
registrations had been revoked may not

[[Page 42098]]

have had any direct involvement in the questionable activities that led 
to the revocation of the former third-party auditor's registration. The 
purpose of this provision was to ensure through registration that 
qualified professionals or other employees that were responsible for 
the EPA revoking a third-party auditor's QAP or registration did not 
simply go work for another third-party auditor. However, we believe 
that we have enough flexibility through our authority to revoke 
registrations and QAPs for cause, e.g. if a third-party auditor and its 
employees or contractors fail to appropriately implement a QAP, to help 
ensure that only reputable and qualified third-party auditors are 
registered to implement a QAP. Additionally, we believe that the 
potential liability for violations of RFS requirements of third-party 
auditors and its contractors and subcontractors will also adequately 
deter third-party auditors from failing to meet their applicable 
requirements. Therefore, for reasons discussed above, the EPA is not 
finalizing regulatory language granting it the discretion to deny the 
registration of a third-party auditor for the hiring or contracting 
with prior employees or contractors of auditors whose registrations 
were revoked.
3. Other Responsibilities of Auditors
a. Notifying the Agency When There Are Problems
    As discussed in section II.A.4, we are requiring that third-party 
auditors notify the EPA and the renewable fuel producer of potentially 
invalid RINs, including but not necessarily limited to fraud, errors, 
and/or omissions, by the next business day after a problem has been 
identified.
b. Identifying Verified RINs in EMTS
    In the NPRM, we proposed to require that third-party auditors be 
responsible for tagging RINs as having been ``verified'' in a way that 
is clearly visible in EMTS after they have been generated. In the NPRM, 
we explained that third-party auditors needed to identify RINs as 
having been verified so that downstream parties could know which RINs 
have been subjected to review by an auditor and thus can be eligible 
for an affirmative defense. We also proposed that the verification of a 
RIN in EMTS would be prospective, meaning that a RIN can only be 
verified after an auditor has audited a facility in accordance with an 
approved QAP and that RINs generated during the interim period will not 
be flagged as verified in EMTS. Finally, we proposed that third-party 
auditors would have the ability to stop verification of newly generated 
RINs should a problem arise during the QAP implementation process. 
Since third-party auditors are in the best position to identify 
potentially invalid RINs, allowing third-party auditors this 
flexibility is necessary to ensure that problems with invalid RINs are 
quickly identified and corrected.
    In general, comments received regarding the identification of RINs 
as verified in EMTS were supportive. Several commenters expressed the 
desire for the EPA to have EMTS fully functional by the effective date 
of the rulemaking and ensure that EMTS development provides an 
opportunity for affected parties to beta test and provide feedback on 
the development and deployment of EMTS. In recognition of these 
concerns, verified A-RINs and B-RINs may still be generated outside of 
EMTS through December 31, 2014. Additionally, once EMTS is able to 
accommodate Q-RIN transactions, parties will have the ability to 
generate and input verified Q-RINs within EMTS. Based on current 
development pace, this should occur prior to the January 1, 2015 single 
QAP start date.
    One commenter suggested that we should not require third-party 
auditors to verify RINs in EMTS since this would further distinguish 
between RINs generated from small producers, which they anticipated 
would be verified through a QAP, and larger producers, which they 
argued would not be verified through a QAP. The comment argued further 
that the EMTS currently allows parties wishing to buy and sell RINs to 
specify which producers they would like to purchase or sell to and that 
verification in EMTS is unnecessary. We disagree with this comment. 
Partially based on our experience with the informal verification of 
RINs through the interim period, keeping track of verified RINs outside 
of EMTS is quite burdensome on third-party auditors and obligated 
parties that wish to purchase verified RINs and on the Agency when we 
need to follow up on potential issues. We believe that ``flagging'' 
RINs in EMTS is the most cost effective way for obligated parties to 
quickly know that RINs being purchased have been verified by an EPA-
approved QAP and will promote the use of the QAP program.
    Therefore, we are finalizing requirements that third-party auditors 
verify RINs in EMTS as proposed.
c. Recordkeeping, Reporting, and Attest Engagements
i. Recordkeeping Requirements
    We proposed that third-party auditors would be required to maintain 
records of all verification and validation activities related to the 
implementation of a quality assurance program. We explained that these 
records would serve to demonstrate that a QAP was appropriately 
implemented if invalid RINs are reported at a later date.
    Although most comments were generally supportive of requiring 
third-party auditors to maintain records similar to other regulated 
parties under RFS requirements, one comment sought clarification of the 
proposed recordkeeping requirements. This comment argued that as 
proposed, the recordkeeping requirements would be too broad, would 
include potentially confidential business information and that much of 
this information would be duplicative of records already maintained by 
other regulated parties under RFS (e.g. RIN generators).
    We believe that renewable fuel producers and importers can address 
concerns about the inappropriate disclosure of confidential information 
obtained by a third-party auditor through a QAP through private 
agreements with the third-party auditor. We also recognize that some 
information may be duplicative of records already maintained by other 
regulated parties. However, most recordkeeping requirements will not be 
kept by other regulated parties under RFS since they are specific to 
the QAP implementation activities of third-party auditors. Therefore, 
we are finalizing third-party auditor recordkeeping requirements as 
proposed.
ii. Reporting Requirements
    Under the existing RFS program, obligated parties, exporters of 
renewable fuel, producers and importers of renewable fuels, and any 
party who owns RINs must report appropriate information to the EPA on a 
regular (e.g. quarterly and/or annual) basis. Similarly, the third-
party auditors are required to submit quarterly reports, in line with 
RFS quarterly reporting deadlines, identifying how many RINs the 
auditor has verified the previous quarter. In addition, independent 
third-party auditors must include the facilities audited and the dates 
of those audits. This information allows the EPA to compare a third-
party auditor's reported activity to information gleaned from EMTS to 
ensure that third-party auditors are appropriately implementing QAPs.

[[Page 42099]]

    Most comments we received supported quarterly reporting 
requirements for third-party auditors. One comment also expressed 
concerns that third-party auditor quarterly reporting was overly 
burdensome and that the information we proposed to require that third-
party auditors report is duplicative of information already reported to 
the EPA via reports from other parties.
    We continue to believe that periodic reports provides a useful 
compliance tool to better ensure that third-party auditors are 
effectively implementing QAPs since failure to fulfill reporting 
requirements constitutes a violation to the Clean Air Act and may 
subject the responsible party to the penalties discussed below. 
Although third-party auditor reporting requirements may partially 
overlap with some information already reported by other parties, much 
of the information reported by third party auditors (e.g., the dates 
facilities were audited, the number of RINs verified by a third-party 
auditor, etc.) is specific to auditing activities that currently are 
not captured in existing reports. Therefore, we are still going to 
require that third-party auditors submit quarterly reports that will 
capture their auditing activities. However, due to the addition of an 
annual attest engagement requirement for third-party auditors 
(discussed below) and to accommodate the flexibility of allowing third-
party auditors to use a representative sample of batches to implement 
QAPs (also discussed below), we needed to make minor revisions to 
third-party auditors' quarterly reporting requirements. Thus, we are 
finalizing quarterly reporting requirements for third-party auditors as 
proposed with minor modifications.
iii. Attest Engagements
    In the NPRM, we sought comment on whether to require third-party 
auditors to have an annual attest engagement similar to those required 
of other parties required under Sec.  80.1464.\16\ We explained that 
attest engagements may be an appropriate means of verifying the 
accuracy of the information reported to us by the third-party auditors 
similar to those we require of other parties in RFS.
---------------------------------------------------------------------------

    \16\ Attest engagements are used in many of the Agency's fuels 
programs and are similar to financial audits. Attest engagements 
consist of an independent, professional review of compliance records 
and reports.
---------------------------------------------------------------------------

    The public comments we received generally supported the imposition 
of annual attest engagement requirements on third-party auditors. Many 
comments highlighted the utility to the Agency with additional 
oversight of third-party auditors through an annual attest requirement. 
Such measures would help ``check the checker'' and would overall 
increase the reliability of verified RINs. Other commenters noted that 
since the EPA is creating a new regulated party in the RFS program, 
they should have similar requirements including annual attest 
requirements to that of other parties regulated under RFS. Lastly, one 
comment suggested that the EPA should outline the attest engagement 
procedure for third-party auditors in more detail in the final 
rulemaking.
    One commenter suggested that third-party auditor annual attest 
requirements and more broadly a ``check the checker'' program was not 
necessary and overly burdensome. The commenter did not provide 
explanation on why such a requirement was unnecessary or too 
burdensome.
    We agree with comments that third-party auditors should undergo an 
annual attest engagement by an independent third-party. This will help 
improve the Agency's oversight of third-party auditors. Having another 
third-party conduct the annual attest engagement for the third-party 
auditor will mitigate some of the conflict of interests concerns with 
third-party auditors providing additional services (e.g. engineering 
reviews and completing quarterly compliance reports for RIN generators) 
discussed above, which will help ensure that verified RINs under the 
QAP program are valid.
    Therefore, consistent with the nearly overwhelming response from 
public comments, in today's final rulemaking we are including a 
requirement that third-party auditors undergo annual attest engagements 
similar to that of other parties regulated under RFS. The attest 
engagements will consist of an outside certified public accountant 
following procedures outlined in Sec.  80.1464 to determine whether 
underlying records, reported items, and transactions agree.
d. Prohibited Activities for Third-Party Auditors
    Since third-party auditors are integral to the successful 
implementation of voluntary quality assurance programs, we proposed new 
prohibition and liability provisions applicable to third-party 
auditors. The prohibitions and liability provisions on third-party 
auditors are similar to those for other parties in the RFS and other 
fuels programs. Specifically, we proposed the following prohibited 
acts: Failing to properly implement an EPA-approved QAP; failing to 
timely notify RIN generators and the EPA of potentially invalid RINs; 
failing to replace invalid RINs, if applicable; and verifying RINs that 
are invalid.
    We also proposed that third-party auditors subject to an 
affirmative requirement under this rule be liable for a failure to 
comply with the requirement. For example, third-party auditors would be 
liable for separate violations for failing to comply with the 
registration, reporting and recordkeeping requirements. Like other 
fuels programs, if the third-party auditor causes another person to 
violate a prohibition or fail to comply with a requirement, the third-
party auditor may be found liable for the violation. Finally, we noted 
that third-party auditors would be subject to the penalty and 
injunction provisions in section 211(d) of the Clean Air Act and third-
party auditors may be subject to civil penalties of $37,500 for every 
day of each such violation and for the amount of economic benefit or 
savings resulting from the violation. We sought public comment on the 
proposed prohibited activities and liability provisions specific for 
third-party auditors.
    We received few public comments on the prohibited activities for 
third-party auditors and those public comments generally supported the 
proposed prohibited activities. However, one public comment noted that 
the proposed regulatory language at Sec.  80.1460(i)(3), which proposed 
to hold third-party auditors liable for verifying RINs that were later 
determined to be invalid under Sec.  80.1431, was too broad. The 
comment argued that such broad-based language unfairly imposed 
liability on third-party auditors that may have been misled by 
undetectably false information or documentation provided by a RIN 
generator. The comment concluded that imposing such a potential 
liability on third-party auditors may deter qualified auditing and 
accounting firms from participating in the QAP program.
    We agree with concerns that the proposed language at Sec.  
80.1460(i)(3) is overly broad and we are therefore modifying the 
proposed language to more fairly hold third-party auditors liable for 
verifying invalid RINs. In the NPRM, we proposed that third-party 
auditors would be prohibited from ``identify[ing] a RIN as verified in 
accordance with Sec.  80.1471(e) that is invalid under Sec.  80.1431.'' 
The intent of this language was to help ensure that third-party 
auditors reported all potentially invalid RINs uncovered by an approved 
QAP to the EPA. Under Option A, we were concerned that third-party 
auditors would verify RINs that may have been invalid to avoid the 
potential of having to replace those RINs

[[Page 42100]]

since such a cost would be quite high. In light of our decision to not 
place a replacement obligation on third-party auditors, we are 
modifying the language of this prohibited act to prohibit third-party 
auditors from verifying a RIN without ensuring that every applicable 
requirement in an approved QAP was met. We believe the newly worded 
prohibited activities focuses more on the activities of the auditor 
instead of punishing the auditor for misleading information and 
documentation supplied by audited RIN generators.
    For reasons discussed above, the EPA is finalizing the proposed 
prohibited activities with modification to the proposed regulatory 
language at Sec.  80.1460(i)(3). The final prohibitive activities 
coupled with the provisions that require third-party auditors to 
register annually and the authority we have to revoke an auditor's QAP 
for cause will ensure that third-party auditors will appropriately 
implement EPA-approved QAPs.

G. Audit Requirements

    Under the quality assurance program, an auditor will use an 
approved QAP as the basis for the verification of renewable fuel 
produced and RINs generated at a facility. In order to verify 
production, the auditor must review documents, monitor facility 
activity, and conduct on-site visits. These components, when taken 
together, are what constitute an audit of the facility. An on-site 
visit to a facility is not in and of itself an audit. Rather, an audit 
encompasses all the elements of a QAP, i.e., document review, 
monitoring of facility activity, the on-site visit (when required), 
etc. The elements of the QAP are discussed in some detail in section 
II.E. The following provides some additional detail on the elements of 
an audit. As with other provisions of the RFS program, the use of a QAP 
and the associated audit will also be available to foreign producers of 
renewable fuel.
1. Document Review and Monitoring
    The auditor must ensure that the producer has fulfilled all 
applicable record-keeping requirements of Sec.  80.1454. We expect the 
auditor to evaluate quarterly reports submitted to the EPA, and that 
the reports be year-to-date, as applicable, and from the previous year, 
for comparison. These include Activity Reports, RIN transaction 
reports, RIN generation reports, and Renewable Fuel producer Co-product 
reports. The third-party engineering review and annual attestation 
report must also be reviewed.
    Reports submitted to the EPA must be cross-checked with other 
records. For instance, the auditor must have access to certificates of 
analysis. The auditor must check recent feedstock receipts (if the 
producer uses a variety of feedstocks, then the auditor should be 
provided with receipts for each feedstock). Integrated facilities may 
not have internal sales receipts for feedstock use, so an alternative 
paper trail will likely be required. Similar to the feedstock document 
review and crosscheck, renewable fuel and co-product delivery 
documentation must be part of any audit.
    For all documentation reviews, we expect the auditor to analyze 
reports to determine whether a producer is reporting volumes 
consistently, and to require (from the producer) explanation for 
missing or inaccurate reports. The auditor must investigate 
discrepancies between volumes reported and processed. Other reports the 
auditor must consider as part of its review include the EIA M22 Survey, 
any state reports, federal and state tax returns, and association dues 
reports. The auditor must also determine if there is any import or 
foreign biofuel producer documentation.
    Of prime concern to the quality assurance program is the 
verification of RINs, and there are many aspects to this part of the 
audit. The auditor must evaluate monthly RIN generation reports 
submitted through EMTS, verify that RINs generated match wet gallons 
sold, determine if the facility purchases or separates RINs, and review 
product transfer documents for all RIN activity. We are finalizing that 
verification elements for the audit may be checked for a representative 
sample of batches of renewable fuel according to the sampling 
requirements in Sec.  80.127. However, based on the documentation 
provided by the producer, the auditor can decide to review all 
documentation for all batches. We requested comment on the level of 
detail required for document review. A number of commenters indicated 
that requiring 100% document review would negatively impact producers 
and that a high confidence level could be achieved through random 
sampling. We agree with the spirit of these comments, and are 
finalizing the program using the criteria for the representative 
sampling of batches of renewable fuel in accordance with sampling 
guidelines that have already been established in Sec.  80.127, and are 
effectively used as part of the annual attest report.
    Furthermore, and in order to ensure that renewable fuel producers 
will maintain their records in a manner that will allow third-party 
auditors and the EPA to efficiently evaluate whether RINs were properly 
generated, we are amending Sec.  80.1426 to state that RINs may only be 
generated for fuel that the producer has demonstrated, pursuant to all 
applicable recordkeeping requirements of Sec.  80.1454, was produced in 
accordance with the applicable pathway listed in Table 1 to Sec.  
80.1426(f) or a petition approved by the EPA pursuant to Sec.  80.1416. 
Furthermore, RIN generation is only appropriate for renewable fuels 
that carry the appropriate designation on their product transfer 
documents, according to the new provisions of Sec.  80.1453(a)(12). See 
Section III of this preamble for further discussion of PTD 
requirements.
2. Buyer/Seller Contacts
    We are finalizing a flexibility that allows for the random sampling 
of feedstock supplier invoices and contracts to provide a 
representative sample of renewable fuel batches, according to Sec.  
80.127. This is an appropriate method for feedstock verification, as it 
gives high confidence that the producer was in fact purchasing 
renewable biomass as feedstock. We are also finalizing that random 
sampling of product transfer documents and other sales-related receipts 
for a representative sample of batches of renewable fuel, according to 
Sec.  80.127, is an appropriate method for ensuring that the renewable 
fuel was sold for transportation purposes.
    We proposed that at the end of an audit, the auditor should know 
all customers of and suppliers to the facility, and all parties that 
distribute feedstock to and fuel from the facility. We proposed that 
the auditor contact all of the customers and suppliers in order to 
verify sales and purchases in accordance with the requirements under 
the QAP. We envisioned this proposed requirement as a ``spot check;'' 
the auditor should be able to provide a reason for such calls regarding 
the entity called, questions asked, etc.
    We received numerous comments, particularly from biodiesel 
producers who collect used cooking oil from thousands of restaurants, 
that contacting every supplier would be especially burdensome. Some 
commenters indicated that feedstock suppliers who have multiple 
auditors contact them for verification may be less willing to sell 
feedstock to parties participating in the RFS2 program. Since these 
suppliers are not regulated under RFS2, they are under no obligation to 
provide this information, which could place an auditor in a difficult 
situation. We also received comments indicating that aggregate 
compliance is sufficient, and

[[Page 42101]]

records such as EMTS transactions, receipts, and product transfer 
documents would further prove that appropriate feedstocks were used and 
sales were completed properly. Moreover, there was not a single comment 
in favor of this provision. Therefore, the Agency is not finalizing the 
requirements of direct contact with all feedstock suppliers and direct 
contact with all purchasers of renewable fuel but rather a 
representative sample of contacts.
3. On-Site Visits
    The goal of the on-site visit is to verify that the plant has the 
technology to produce, store, and blend biofuels at registered levels, 
is operating in accordance with the facility's registration, and that 
the RINs generated since the last visit are valid. The auditor will 
likely use plant maps and photos as part of this analysis, and should 
compare and contrast the plant's infrastructure with the third-party 
engineering review reports on file with the EPA. The auditor should 
note the size and number of storage and blending tanks, and observe the 
measurement of volume in the tanks. The auditor should determine 
whether the process rate is consistent with annual and quarterly 
production of the facility, and whether the facility has quality 
process controls in place (e.g., are ASTM International specifications 
being followed where appropriate).
    We believe that mass and energy balances on the facility are 
critical components of any audit. Because integrated facilities will 
likely have energy use that is not directly related to biofuel 
production, the auditor should have alternate means of assessing and 
correlating energy use to production. We proposed that an auditor 
conduct at least four (4) on-site visits per year for QAP B, or every 
three (3) months.\17\
---------------------------------------------------------------------------

    \17\ Note that there are 4 site visits for a QAP A or QAP B used 
during the interim period. See Sec.  80.1472(b) of the regulations.
---------------------------------------------------------------------------

    The majority of commenters indicated that quarterly on-site visits 
would impose an undue burden on both the auditor as well as the 
producer. They noted that the cost of such visits would be excessively 
high, and there would be little to no benefit, given the amount of 
other data collected as part of the audit process. Other commenters 
recommended a tiered system that consisted of more frequent audits 
during the first year, followed by some form of phase-out for site 
visits thereafter. A few commenters indicated that quarterly on-site 
visits were appropriate. In considering these comments, the agency 
determined that the cost for the producer of adhering to a rule that 
required quarterly visits outweighed the benefits provided by the 
additional on-site visits. Therefore, for the single new QAP, we are 
finalizing that the auditor must conduct at least two on-site visits 
per year or at least one on-site visit along with ongoing remote 
monitoring.
    If an auditor elects to conduct remote monitoring as a substitute 
for one of the two required on-site visits per year, the remote 
monitoring procedures must be approved by EPA prior to use. The remote 
monitoring setup may include equipment such as video cameras, tank 
level sensors and/or infrared cameras that clearly show tank levels 
where level sensors are not in place. Modifications may not be done to 
remote monitoring systems after the EPA review, unless the EPA has pre-
authorized the changes in writing. In no instance shall a facility go 
more than 380 days between physical on-site visits overseen by a 
licensed professional engineer. For new production facilities, the 
first on-site visit must be part of an audit, and the audit must be 
completed prior to the verification of RINs.
    We expect that each on-site visit could take from one to several 
days, depending on the size and complexity of the facility, the 
availability of records, changes since the last audit, etc. Auditors 
are free to perform more on-site visits than the minimum required if 
deemed necessary.
4. RIN Verification
    RINs will be verified only for a specified period following an 
audit. Although an audit of any entity usually certifies what was done, 
audits are prospective in that the audits are verifying that past 
practices and procedures have been followed, and are currently in place 
for future RINs that will be generated. RINs generated after the 
completion of the audit can then be verified until the next audit is 
completed, but for no longer than 100 days after completion of the 
previous audit. (Note that there may not be more than 200 days between 
on-site visits, unless remote monitoring is used, in which case there 
may not be more than 380 days between on-site visits). We believe this 
prospective approach is appropriate for the quality assurance program 
because the audit would be verifying the starting point from which 
future RINs would be generated. In that sense, the upcoming period of 
RIN generation is starting with a verified set of conditions. In 
addition, it could place a serious impediment in the market for RINs if 
their verification followed RIN generation by any significant period of 
time.\18\
---------------------------------------------------------------------------

    \18\ The only exception to the issuance of verified RINs only 
after the audit has occurred is the limited provision for 
verification of RINs issued prior to the audit, during the interim 
period, as discussed in section II.B.
---------------------------------------------------------------------------

    To allow for some flexibility around the standard audit schedule 
(i.e., quarterly, or roughly every 90 days), RINs generated for up to 
100 days after the last audit can be verified, unless the real time 
monitoring data or other information obtained by the QAP auditor prior 
to the on-site audit indicated that RINs were invalid. If another audit 
was not conducted within 100 days, RINs could no longer be verified for 
that facility until a new audit was conducted.
    We are finalizing that the on-site visit schedule remain the same, 
regardless of findings during the audit. Some commenters indicated that 
lower audit frequency levels should be allowed after a significant 
period of time with no invalidly generated RINs. We feel that by 
reducing the overall number of audits required, it sufficiently 
decreases the burden on auditors and producers, while at the same time, 
maintains the integrity of the program.

III. Additional Changes Related to the Definition and Treatment of 
Invalid RINs

A. Export and Exporter Provisions

    In the NPRM, we proposed a number of regulatory changes regarding 
how RINs should be handled when renewable fuel is exported. Our intent 
was to ensure that exported renewable fuel is not included in meeting 
the mandated domestic annual renewable fuel volume requirement. We 
received a number of comments, primarily in support of these changes, 
and have made some minor changes to the proposed amendments in this 
final rule.
1. Exporter RVO (ERVO)
    A volume of any renewable fuel which is exported, either neat or 
blended, requires the exporter to calculate an RVO and retire a like 
number and type of RINs as were generated for the exported renewable 
fuel. We proposed and are finalizing a minor change to the regulations 
to address concerns that some regulated parties may be misinterpreting 
the existing regulations and only establishing an RVO for exported 
renewable fuel that is in its neat form or blended with gasoline or 
diesel. The opening clause of 40 CFR 80.1430(a) provides that an RVO 
must be satisfied by any party that exports ``any amount

[[Page 42102]]

of renewable fuel,'' and 40 CFR 80.1430(f) also states that ``each 
exporter of renewable fuel'' must satisfy an RVO. The portion of Sec.  
80.1430(a) stating that the regulation applies ``whether [the exported 
renewable fuel] is in its neat form or blended with gasoline or 
diesel'' was intended to point out through specific examples that the 
regulation applies to both neat and blended renewable fuels, not to 
limit the fuel blends to gasoline and diesel. It was not intended to 
exclude other exported renewable fuel blends, such as biodiesel blended 
into fuel oils, from the scope of the regulation. We are amending 40 
CFR 80.1430(a) to simply state that the requirement to establish an RVO 
applies whether the exported renewable fuel is in its neat form or 
blended. Commenters on the proposed rule unanimously supported this 
change.
    We also sought comment on whether the EPA should eliminate exporter 
RVO obligations in two situations: (1) Where exporters can document 
that no RINs were generated for the exported fuel, or (2) where 
exporters can demonstrate that any RINs generated for the fuel were 
previously retired ``upstream'' of the exporter. Regarding the first 
situation, most commenters supported the idea that renewable fuel for 
which RINs were not generated should not create an RVO for the fuel 
exporter. The EPA believes this change is consistent with the 
fundamental purpose of the exporter RVO; i.e., RINs are retired so the 
RINs generated for the fuel do not artificially inflate the RIN market 
and misrepresent the amount of renewable fuel produced for domestic 
use. If the renewable fuel is never intended for domestic use and no 
RINs are generated for it, then there is no reason for RINs to be 
retired upon export. Renewable fuel produced in the U.S. for export 
only can be clearly labeled as such on product transfer documents and 
RINs need not be generated for it. An exporter who exports renewable 
fuel for which RINs were never generated will not incur an RVO for such 
export, provided certain conditions are met. This final rule amends 40 
CFR 80.1430 to set out this allowance, and to add the conditions that 
any exporter who does not incur an RVO for exported renewable fuel 
because no RINs were generated for it only does so for volumes 
purchased directly from the fuel producer. Further, the exporter must 
be able to show that no RINs were generated for the exported renewable 
fuel. This demonstration is made through fulfillment of the conforming 
recordkeeping requirement at 40 CFR 80.1454(a)(6) that the exporter 
must maintain an affidavit or affidavits from the renewable fuel 
producer of the RIN-less exported fuel, attesting that no RINs were 
generated for the specific volume of exported fuel. These requirements 
are intended to further the programmatic goal of generating RINs only 
for fuel that is intended for domestic production and retiring any RINs 
associated with renewable fuel that is ultimately exported.
    Regarding the second situation, while one commenter supported the 
idea of eliminating the RVO where the exporter can document that RINs 
were already retired (but not retired for compliance with an RVO) for 
the exported volume, another commenter asserted that such an allowance 
would complicate the RIN-tracking system and make it more difficult for 
the EPA to establish how much renewable fuel is being exported. The EPA 
believes such a provision would also complicate the retirement and 
compliance reporting requirements. Also, it is unlikely, given the 
functioning of the RIN market, that RINs would be retired by someone 
upstream of the exporter but not for compliance with an RVO. For these 
reasons, the EPA has decided not to add a provision allowing an 
exemption from the exporter RVO for renewable fuel for which RINs have 
already been retired (but not for compliance with an RVO) upstream.
    In summary, the exporter RVO is incurred only for fuel for which 
RINs were generated and must be fulfilled only by the exporter and not 
by any upstream parties.
2. Require Identification of Renewable Fuel Content
    Pursuant to Section 205 of the EISA, fuel blends containing up to 
five percent biodiesel or up to five percent biomass-based diesel, and 
that meet ASTM D975 (``Standard Specification for Diesel Fuel Oils''), 
need not be labeled as containing biofuel. Fuel blends containing more 
than five but less than twenty percent biodiesel or biomass-based 
diesel must be labeled ``contains biomass-based diesel or biodiesel in 
quantities between 5 percent and 20 percent'' and blends containing 
more than twenty percent must be labeled ``contains more than 20 
percent biomass-based diesel or biodiesel.'' \19\ Under current FTC 
regulations, blends containing more than 20 percent biodiesel or 
biomass-based diesel must also be labeled with the precise blend 
level.\20\ Since all renewable fuel volumes for which RINs were 
generated, including any quantity blended into conventional fuel, 
trigger an RVO on export, exporters must be aware if any part of their 
fuel volume is renewable fuel. Given the lack of disclosure for blends 
of up to five percent and the non-specific disclosure for 5-20 percent 
blends, there is growing concern that renewable fuel may be exported 
without the required exporter RVO being calculated and fulfilled.
---------------------------------------------------------------------------

    \19\ See EISA, section 205(b).
    \20\ See 73 FR 40155 (July 11, 2008), ``Federal Trade Commission 
Automotive Fuel Ratings, Certification and Posting; Final Rule.''
---------------------------------------------------------------------------

    In the NPRM, we proposed that a person transferring any biomass-
based diesel blend or biodiesel blend to any other person (including 
blends of less than five percent) shall include in the PTD a disclosure 
of the specific renewable fuel blend level. The PTD disclosure would 
include the name of the transferor, the name of the transferee, the 
date of transfer, the volume in gallons of the product transferred, and 
either the volume in gallons or the percentage of biomass-based diesel 
or biodiesel that is contained in the blended product.
    We received a number of comments on this issue. Many commenters 
opposed the mandatory disclosure of renewable content blend level, 
asserting that it would disrupt the existing fuel transportation and 
pipeline system in place and prove costly, impractical, and 
unnecessary. Currently, some blended renewable fuel is shipped through 
fungible distribution systems, such as a common carrier pipeline. This 
diesel has some percentage of renewable fuel in it, as allowed by ASTM 
D975 and the pipeline's specification requirements, but the precise 
amount of renewable fuel is immaterial to the quality of the fuel. If 
the proposed PTD provisions were finalized, these commenters generally 
argued that the carriers could have to ship distinct, segregated 
batches of fuel based on different renewable fuel content ratings. This 
could be both expensive (requiring additional holding tanks and other 
physical improvements to the system, as well as requiring additional 
testing of the fuel) and time consuming (delaying shipments 
downstream). Commenters also suggested that the proposed PTD 
requirements would be contrary to the idea of allowing blended diesel 
to operate as a drop-in fuel, which encourages the development and 
purchase of biodiesel. Commenters also stated that it is not easy, at 
the terminal level, to determine the precise content of a blend and 
would cause delay and a ripple effect of increased costs to the 
terminal operators and downstream buyers.

[[Page 42103]]

    Some commenters supported the idea of requiring a general label of 
renewable fuel content if less than five percent, but still opposed 
disclosure of the specific blend level. One commenter supported the 
disclosure of blend level, but suggested that residential heating oil 
should be exempt from the requirement because heating oil trucks would 
be unable to print all the required information on the tickets they 
generate for fuel sold. Some commenters suggested that below a de 
minimis level, e.g., one percent or some other level, the renewable 
fuel content should not need to be disclosed on the PTD or that 
disclosure should only be required where a party has actual knowledge 
of the renewable fuel content. Commenters also noted that the proposal 
lacks specificity as to how the requirements would be enforced, what 
degree of accuracy is required for testing the blend level, and the 
specific language to be used on the PTDs.
    Other commenters supported the proposal to require disclosure of 
precise renewable fuel blend level in PTDs. These commenters stated 
that such disclosure would improve the safety of the marketplace for 
buyers, both with respect to RIN validity and the physical properties 
of the fuel. If a renewable fuel blend of five percent or less is not 
labeled, a blender might add in up to five percent more biodiesel or 
biomass-based diesel and sell it onward still without a label, though 
the resulting blend would be greater than five percent. This process 
could theoretically occur multiple times, resulting in significant 
concentrations of biodiesel or biomass-based diesel in diesel without 
notice to purchasers. Such concentrations would also result in the 
missed retirement of RINs for such renewable content upon export.
    Having considered all comments on this issue, we are not finalizing 
the requirements for disclosure of specific blend levels for any blend 
volume of any renewable fuel beyond what is already required by EISA 
and other regulations, noted above. This will relieve the potential 
burden and disruptions that may have occurred in the fuel distribution 
system and marketplace.
    However, since the underlying purpose of these proposed 
requirements was to ensure that exporters are aware of their 
responsibility to fulfill an exporter RVO by making them aware of the 
renewable fuel content of their exports, we are taking this opportunity 
to remind exporters of their obligations under 40 CFR Sec.  80.1430(e). 
If followed appropriately, this paragraph already provides the needed 
structure and directions for exporters to determine the renewable fuel 
content of their exported volumes and calculate their RVOs, regardless 
of whether the blend level is specified in PTDs of the fuel they 
receive. 40 CFR 80.1430(e) states that the exporter shall determine the 
volume of renewable fuel blended with other fuel at the time of export 
by one of three methods. The regulation makes it clear that this is not 
a discretionary determination by the exporter, and the exporter must 
use one of these three methods for determining renewable fuel content 
of any exported fuel blend.
    First, the type of renewable fuel and blend level may be specified 
in documents provided by the seller, according to Sec.  80.1430(e)(1). 
This will usually be in the form of a product transfer document. For 
example, as discussed above, renewable diesel and biodiesel blends 
above 20 percent will most likely contain the specific blend level, per 
current FTC requirements, and blends between one percent and 20 percent 
may be labeled with the specific blend level, though this specific 
disclosure is not required by regulation or law. If the blend type and 
level is specifically stated by the supplier, the exporter may rely on 
such a statement to determine the volume of renewable fuel being 
exported and the exporter RVO.
    The second way the renewable fuel content may be determined by the 
exporter is by testing the fuel for renewable fuel content using method 
B or C of ASTM 6866 or an alternative test method as approved by the 
EPA, per Sec.  80.1430(e)(2).
    The third way the exporter may determine the renewable fuel content 
of any exported fuel is by assuming the fuel contains the maximum 
concentration of renewable fuel allowed by law and/or regulation, per 
Sec.  80.1430(e)(3). Therefore, for diesel that is not labeled as 
containing renewable fuel, the exporter must assume the volume contains 
five percent biodiesel or biomass-based diesel because that is the 
maximum concentration currently allowed without label by regulation. 
For diesel labeled as containing between five percent and 20 percent 
renewable diesel or biodiesel, the exporter must assume the fuel 
contains 20 percent because 20 percent is the maximum concentration 
that could be contained in that volume. If the exporter does not wish 
to assume the maximum percentage allowed by law (be it five percent or 
20 percent), then it can use the testing method allowed in Sec.  
80.1430(e)(2) to determine the precise fuel content. Importantly, and 
as noted above, the exporter is responsible for determining the 
renewable fuel content, even when the content is not necessarily stated 
on the PTD for diesel.
    Regardless of which method is used to determine the renewable fuel 
content of exported volumes, the exporter must report their exported 
volume and RVO annually, per the existing regulations at 40 CFR 
80.1451(a). Records demonstrating the method used to reach that 
determination (including any applicable testing results) must be 
maintained per 40 CFR 80.1454(a).
    By clarifying that the exporter RVO is five percent of the exported 
volume for diesel not carrying a renewable fuel content label and is 20 
percent of the exported volume for diesel labeled as containing between 
five percent and 20 percent renewable diesel or biodiesel, we have 
greater confidence that the underlying policy goal--to retire an 
appropriate number and type of RINs for any volume of exported 
renewable fuel--will be fulfilled. At the same time, if the exporter 
does not want to assume that maximum level, he or she can test the fuel 
at the time of export to determine if there is no renewable fuel 
content or some content less than five percent or less than 20 percent, 
and accordingly reduce the exporter RVO. Keeping the burden on 
exporters to determine the volume of renewable fuel they export and 
clarifying that they must assume the maximum percentage allowed by law 
where no percentage is specifically labeled on the PTD documents is the 
most straightforward way to remove RINs associated with exported fuel 
from the marketplace while alleviating the concerns expressed regarding 
the proposed specific blend-level PTD disclosure.
3. RIN Retirement Requirements
    The current RFS regulations require exporters to demonstrate 
compliance with their ERVOs on an annual basis, in the same way that 
obligated parties fulfill their RVOs. We proposed in the NPRM that a 
shorter deadline for exporters' fulfillment of their RVOs and 
eliminating the deficit carryover provision \21\ for exporters may ease 
concerns related to uncertainty in the export market. Reducing the 
amount of time available for exporters to meet their RVOs is intended 
to discourage ``shell companies'' being formed for the purpose of 
exporting renewable fuel without retiring appropriate RINs and then 
folding before the retirement deadline in order to avoid the cost of

[[Page 42104]]

meeting the RVO. They would also reduce incentives for exporters to 
profit from selling RINs received with renewable fuel to obligated 
parties at a time of high RIN prices and then purchasing and retiring 
RINs to meet their RVO when prices drop. We also suggested, as an 
option, that exporters could be required simply to demonstrate on a 
quarterly basis that they have acquired RINs sufficient to cover their 
RVO in that quarter.
---------------------------------------------------------------------------

    \21\ Under Sec.  80.1427(b), an obligated party or exporter of 
renewable fuel may under certain conditions carryover a renewable 
volume obligation deficit until the end of the following compliance 
year.
---------------------------------------------------------------------------

    We received a number of comments regarding these suggestions, the 
majority of which were in favor of eliminating the deficit carryover 
allowance for exporters and reducing the time available for compliance 
with the RVO after export. Some commenters suggested the RVO should be 
met ``immediately'' upon export, while others suggested thirty days, 
quarterly, sixty days or annual retirement to meet the exporter's RVO. 
Some suggested that RINs still attached to exported fuel should be 
immediately retired, whereas for fuel purchased without RINs still 
attached, the exporter should be given more time to fulfill its RVO. 
Many commenters cited ongoing concerns of exporters gaming the system 
by retiring RINs late (if at all) and suggested that shortening the 
time frame for compliance would tighten up this ``loose'' area of the 
RIN market and improve all other participants' understanding of what 
RINs are available for purchase at a given point in time. Other 
commenters suggested leaving the exporter RVO provisions as they are, 
because the exporter market has ``calmed down'' and exporters need the 
flexibility to carryover RIN retirement obligations to the next 
compliance year if needed.
    Having considered all the comments on this issue, the EPA believes 
the advantages of requiring more immediate and ongoing fulfillment of 
the exporter RVO and elimination of the deficit carryover provision for 
exporters far outweigh the potential disadvantages and burdens on 
exporters. While the EPA does not believe that ``immediate'' retirement 
is required upon export, we believe 30 days is a reasonable deadline by 
which to require the retirement of RINs of the same number and type as 
were originally generated for the exported renewable fuel. This final 
rule therefore includes a provision at 40 CFR 80.1430(f) to set the 
retirement deadline for fulfilling the exporter's RVO at thirty (30) 
days from the date of export. It also removes the deficit carryover 
provision for exporters from the RVO formulae at Sec.  80.1430(b) and 
from 80.1427. In order to ensure that 2014 ERVOs incurred after 
December 31, 2013 and prior to the effective date of the final rule are 
still fulfilled, the final rule also includes a new provision at Sec.  
80.1430(g) that all 2014 ERVOs existing and unfulfilled as of the 
effective date of the final rule must be satisfied by the compliance 
demonstration deadline for the 2013 compliance period. This will give 
exporters sufficient time to retire RINs in fulfillment of their 
existing ERVOs, which may include previously reported carryover ERVOs 
from the previous year. The requirement for exporters to report all 
such retirements in quarterly reports and annual reports remains the 
same as is currently written in 40 CFR 80.1451(c)(2) and 80.1451(a)(1), 
respectively.

B. ``Downstream'' Invalidation and Product Transfer Documents

    In the NPRM, the EPA proposed to clarify and expand existing 
requirements regarding the designation of qualifying renewable fuel, in 
response to concerns that properly generated RINs may become invalid if 
the fuel is not ultimately used in or as transportation fuel, heating 
oil, or jet fuel. We also proposed additional PTD and tracking 
requirements for renewable fuels that are not generally expected to be 
used for a qualifying purpose, i.e., as transportation fuel, heating 
oil or jet fuel. We received numerous comments regarding these changes, 
and are finalizing them as proposed with only minor changes.
1. Designation of Intended Renewable Fuel Use
    In the NPRM we proposed that all renewable fuel producers and 
importers must designate all RIN-generating renewable fuel as 
transportation fuel, heating oil or jet fuel on the PTDs prepared to 
accompany a fuel shipment. The NPRM stated that designations of 
intended use must be made in good faith; in other words, parties 
designating fuel for a qualifying use who in fact know or have reason 
to know that the fuel would likely not be used in or as transportation 
or jet fuel or heating oil would be in violation of the regulation, and 
subject to civil penalties.
    Many commenters supported these PTD requirements, while some 
suggested that fuel traditionally used for conforming purposes (e.g. 
biodiesel) should not be required to meet the additional PTD 
designation requirements. Some commenters believed the extra language 
on PTDs would cause unnecessary expense and burden on producers and 
others involved in further transfers of the renewable fuel, and that 
the language was especially unnecessary if the PTD was also required to 
include a disclosure of any renewable fuel content, as discussed above 
in section III.A.2.
    After considering these comments, the EPA believes the additional 
PTD designations of intended use will cause minimal burden on regulated 
parties while providing useful information to blenders and end users 
downstream of the producer. Given that we are not finalizing the 
provisions requiring disclosure of specific blend levels for all 
renewable fuels, this basic PTD language will provide at least a basic 
disclosure that a blended fuel contains renewable content. There is 
therefore no redundancy in the disclosure, and it provides useful 
information to all potential purchasers.
    We have made two minor adjustments in the required PTD language in 
the final rule. First, we removed any implication that there are 
negative consequences for the fuel's end user if the fuel is used for 
an improper purpose, i.e., not as transportation fuel, heating oil or 
jet fuel. The purpose of the PTD is to state the fuel's intended and 
appropriate end use and creates no burden or obligation on the end 
user. The second change is the addition of a sentence declaring that 
any person exporting the renewable fuel is subject to the provisions of 
Sec.  80.1430. This statement creates no new right or obligation for 
exporters, but simply gives exporters additional notice that they are 
subject to the RFS, specifically the provisions requiring retirement of 
RINs for any RIN-generating fuel they export.
    In addition to the PTD requirements, we also proposed that parties 
generating RINs for any renewable fuel not typically sold for use in or 
as transportation fuel, jet fuel, or heating oil must collect and 
submit documents certifying the fuel's appropriate end use. The EPA 
believes that denatured ethanol, biodiesel, and renewable diesel that 
meets ASTM 975-13a Grade No. 1-D or No. 2-D specifications are highly 
likely to be used as transportation fuel, heating oil or jet fuel and 
are therefore not subject to the additional documentation requirements. 
For all other renewable fuels, we proposed limiting the opportunity for 
RIN generation to circumstances where the RIN generator has taken 
actions to ensure that the fuel is used for transportation fuel, 
heating oil or jet fuel. Where the producer or importer has fulfilled 
the applicable registration requirements, at Sec.  80.1450(b)(1)(ix), 
RINs generated for such fuel will remain valid regardless of the fuel's 
ultimate use. In the final rule, we are adding

[[Page 42105]]

renewable gasoline to the list of fuels that are highly likely to be 
used for a conforming purpose and renewable gasoline is therefore not 
subject to the additional requirements for all other RIN-generating 
renewable fuels.
    There are two ways for the RIN generator to demonstrate that the 
fuel is sold for use as transportation fuel, heating oil or jet fuel. 
First, if the RIN generator uses the fuel itself as a blendstock or 
additive for gasoline or diesel fuel, it must maintain contemporaneous 
records demonstrating that it used the fuel as a blendstock or additive 
and that the final product is a transportation fuel, heating oil or jet 
fuel that met all applicable standards. Second, if the RIN generator 
does not use the fuel itself as a blendstock or additive for gasoline 
or diesel fuel, it may enter into a sales contract (or show a string of 
contracts) that requires the ultimate purchaser to use the fuel as a 
blendstock or additive for gasoline or diesel fuel, and that meets 
certain requirements designed to assure that the end user does, in 
fact, use the fuel as a blendstock or additive in a transportation 
fuel, heating oil or jet fuel that meets all applicable standards.
    We sought comment on these requirements generally, and also how 
these new registration requirements should apply to currently 
registered entities.
    One commenter agreed that the proposed requirements would help 
ensure that the fuels are used for the appropriate RFS purposes and no 
other purposes, and suggested that the requirements should apply 
immediately to currently registered entities who should update their 
registrations as soon as practicable. Other commenters, however, 
disagreed with the proposal, stating that the producers' involvement 
with the fuel should end at the time of sale and that such tracking is 
beyond the appropriate scope of the QAP system. Another commenter 
suggested that providing affidavits of appropriate use should be a 
burden placed on the end user, not the producer or RIN generator. 
Another commenter stated that these requirements only complicate an 
already complicated system.
    After considering all comments, the EPA is finalizing the proposed 
registration, reporting and recordkeeping requirements for fuels not 
typically used as transportation fuel, heating oil or jet fuel as 
proposed. We believe that the RIN-generators are in the best position 
to collect and submit information regarding end use, because they are 
already regulated and registered parties, and they are the ones 
receiving the financial benefits of RIN generation. Therefore, it is 
appropriate to require RIN generators to be able to demonstrate, 
through the affidavits of third-party end users, that the renewable 
fuel they produce is indeed being used or is intended for use for a 
qualifying purpose. While we recognize that this will require 
additional paperwork collection and submission, the benefits of such 
additional work outweigh the potential burdens on RIN generators.
    Given the lag time between publication of this rule and the 
effective date of the final rule, we have determined that for parties 
already registered to generate RINs for these fuels, registrations must 
be updated as of the effective date of this rule. This should provide 
sufficient time for the initial collection of end user affidavits.
    In determining which fuels are typically sold for use in or as 
transportation fuel, jet fuel, or heating oil, we realized that some 
fuels currently meeting the definition of ``renewable diesel'' should 
be subject to the same additional requirements to demonstrate 
appropriate end use. Some renewable fuel producers are currently 
generating RINs for fuel that they claim meets the existing definition 
of renewable diesel, but which is not chemically equivalent to a 
petroleum diesel fuel and is therefore not a drop-in fuel. This product 
is primarily composed of triglycerides that have not been chemically 
converted to a hydrocarbon, through simple filtration of vegetable 
oils. It cannot be used as a drop-in transportation fuel but can only 
be used at blend levels with diesel fuel that are approved under 40 CFR 
part 79. To address this issue, we proposed to amend the definition of 
``non-ester renewable diesel'' so that qualifying fuels must be 
approved under 40 CFR part 79 at specific blend levels with diesel 
fuel. This would explicitly allow those renewable fuels that are not 
fungible in their neat form with petroleum-based fuels to qualify as 
renewable diesel, while specifying that the end product must be 
fungible with petroleum diesel.
    We also suggested that in order to differentiate between the two 
types of renewable diesel (``drop in'' and other) we could limit the 
definition of renewable diesel to fuels that meet the ASTM D 975 Grade 
No. 1-D or No. 2-D specifications, and that are homogenous 
hydrocarbons. We could then refer to all other fuels that meet the 
current definition of renewable diesel as viscous non-ester renewable 
diesel, effectively removing these ``other'' fuels from the definition 
of renewable diesel.
    We received a number of comments in support of altering the 
definition to distinguish between renewable diesel that is fungible 
with conventional diesel and that which is not. One commenter 
additionally suggested that fuel not qualifying under the limited 
definition of renewable diesel should not qualify for RIN generation at 
all, or should have to petition for a new pathway in order to generate 
RINs. Other commenters suggested that triglycerides should never be 
considered renewable fuel capable of generating RINs.
    After considering all comments on this issue, we determined that it 
is clearer to distinguish between fungible drop-in renewable diesels 
meeting ASTM D 975-13a Grade No. 1-D or No. 2-D specifications and 
other renewable fuels that can be blended at levels allowed under 40 
CFR part 79 to create a product fungible with transportation fuel 
(petroleum diesel). However, the final rule creates this distinction 
within the definition of ``renewable diesel'' instead of creating a new 
definition of ``viscous non-ester renewable diesel,'' to avoid further 
complicating the system and creating a new class of renewable fuel. We 
are therefore amending the definition of renewable diesel to include 
two classes of renewable diesel, one that meets ASTM D975-13a Grade No. 
1-D or No. 2-D specifications and one that does not. Both classes of 
renewable diesel must not be mono-alkyl esters. The first class of 
renewable diesel must meet the ASTM D 975-13a Grade No. 1-D or No. 2-D 
specifications and must be suitable for use in an engine designed to 
operate on conventional diesel. The second class of renewable diesel 
must be a fuel or fuel additive registered under 40 CFR part 79 and be 
intended for use in an engine designed to operate on conventional 
diesel. As discussed above, any renewable diesel that does not meet the 
ASTM D975-13a Grade No. 1-D or No. 2-D specifications, i.e. that is in 
the second class of the new definition of renewable diesel, is subject 
to the additional registration, recordkeeping and reporting 
requirements for fuels not typically sold for an RFS qualifying use. We 
do not find it necessary, as some suggested, to prohibit RIN generation 
for renewable diesel not meeting an ASTM specification. The increased 
recordkeeping and tracking requirements for renewable diesel not 
meeting the ASTM D975-13a Grade No. 1-D or 2-D specifications are 
designed to ensure the fuel is used for an RFS qualifying use and 
therefore is properly eligible for RIN generation.
    In the NPRM, we also proposed new requirements at Sec.  80.1433 for 
any party

[[Page 42106]]

selling or transferring a volume of renewable fuel for which RINs were 
generated, if that party knew or had reason to know that the volume 
would ultimately be used for a non-conforming purpose. We proposed that 
such a party would be obligated to redesignate the fuel (by removing 
the PTD designation of intended use) and to retire a like quantity and 
type of RINs as were originally generated for the volume. We also 
proposed a new prohibited act provision at Sec.  80.1460(g) that 
established a failure to retire RINs when the designation of an RFS 
intended use was removed as a prohibited act. Upon further 
consideration, we have determined that these new retirement and 
redesignation requirements and the associated prohibited act provision 
are not needed to meet the program goal of ensuring that RIN-generating 
renewable fuel is used for an RFS qualifying fuel use, i.e., as 
transportation fuel, heating oil or jet fuel in the United States. 
Having added the requirements for `intended use' PTD language to 
accompany all volumes of renewable fuel for which RINs were generated 
and new requirements for tracking and recordkeeping of actual end use 
for fuels not traditionally used for a qualifying use, we feel that the 
program goal of ensuring appropriate end use is already addressed and 
managed through the regulations. We are therefore not finalizing the 
proposed Sec.  80.1433 and conforming prohibited act provision for 
sellers and transferors of RIN-generating renewable fuel.
2. Required Actions Regarding Fuel for Which RINs Have Been Generated 
That Is Redesignated for a Non-Qualifying Fuel Use
    Section 80.1429(f) of the existing regulations provides that any 
person who uses or designates a renewable fuel for an application other 
than transportation fuel, heating oil or jet fuel (i.e., a non-
qualifying fuel use) must retire any RINs received with that renewable 
fuel. This approach, however, places the burden of using fuel for a 
qualifying use on the end user (who may under the existing regulations 
have no idea of the appropriate use requirements) when the fuel already 
should have been redesignated upstream and the use restriction removed. 
In other words, once the fuel reaches the end user, it should be 
clearly designated either for use as a transportation fuel, heating oil 
or jet fuel and sold as such, or should have been redesignated for a 
non-qualifying fuel use and the redesignator should have retired an 
appropriate number of RINs. Redesignation in this context simply means 
the removal of the PTD statement of intended end use required under 
section 1453(a)(12). A party removing this designation might also 
include a statement that the fuel is intended for some other specific 
use, but such additional or other specifications are not required under 
the regulations.
    As noted above in section III.B.1, a transferor who uses the PTD 
language designating the fuel for use as transportation fuel, heating 
oil or jet fuel must not know or have reason to know that the fuel will 
be used for some other purpose. To do so would be a prohibited act and 
subject the transferor to civil penalties. Any person redesignating 
fuel for which RINs have been generated for a non-qualifying use must 
make the RIN system whole by retiring an equivalent number and type of 
RINs. The end user, on the other hand, has no obligation under the RFS 
to use fuel in a particular way or to retire RINs if the fuel is used 
for a non-qualifying purpose. The original producer or RIN generator 
for the fuel is similarly protected under this system, because the RINs 
are not invalidated by an improper end use. If RINs were generated for 
the fuel and it is sold for use as a transportation fuel, heating oil, 
or jet fuel (and any other additional requirements are met for special 
fuel types, see section III.B.1 of this Preamble), then the RINs 
generated for that fuel are valid and cannot be invalidated by any 
action of the end user.
    To ensure that RINs generated with renewable fuels are retired if 
the fuel is redesignated for a non-qualifying fuel use, we proposed and 
are finalizing new requirements for any party that redesignates a 
renewable RIN-generating fuel for a non-qualifying fuel use. To 
accomplish this, we are removing and reserving Sec.  80.1429(f) of the 
regulations and adding a new Sec.  80.1433 to require parties that 
designate fuel for which RINs were generated for a non-qualifying fuel 
use, i.e. for something other than transportation fuel, heating oil, or 
jet fuel, to retire an appropriate number and type of RINs. We are also 
adding a new Sec.  80.1460(g) which prohibits a person from designating 
a qualifying renewable fuel for which RINs were generated for a non-
qualifying fuel use, unless the requirements of Sec.  80.1433 have been 
met, i.e. an appropriate number and type of RINs were retired when the 
fuel was redesignated. These changes will relieve end users of the 
obligation to retire RINs.
    Commenters on this issue supported the proposed changes for 
redesignators and removal of the retirement requirement for end users. 
Based on our initial rationale and the lack of any comments to the 
contrary, we are finalizing these changes as proposed. One commenter 
considered the proposed 10 day retirement deadline too short and 
suggested it should be extended to 15 days, starting on the date the 
fuel is re-designated or sold. The EPA foresees no harm in extending 
the deadline for Sec.  80.1433 retirements, so is finalizing a 15 day 
deadline.
3. RIN Generation for Fuel Made With Renewable Fuel Feedstock
    The existing regulations do not provide a pathway for the 
generation of RINs for a fuel produced using another renewable fuel as 
a feedstock. Parties seeking to do so, however, may submit a petition 
requesting approval pursuant to Sec.  80.1416. 40 CFR 80.1426(c)(6)(ii) 
sets forth certain prohibitions that would apply if, in the future, the 
EPA approved a pathway that allowed a party to generate RINs for a fuel 
that was produced using another renewable fuel as a feedstock. These 
prohibitions are designed to prevent parties from generating more than 
one RIN for the same volume of renewable fuel. In the NPRM, the EPA 
proposed to modify Sec.  80.1426(c)(6) to prohibit a party from 
generating RINs for a fuel made from a renewable fuel feedstock, where 
the feedstock was produced by another party, unless the EPA approves a 
petition under Sec.  80.1416 and the petition and approval include an 
enforceable mechanism to prevent double counting of RINs. Having 
received no adverse comments on this proposal, we are finalizing the 
new paragraph as proposed.
    We also proposed to amend Sec.  80.1426(f)(4) to address the 
potential for ``double discounting'' for non-renewable feedstocks when 
renewable fuel is produced by co-processing renewable biomass and non-
renewable feedstocks to produce a fuel that is partially renewable. To 
correct this problem, we proposed to add a new paragraph (f)(4)(iii) so 
that for purposes of Sec.  80.1426(f)(4) only, the equivalence value 
does not include a discount for non-renewable feedstocks. Having 
received no adverse comments on this proposal, we are finalizing the 
new paragraph as proposed.
4. Use of Renewable Fuel in Ocean-Going Vessels
    Another issue the Agency is aware of concerns the use of renewable 
fuel-containing Motor Vehicle, Nonroad, Locomotive and Marine diesel 
fuel (MVNRLM) in ocean-going vessels. The definition of 
``transportation fuel'' specifically excludes ``fuel for use in

[[Page 42107]]

ocean-going vessels''. See 40 CFR 80.1401. In the preamble to the March 
26, 2010 RFS rule, the Agency stated that ```fuels for use in ocean-
going vessels' means residual or distillate fuels other than MVNRLM 
intended to be used to power large ocean-going vessels.'' 75 FR 14670, 
14721 (March 26, 2010). The rule also defines ``fuel for use in ocean 
going vessels'' as including ECA marine fuel. See 40 CFR 80.1401. Some 
parties have questioned whether MVNRLM that is blended into ECA marine 
fuel is ``fuel for ocean going vessels'' such that RINs generated for 
the renewable fuel component of MVNRLM become invalid upon that use. It 
is the Agency's interpretation that the definition of ``fuel for use in 
an ocean-going vessel'' in Sec.  80.1401 does not include MVNRLM that 
is blended into ECA marine fuel. This is based on the definitions of 
fuel for use in an ocean-going vessel and of ECA marine fuel, as 
explained in the March 2010 rulemaking.\22\ Therefore, RINs that have 
been or are properly generated for any renewable fuel component of 
MVNRLM that is blended to produce ECA fuel remain valid. The EPA notes 
that the vast majority of MVNRLM is used for qualifying RFS purposes, 
and that only a trivial quantity of such fuels is used to produce ECA 
fuel for ocean-going vessels. Given the complexity and regulatory 
burden that would be involved in tracking trivial quantities of MVNRLM 
that may be used in ECA fuel, the RFS regulations appropriately treat 
all properly generated RINs for renewable fuel blended into MVNRLM as 
valid, regardless of the possible downstream blending of MVNRLM with 
ECA fuel. In addition, new regulatory requirements designed to ensure 
that renewable fuel is put to a qualifying use would be imposed on 
certain types of renewable fuel, as discussed above. These new 
requirements would further limit the quantity of renewable fuel that 
could ultimately be blended with ECA fuel used in ocean going vessels.
---------------------------------------------------------------------------

    \22\ This does not change the fact that the blend of fuel that 
results from blending MVNRLM or NRLM with ECA marine fuel would 
still be ECA marine fuel and subject to the sulfur limits that apply 
to such fuel.
---------------------------------------------------------------------------

    We sought comment on whether our interpretation of ``fuel for use 
in an ocean-going vessel'' created any potential problems. The Agency 
received several supportive comments and no comments against the 
proposed interpretation of ``fuel for use in an ocean-going vessel''. 
Therefore, the Agency is finalizing the proposed interpretation.
5. Treatment of Improperly Separated RINs
    Under existing regulations, a RIN that was improperly separated 
pursuant to Sec.  80.1429 is invalid and obligated parties may not use 
any invalid RINs for compliance purposes. In the NPRM, the EPA proposed 
to remove the provision that improperly separated RINs are invalid, and 
to add a provision identifying the improper separation of RINs as a 
prohibited act. The net effect of these changes would allow obligated 
parties to use RINs that were improperly separated for compliance 
purposes, since the RINs would no longer be considered invalid. 
However, improper RIN separation would continue to be a prohibited act 
under the regulations. We received a number of comments in support of 
this approach and therefore are finalizing it as written.
    The EPA sought comment on whether the RFS regulations should 
instead maintain Sec.  80.1431(a)(1)(viii), but also require a more 
comprehensive and robust mechanism to allow parties that acquire 
separated RINs and the EPA to evaluate whether the RINs were properly 
separated and used in or for a qualifying fuel. We received one comment 
in support of the proposal but a number of comments in opposition to 
this alternative idea, asserting that the RIN-related regulations are 
already complex and this would add additional complexity without a 
significant benefit in return. The simpler proposed alternative (above) 
was widely favored. The EPA is therefore not finalizing any additional 
requirements for tracking of separation events and separated RINs.
    Additionally, the EPA requested comment on whether we should 
require RIN separators to include with their quarterly reports 
additional records related to qualifying separation events that are 
already required to be reported in basic form in quarterly reports. 
Enhanced reporting requirements for RIN separators could facilitate the 
EPA's ability to investigate and prosecute persons who engage in RIN 
separation violations. The EPA sought comment on the type and scope of 
reporting that would most likely assist the EPA in identifying RIN 
separation violators. We received no comments on this issue and are not 
prepared at this time to finalize additional reporting requirements 
regarding RIN separation. We intend to continue to evaluate this 
question and will take up the issue in a subsequent action if we 
determine it is warranted. As we are not finalizing a change, RIN 
separators will continue to be required to provide in quarterly reports 
a list and certain details of all RIN separation events occurring in 
that quarter, per 40 CFR 80.1451(c)(1).

C. Treatment of Confidential Business Information

1. Proposed Disclosure of Certain Registration and Reported Information
    Due to the high level of interest in RFS compliance information 
since implementation of the RFS program, the EPA proposed to make 
certain RFS registration and reporting information public. The release 
of this information was intended to improve the integrity of 
information submitted for RFS compliance and deter fraudulent behavior, 
and was part of a broader effort to increase transparency and provide 
information to the public that would promote greater liquidity in the 
RIN market. We solicited comments on all aspects of the proposed 
information releases, and in particular whether there are unique 
circumstances where disclosing this information would cause substantial 
harm to a company's competitive position.
    We received a substantial number of comments on our proposed 
Confidential Business Information (CBI) determination, many of which 
raised legitimate concerns regarding the appropriateness and lawfulness 
of the EPA releasing the proposed information. Given our desire to 
finalize the proposed QAP program in a timely manner and the 
significant serious issues raised on the CBI question, we are not 
finalizing a CBI determination in this action. We intend to continue to 
evaluate the issues raised in comment and if appropriate will make a 
CBI determination in a future action.
    The EPA proposed to summarize and publish two classes of 
information: Registration information and information from quarterly 
reports. First, we proposed to publish registration and QAP information 
required under 40 CFR 80.1450(b), (c), and (g) from independent third-
party auditors and renewable fuel producers and importers registered 
with the RFS program, by facility and on a monthly basis. For each 
facility, we would publish the company name, facility name, facility 
type/fuel product, total permitted capacity, production volume, 
production process type, feedstocks, D-Code, and any co-products. After 
publishing these monthly registration reports, we proposed to summarize 
and update the information in quarterly and annual registration reports 
of the same type of information.
    Second, we proposed to publish monthly, quarterly and/or annual 
report of information reported to the EPA

[[Page 42108]]

under 40 CFR Sec.  80.1452(b) by renewable fuel producers and 
importers, on a facility-by-facility basis. This information included:
     The name of the renewable fuel producer or importer and 
associated registration information (i.e., name, address, feedstock, 
process, fuel type, D-Code).
     The EPA company and facility registration numbers and the 
associated registration information of the renewable fuel producers, 
foreign ethanol producers and importers that generated RINs in EMTS 
during the applicable time period(s).
     The D-code of RINs generated by the facility during the 
time period (40 CFR 80.1452(b)(6)). For each D-code generated at a 
facility, the number of RINs generated (40 CFR 80.1452(b)(12)), volume 
of fuel produced (40 CFR 80.1452(b)(10)), fuel type (40 CFR 
80.1452(b)(9)), production process (40 CFR 80.1452(b)(7)), feedstocks 
(40 CFR 80.1452(b)(13)), and co-products (40 CFR 80.1452(b)(15)).
     The volume of denaturant (for ethanol), applicable 
equivalence value, and whether all the feedstocks used during the time 
period were claimed to have met the definition of renewable biomass (40 
CFR 80.1452(b)(11) and 80.1452(b)(14)).
    The EPA believed that these data were not entitled to confidential 
treatment because we believed much of this information was already 
publicly available and widely known, for example renewable fuel 
producers' company names, facility names, RIN-generating names, 
locations, production years, fuel product types, RIN D-Codes, 
production volumes, production process types, feedstocks, equivalence 
values, and number of RINs generated. We also believed that disclosing 
this information was not likely to cause substantial harm to the 
competitive position of the business required to report these 
information elements under Part 80 because these elements of 
information do not reveal any proprietary information, or any other 
information that would likely provide insight for competitors to gain 
an advantage. Furthermore, because these information elements would be 
aggregated to the facility level and further aggregated for the time 
period of the EPA-published report, we did not believe the information 
could be used by a competitor to gain a competitive advantage.
    We received a number of comments on this proposal. Many commenters 
noted that the most sensitive aspects of the information proposed for 
release are not already publicly available or widely known. The EPA's 
assumption on this point was mistaken. Further, many commenters 
discussed at length the ways in which release of the data could cause 
competitive harm. For example, release of actual production volumes 
over time could reveal a company's market share and position, percent 
capacity production rate, marketing strategy and business partnerships 
with other entities such as feedstock suppliers. Feedstock type and 
production process type, in concert with other released data, could be 
reverse-engineered to reveal the producers' process efficiencies, 
feedstock use rates and other proprietary information. Some commenters 
asserted that release of the data would have a disproportionately large 
negative impact on small producers, whose processes and business 
relationships are typically more sensitive and guarded than large 
producers'.
    Given the recognition that much of this information is not already 
public or widely available and the many concerns expressed about 
potential harm to competitive position, the EPA is not finalizing the 
proposed release of registration and reported information. The decision 
not to finalize the proposed release of data is not a determination 
that the information proposed for release necessarily deserves 
confidential treatment, for example in response to a FOIA request. Such 
requests will continue to be evaluated on a case-by-case basis. The EPA 
will continue its current practice to treat as CBI any registration or 
reported information claimed as confidential, unless a specific 
determination to the contrary is made in a given case. Today's decision 
is simply a determination that, at this time, we are not prepared to 
make a class determination that the information proposed for release in 
the NPRM is not CBI.
2. Treatment of QAPs and Independent Engineering Reviews
    For QAP plans and independent engineering reviews that are claimed 
as CBI, the EPA proposed to require submission of two versions of those 
documents: One clearly marked ``CBI version,'' with appropriate areas 
denoted as CBI, and a second ``public version,'' with CBI information 
redacted. Based on the Agency's experience with the RFS program, the 
EPA noted that certain information should not fall under a claim of CBI 
because it is generally available to the public or widely-known within 
the industry, and disclosure would not likely cause harm to the 
competitive position of any submitting renewable producer, importer, or 
any other party to a RIN transaction. If the EPA receives a Freedom of 
Information Act (FOIA) request for the CBI version of an engineering 
review or QAP plan, the EPA would process the FOIA request pursuant to 
its CBI regulations under 40 CFR part 2, subpart B. Submission of the 
two versions of QAP plans and engineering reviews (CBI and public 
versions) would allow the Agency to clearly understand what information 
is claimed as CBI, and would also allow the Agency to make public 
versions available to the public without unnecessary delay. We received 
no adverse comments on this approach and are finalizing as proposed.

D. Proposed Changes to Section 80.1452--EPA Moderated Transaction 
System (EMTS) Requirements--Alternative Reporting Method for Sell and 
Buy Transactions for Assigned RINs

    In the NPRM, we suggested alternative reporting and PTD 
requirements found in Sec. Sec.  80.1452 and 80.1453, respectively, 
which would allow buyers and sellers of assigned RINs flexibility 
concerning the invoice date reported to EMTS through the use of a 
unique identifier identified in advance between buying and selling 
parties. Some buyers and sellers of assigned RINs have expressed 
concerns with these requirements, stating they have difficulty 
determining the date of transfer since title of the renewable fuel is 
not transferred until the fuel physically reaches the buyer. Some 
transactions, for example those by rail or barge, may take several 
weeks, and their current accounting systems do not include a means for 
capturing the buyer's receipt date. We noted that such an alternative 
method would require substantial modification to the EMTS to accept 
such transactions.
    We received a number of comments in support of adding flexibility 
in the reporting and PTD requirements. However, we did receive one 
comment from an obligated party stating that they and other parties had 
spent a substantial amount of resources in developing accounting 
systems to implement the current regulatory provisions and that such a 
change in flexibility would necessitate a major overhaul of accounting 
systems that have been functioning adequately for the past several 
years at significant cost to industry.
    We believe that it is important to note that such changes to EMTS 
incur significant costs to both the Agency and industry. We also 
understand both the need for flexibility and the potential

[[Page 42109]]

costs to industry when we allow new flexibility in our reporting 
systems. While we agree that there may be some value in adding 
flexibility to make buying and selling transaction function more 
smoothly in EMTS, we are not prepared at this time to institute such a 
change to EMTS. Nor do we wish to disrupt the significant cost borne by 
industry to comply with existing reporting and PTD requirements. 
Therefore, we are not finalizing the proposed changes to the reporting 
and PTD requirements in Sec. Sec.  80.1452 and 80.1453. However, we may 
consider further action on this at a later date.

IV. Impacts

    The quality assurance program that we are finalizing in today's 
final rulemaking provides a voluntary mechanism for regulated parties 
to verify that RINs are validly generated, provides an affirmative 
defense against violations if a regulated party transfers an invalidly 
generated RIN or uses it for compliance, and provides clarity regarding 
the responsibility of regulated parties to replace invalidly generated 
RINs. The program does not change the volume requirements of the RFS 
program, but instead helps to ensure that those volume requirements are 
met. Likewise, the changes to the regulations governing export of 
renewable fuel, separation of RINs from wet gallons, and qualifying 
uses of renewable fuel are also intended to ensure that the RFS volume 
requirements are met with qualifying renewable fuel. As a result, there 
is no change to the expected impacts of the RFS program in terms of 
volumes of renewable fuel consumed or the associated GHG or energy 
security benefits. Instead, the primary impacts of the quality 
assurance program will be improved liquidity in the RIN market and 
improved opportunities for smaller renewable fuel producers to sell 
their RINs.
    The quality assurance program finalized today is voluntary. As a 
result, there are no obligatory costs. There will be costs associated 
with an individual party's participation in the quality assurance 
program. However, the fact that the quality assurance program is 
voluntary means that a decision to participate will be made 
independently by each regulated party. Furthermore, any costs incurred 
will only be borne if the industry believes that those costs are less 
than current costs in the marketplace resulting from efforts to verify, 
acquire, and trade RINs.
    Regulated parties face high costs if they unintentionally purchase 
invalid RINs (including civil penalties as well as the cost of 
purchasing additional RINs to meet their RVOs). Although they may make 
expenditures to implement the QAPs, they are making that investment to 
reduce the risk of incurring those future costs. As rational actors, 
the EPA anticipates that regulated parties will not spend more on QAPs 
than the costs they intend to avoid. Therefore, the EPA estimates that 
this rule will result in a net reduction in social costs.
    As of June 2014, there are 559 biofuel producers operating more 
than 754 biofuel production facilities. Of these, there are 244 
biomass-based diesel producers operating 261 biomass-based diesel 
production facilities. These numbers are expected to increase as the 
biofuel market expands. While it is unlikely that all biofuel producers 
will opt to participate in the quality assurance program, that was the 
assumption for the upper cost estimate range in order to reflect the 
maximum potential cost of the program.
    The EPA staff consulted with a variety of parties who are expected 
to be involved in developing RIN validation programs for the biofuels 
industry. These parties include current and potential RIN auditors, 
conventional and biofuel industry groups, and obligated parties which 
have been affected by RIN fraud. These parties all provided informal 
estimates of the costs associated with this type of quality assurance 
program which were used to inform our cost calculations.
    For those biofuel producers who opt into the quality assurance 
program, each biofuel production facility must be visited and assessed 
as part of any audit conducted under the quality assurance program. An 
auditor will use an approved QAP as the basis for the verification of 
biofuel produced and RINs generated at a facility. In order to verify 
production, the auditor must conduct site visits, review documents, and 
contact entities that do business with the facility. The proposed 
components of audits are described in Section II.
    For producers choosing to take advantage of the QAPs, we require 
that production facilities be visited on a semi-annual basis. New 
production facilities shall be visited prior to verification of any 
RINs and subsequently according to the RFS QAP schedule. We estimate 
that each visit could take from one to several days, depending on the 
size and complexity of the facility, the availability of records, 
changes since the last audit, etc.
    Tables IV-1, IV-2, and IV-3 below itemize the activities 
anticipated for each biofuel production facility audit. The estimates 
include costs incurred by the biofuel producer (Table IV-1), the 
auditor (Table IV-2), and the EPA (Table IV-3). While we project costs 
for the QAP auditors, we expect they will recoup their costs by 
charging the producers in most cases for their audit and RIN 
verification services.

                                            Table IV-1--Costs to the Biofuel Producer for Implementing a QAP
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Prof./tech.
                Category                   Manager time        time        Clerical time  Number per yr.     Capital $      Total hours       Total $
--------------------------------------------------------------------------------------------------------------------------------------------------------
Site Visit..............................               1              16               4               2  ..............              42           3,588
Reporting...............................               2              12               4               2  ..............              36           3,040
Recordkeeping...........................               0               0               2               2  ..............               4             148
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................  ..............  ..............  ..............  ..............  ..............              82           6,776
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                               Table IV-2--Costs to the QAP Auditor for Implementing a QAP
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Prof./tech.
                Category                   Manager time        time        Clerical time  Number per yr.     Capital $      Total hours       Total $
--------------------------------------------------------------------------------------------------------------------------------------------------------
Auditor.................................  ..............  ..............  ..............  ..............  ..............  ..............  ..............
Contract Init...........................               4               4               2               1             530              10           1,428
Site Visit..............................               4              16               0               1           1,060              20           3,036
Follow-up...............................               2              24              10               2           1,060              72           5,778

[[Page 42110]]

 
Monitoring..............................               2              50               0  ..............  ..............              52           5,020
Consultants.............................  ..............  ..............  ..............               1           1,000  ..............           1,000
Reporting...............................               0               4              12               2  ..............              32           1,656
QAP Prep................................               2               8               4               2  ..............              28           2,272
EMTS....................................               0              25               0  ..............  ..............              25           2,400
Recordkeeping...........................               0              12              25  ..............  ..............              37           2,077
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................  ..............  ..............  ..............  ..............  ..............             276          24,667
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                   Table IV-3--Costs to the EPA for Implementing a QAP
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Prof./tech.
                        Category                           Manager time        time        Clerical time     Capital $      Total hours       Total $
--------------------------------------------------------------------------------------------------------------------------------------------------------
Implementation..........................................  ..............               3  ..............  ..............               3             267
EMTS Data Management....................................  ..............               1  ..............  ..............               1              89
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..............               4  ..............  ..............               4             356
--------------------------------------------------------------------------------------------------------------------------------------------------------

A. Time and Cost Assumptions

    The specific times estimated for each task are shown in Tables IV-
1, IV-2, and IV-3. These estimates are based on a number of basic 
assumptions. An initial site visit of the facility to be audited is 
assumed to require two days, and include estimated travel and per diem 
costs. For simplicity, we have estimated an average $600 for airfare, 
$150 for lodging, and $80 for the per diem expenses. It is assumed that 
a plant manager would meet briefly with the auditor, and that a plant 
chemist or other professional would escort the auditor throughout the 
visit. Some clerical support would be required to locate files for the 
related document reviews.
    It was assumed that an auditor would travel and spend half a day on 
contract initiation. Any follow up site visits were assumed to be 
shorter in duration, as the auditor would now be familiar with the 
facility and its normal operation. A substantial amount of the 
auditor's time would be spent in follow up documentation of the 
facility, such as checking feedstock suppliers, process fuel suppliers, 
doing volume and mass balances, and monitoring the ongoing operation of 
the facility. It was assumed that an auditor would employ a specialized 
consultant and/or local agent to perform some portion of the audit 
support.
    In addition to tracking facility operation, an auditor would also 
be responsible for preparing the QAP, maintaining recordkeeping, 
monitoring and/or brokering activities on EMTS, and assisting with RFS 
reporting requirements.

B. Labor Cost Assumptions

    The labor costs used in this cost estimation are average mean wages 
for each labor category, as provided in the Bureau of Labor and 
Statistics Report dated May 2011. Based on this data, we used the 
following hourly wages for each employee type:

Managerial $55.04 per hour
Technical/Professional $47.81 per hour
Clerical $18.35 per hour

Doubling to account for company overhead and benefits, and for 
convenience, rounding to the dollar, gives the following hourly rates:

Managerial $110 per hour
Technical/Professional $96 per hour
Clerical $37 per hour

For the Agency costs, the work was assumed to be performed by a GS-13 
technical employee, doubled and rounded up, for an hourly rate of $89.

C. Cost Estimate Results

    We considered two scenarios to provide a range of cost estimates 
with the first estimate assuming that all currently registered biofuel 
production facilities participate in the program and the second 
estimate assuming that just the biomass-based diesel production 
facilities participate. The first estimate represents our maximum total 
cost estimate based on the number of registered biofuel producers as of 
June 2014. This assumption of total participation by all biofuel 
producers equates to 559 RIN generators with 754 biofuel production 
facilities. This results in a maximum total cost for the program, 
including recordkeeping and reporting costs, of $22,386,702. If all 
parties are participating in the program and all RINs are verified, 
this results in a per-RIN cost of less than $0.01. However, we do 
expect that the per-RIN cost would vary depending on the number of RINs 
generated by each fuel producer since the effort involved in validating 
many aspects of renewable fuel production is the same regardless of the 
size of the facility.
    We do not expect that the costs of participation in the quality 
assurance program will vary significantly by the D code of RINs. While 
RINs with different D codes may command different prices in the market, 
the verification process for each RIN is expected to be similar 
regardless of D code, with the biggest cost differences in feedstock 
verification. For this reason we use the same estimated unit costs for 
the second estimate, where we assume that only the biomass-based diesel 
production facilities participate in the QAP program. There are 
currently 244 biomass-based diesel producers operating 261 biomass-
based diesel production facilities. The total cost for the program, 
including recordkeeping and reporting costs, if just these facilities 
participated is estimated to be $8,091,431.

V. Public Participation

    Many interested parties participated in the rulemaking process that 
culminates with this final rule. This process provided an opportunity 
for submitting written public comments following the proposal that we 
published on February 21, 2013 (78 FR 12158). We also held a public 
hearing on April 18, 2013, at which a number of parties provided both 
verbal and written testimony. All comments received, both verbal and 
written, are

[[Page 42111]]

available in the EPA docket EPA-HQ-OAR-2012-0621 and were considered in 
developing the final rule. Public comments and the EPA responses are 
discussed throughout this preamble.

VI. Statutory and Executive Order Review

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
action is a ``significant regulatory action'' because it raises novel 
legal and policy issues. Accordingly the EPA submitted this action to 
the Office of Management and Budget (OMB) for review under Executive 
Orders 12866 and 13563 and any changes made in response to OMB 
recommendations have been documented in the docket for this action.
    This action is being finalized today as a result of several cases 
of fraudulently generated RINs. As discussed above, several biodiesel 
production companies have been identified as having generated RINs that 
did not represent qualifying renewable fuel. While these invalid RINs 
represented a very small amount (about five percent) of the nationwide 
biodiesel volume in the 2009-2011 timeframe, the net result is that 
this fraud has impacted the liquidity of the biodiesel RIN market as 
some biodiesel RINs are perceived as having less value than others. In 
addition, as a result of fraudulent activities, obligated parties have 
been subject to monetary penalties and the additional cost of 
purchasing new RINs to cover the invalid RINs, even though they 
purchased the original RINs in good faith believing that they were 
valid. The EPA believes it is necessary to put in place an additional 
regulatory mechanism that provides an alternative, voluntary way to 
assure that RINs used for compliance are valid to restore confidence in 
the RIN market and level the playing field for large and small 
producers.

B. Paperwork Reduction Act

    The information collection requirements in this final rule have 
been submitted for approval to the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The 
Information Collection Request (ICR) document prepared by the EPA has 
been assigned EPA ICR number 2473.02, OMB control number 2060-0688. The 
information collection requirements are not enforceable until OMB 
approves them.
    The RFS program requires that specified volumes of renewable fuel 
be used as transportation fuel, heating oil, and/or jet fuel each year. 
Obligated parties demonstrate compliance with the RFS standards through 
the acquisition of unique Renewable Identification Numbers (RINs) 
assigned by the producer or importer to every batch of renewable fuel 
produced or imported. Validly generated RINs show that a certain volume 
of qualifying renewable fuel was produced or imported. The RFS program 
also includes provisions stipulating the conditions under which RINs 
are invalid, the liability carried by a party that transfers or uses an 
invalid RIN, and how invalid RINs must be treated.
    In this action we are promulgating a voluntary quality assurance 
program intended to provide a more structured way to assure that the 
RINs entering commerce are valid. The voluntary quality assurance 
program for RINs provides a means for regulated parties to ensure that 
RINs are properly generated, through audits of production facilities 
conducted by independent third parties using quality assurance plans 
(QAPs).
    The annual public reporting and recordkeeping burden for this 
collection is estimated to be 320 hours per response. A document 
entitled ``Supporting Statement for Renewable Fuels Standard (RFS2) 
Voluntary RIN Quality Assurance Program (Final Rule)'' has been placed 
in the public docket. The supporting statement provides a detailed 
explanation of the Agency's estimates by collection activity. The EPA 
did not receive any comment on the proposed burden collection. The 
estimates contained in the supporting statement are briefly summarized 
here:
    Total No. of Respondents: 559.
    Total Burden Hours: 74,386.
    Total Cost to Respondents: $ 4,596,774.
    Burden is defined at 5 CFR 1320.3(b).
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for the 
EPA's regulations in 40 CFR are listed in 40 CFR part 9.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act generally requires an agency to 
prepare a regulatory flexibility analysis of any rule subject to notice 
and comment rulemaking requirements under the Administrative Procedure 
Act or any other statute unless the agency certifies that the rule will 
not have a significant economic impact on a substantial number of small 
entities. Small entities include small businesses, small organizations, 
and small governmental jurisdictions. For purposes of assessing the 
impacts of this rule on small entities, small entity is defined as: (1) 
A small business as defined by the Small Business Administration's 
(SBA) regulations at 13 CFR 121.201 (see table below); (2) a small 
governmental jurisdiction that is a government of a city, county, town, 
school district or special district with a population of less than 
50,000; and (3) a small organization that is any not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field. The following table provides an overview of the 
primary SBA small business categories potentially affected by this 
regulation:

------------------------------------------------------------------------
                                   Defined as small
           Industry                entity by SBA if:     NAICS \a\ codes
------------------------------------------------------------------------
Petroleum refineries..........  http://www.astm.org) or by calling ASTM at (610) 832-
9585.
    This rulemaking does not change this voluntary consensus standard, 
and does not involve any other technical standards. Therefore, the EPA 
is not considering the use of any voluntary consensus standards other 
than the one described above.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    Executive Order 12898 (59 FR 7629, February 16, 1994) establishes 
federal executive policy on environmental justice. Its main provision 
directs federal agencies, to the greatest extent practicable and 
permitted by law, to make environmental justice part of their mission 
by identifying and addressing, as appropriate, disproportionately high 
and adverse human health or environmental effects of their programs, 
policies, and activities on minority populations and low-income 
populations in the United States.
    Today's action finalizes a voluntary set of regulatory provisions 
that provide regulated parties with a specific mechanism for 
demonstrating that they have conducted due diligence to verify the 
validity of RINs. Therefore, the EPA has determined that this action 
will not have disproportionately high and adverse human health or 
environmental effects on minority or low-income populations.

K. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. The EPA will submit a report containing this rule and 
other required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register. A Major rule cannot 
take effect until 60 days after it is published in the Federal 
Register. This action is not a

[[Page 42113]]

``major rule'' as defined by 5 U.S.C. 804(2).

VII. Statutory Authority

    Statutory authority for the rule finalized today can be found in 
section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support 
for the procedural and compliance related aspects of today's rule, 
including the recordkeeping requirements, come from Sections 114, 208, 
and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a).

List of Subjects in 40 CFR Part 80

    Administrative practice and procedure, Air pollution control, 
Diesel fuel, Environmental protection, Fuel additives, Gasoline, 
Imports, Incorporation by reference, Oil imports, Petroleum.

    Dated: July 2, 2014.
Gina McCarthy,
Administrator.
    For the reasons set forth in the preamble, title 40, chapter I of 
the Code of Federal Regulations is amended as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

0
1. The authority citation for part 80 continues to read as follows:

    Authority: 42 U.S.C. 7414, 7542, 7545, and 7601(a).

Subpart M--[Amended]

0
2. Section 80.1401 is amended as follows:
0
a. By revising the definition of ``Non-ester renewable diesel''.
0
b. By adding the definitions of ``A-RIN'', ``B-RIN'', ``Independent 
third-party auditor'', ``Interim period'', ``Non-qualifying fuel use'', 
``Q-RIN'', ``Quality assurance audit'', ``Quality assurance plan'', and 
``Verified RIN'' in alphabetical order.
    The added and revised text read as follows:

Sec.  80.1401  Definitions.

* * * * *
    A-RIN means a RIN verified during the interim period by a 
registered independent third-party auditor using a QAP that has been 
approved under Sec.  80.1469(a) following the audit process described 
in Sec.  80.1472.
* * * * *
    B-RIN means a RIN verified during the interim period by a 
registered independent third-party auditor using a QAP that has been 
approved under Sec.  80.1469(b) following the audit process described 
in Sec.  80.1472.
* * * * *
    Independent third-party auditor means a party meeting the 
requirements of Sec.  80.1471(b) that conducts QAP audits and verifies 
RINs.
    Interim period means the period between February 21, 2013 and 
December 31, 2014.
* * * * *
    Non-ester renewable diesel, also known as renewable diesel, means 
renewable fuel that is not a mono-alkyl ester and that is either:
    (1) A fuel or fuel additive that meets the ASTM D 975-13a 
(incorporated by reference, see Sec.  80.1468) Grade No. 1-D or No. 2-D 
specifications and can be used in an engine designed to operate on 
conventional diesel fuel; or
    (2) A fuel or fuel additive that is registered under 40 CFR part 79 
and can be used in an engine designed to operate using conventional 
diesel fuel.
* * * * *
    Non-qualifying fuel use means a use of renewable fuel in an 
application other than transportation fuel, heating oil, or jet fuel.
* * * * *
    Q-RIN means a RIN verified by a registered independent third-party 
auditor using a QAP that has been approved under Sec.  80.1469(c) 
following the audit process described in Sec.  80.1472.
    Quality assurance audit means an audit of a renewable fuel 
production facility conducted by an independent third-party auditor in 
accordance with a QAP that meets the requirements of Sec.  80.1469 and 
requirements of Sec.  80.1472.
    Quality assurance plan, or QAP, means the list of elements that an 
independent third-party auditor will check to verify that the RINs 
generated by a renewable fuel producer or importer are valid. A QAP 
includes both general and pathway specific elements.
* * * * *
    Verified RIN means a RIN generated by a renewable fuel producer 
that was subject to a QAP audit executed by an independent third-party 
auditor, and determined by the independent third-party auditor to be 
valid. Verified RINs includes A-RINs, B-RINs, and Q-RINs.
* * * * *

0
3. Section 80.1426 is amended as follows:
0
a. By revising paragraph (a)(1).
0
b. By revising paragraphs (c)(1) and (c)(6).
0
c. By revising paragraphs (f)(4)(i)(A)(1) and (f)(4)(i)(B).
0
d. By adding paragraph (f)(4)(iii).
0
e. By revising paragraph (f)(12).
0
f. By revising paragraph (f)(14).
    The additions and revisions read as follows:

Sec.  80.1426  How are RINs generated and assigned to batches of 
renewable fuel by renewable fuel producers or importers?

    (a) * * *
    (1) To the extent permitted under paragraphs (b) and (c) of this 
section, producers and importers of renewable fuel must generate RINs 
to represent that fuel if all of the following occur:
    (i) The fuel qualifies for a D code pursuant to Sec.  80.1426(f), 
or the EPA has approved a petition for use of a D code pursuant to 
Sec.  80.1416.
    (ii) The fuel is demonstrated to be produced from renewable biomass 
pursuant to the reporting requirements of Sec.  80.1451 and the 
recordkeeping requirements of Sec.  80.1454.
    (A) Feedstocks meeting the requirements of renewable biomass 
through the aggregate compliance provision at Sec.  80.1454(g) are 
deemed to be renewable biomass.
    (B) [Reserved]
    (iii) Was produced in compliance with the registration requirements 
of Sec.  80.1450, the reporting requirements of Sec.  80.1451, the 
recordkeeping requirements of Sec.  80.1454, and all other applicable 
requirements of this subpart M.
    (iv) The renewable fuel is designated on a product transfer 
document (PTD) for use as transportation fuel, heating oil, or jet fuel 
in accordance with Sec.  80.1453(a)(12).
* * * * *
    (c) * * *
    (1) Fuel producers and importers may not generate RINs for fuel 
that does not satisfy the requirements of paragraph (a)(1) of this 
section.
* * * * *
    (6) A party is prohibited from generating RINs for a volume of fuel 
that it produces if the fuel has been produced by a process that uses a 
renewable fuel as a feedstock, and the renewable fuel that is used as a 
feedstock was produced by another party, except that RINs may be 
generated for such fuel if allowed by the EPA in response to a petition 
submitted pursuant to Sec.  80.1416 and the petition approval specifies 
a mechanism to prevent double counting of RINs.
* * * * *
    (f) * * *
    (4) * * *
    (i) * * *
    (A) * * *
    (1) VRIN shall be calculated according to the following 
formula:

[[Page 42114]]

VRIN = EV * Vs * FER/(FER + 
FENR)

Where:

VRIN = RIN volume, in gallons, for use in determining the 
number of gallon-RINs that shall be generated for the batch.
EV = Equivalence value for the batch of renewable fuel per Sec.  
80.1415, subject to qualification in paragraph (f)(4)(iii) of this 
section.
Vs = Standardized volume of the batch of renewable fuel 
at 60 [deg]F, in gallons, calculated in accordance with paragraph 
(f)(8) of this section.
FER = Feedstock energy from renewable biomass used to 
make the transportation fuel, in Btu.
FENR = Feedstock energy from non-renewable feedstocks 
used to make the transportation fuel, heating oil, or jet fuel, in 
Btu.
* * * * *
    (B) Method B. VRIN shall be calculated according to the 
following formula:

VRIN = EV * Vs * R

Where:

VRIN = RIN volume, in gallons, for use in determining the 
number of gallon-RINs that shall be generated for the batch.
EV = Equivalence value for the batch of renewable fuel per Sec.  
80.1415, subject to qualification in paragraph (f)(4)(iii) of this 
section.
Vs = Standardized volume of the batch of renewable fuel 
at 60 [deg]F, in gallons, calculated in accordance with paragraph 
(f)(8) of this section.
R = The renewable fraction of the fuel as measured by a carbon-14 
dating test method as provided in paragraph (f)(9) of this section.
* * * * *
    (iii) In determining the RIN volume VRIN according to 
paragraph (f)(4)(i)(A) or (f)(4)(i)(B) of this section, the equivalence 
value used to determine VRIN which is calculated according 
to Sec.  80.1415 shall use a value of 1.0 to represent R, the renewable 
content of the renewable fuel.
* * * * *
    (12)(i) For purposes of this section, any renewable fuel other than 
ethanol, biodiesel, or renewable diesel that meets the ASTM D 975-13a 
Grade No. 1-D or No. 2-D specifications (incorporated by reference, see 
Sec.  80.1468) is considered renewable fuel and the producer or 
importer may generate RINs for such fuel only if all of the following 
apply:
    (A) The fuel is produced from renewable biomass and qualifies for a 
D code in Table 1 to this section or has been otherwise approved by the 
Administrator;
    (B) The fuel producer or importer maintains records demonstrating 
that the fuel was produced for use as a transportation fuel, heating 
oil or jet fuel by:
    (1) Blending the renewable fuel into gasoline or diesel fuel to 
produce a transportation fuel, heating oil or jet fuel that meets all 
applicable standards;
    (2) Entering into a written contract for the sale of a the 
renewable fuel, which specifies the purchasing party shall blend the 
fuel into gasoline or diesel fuel to produce a transportation fuel, 
heating oil or jet fuel that meets all applicable standards; or
    (3) Entering into a written contract for the sale of the renewable 
fuel, which specifies that the fuel shall be used in its neat form as a 
transportation fuel, heating oil or jet fuel that meets all applicable 
standards.
    (C) The fuel was sold for use in or as a transportation fuel, 
heating oil, or jet fuel, and for no other purpose.
    (ii) [Reserved]
    (iii) [Reserved]
* * * * *
    (14) For purposes of Table 1 to this section, process heat produced 
from combustion of gas at a renewable fuel facility is considered 
derived from biomass if the gas is biogas.
    (i) For biogas directly transported to the facility without being 
placed in a commercial distribution system, all of the following 
conditions must be met:
    (A) The producer has entered into a written contract for the 
procurement of a specific volume of biogas with a specific heat 
content.
    (B) The volume of biogas was sold to the renewable fuel production 
facility, and to no other facility.
    (C) The volume and heat content of biogas injected into the 
pipeline and the volume of gas used as process heat are measured by 
continuous metering.
    (ii) For biogas that has been gathered, processed and injected into 
a common carrier pipeline, all of the following conditions must be met:
    (A) The producer has entered into a written contract for the 
procurement of a specific volume of biogas with a specific heat 
content.
    (B) The volume of biogas was sold to the renewable fuel production 
facility, and to no other facility.
    (C) The volume of biogas that is withdrawn from the pipeline is 
withdrawn in a manner and at a time consistent with the transport of 
fuel between the injection and withdrawal points.
    (D) The volume and heat content of biogas injected into the 
pipeline and the volume of gas used as process heat are measured by 
continuous metering.
    (E) The common carrier pipeline into which the biogas is placed 
ultimately serves the producer's renewable fuel facility.
    (iii) The process heat produced from combustion of gas at a 
renewable fuel facility described in paragraph (f)(12)(i) of this 
section shall not be considered derived from biomass if any other party 
relied upon the contracted volume of biogas for the creation of RINs.
* * * * *

0
4. Section 80.1427 is amended as follows:
0
a. By revising paragraph (a)(1) and the introductory text of paragraph 
(b)(1).
0
b. By adding paragraph (c).

Sec.  80.1427  How are RINs used to demonstrate compliance?

    (a) Obligated party renewable volume obligations. (1) Except as 
specified in paragraph (b) of this section or Sec.  80.1456, each party 
that is an obligated party under Sec.  80.1406 and is obligated to meet 
the Renewable Volume Obligations under Sec.  80.1407 must demonstrate 
pursuant to Sec.  80.1451(a)(1) that it has retired for compliance 
purposes a sufficient number of RINs to satisfy the following 
equations:
    (i) Cellulosic biofuel.

([sum]RINNUM)CB,i + ([sum]RINNUM)CB,i-1 = 
RVOCB,i

Where:

([sum]RINNUM)CB,i = Sum of all owned gallon-RINs that are 
valid for use in complying with the cellulosic biofuel RVO, were 
generated in year i, and are being applied towards the 
RVOCB,i, in gallons.
([sum]RINNUM)CB,i-1 = Sum of all owned gallon-RINs that 
are valid for use in complying with the cellulosic biofuel RVO, were 
generated in year i-1, and are being applied towards the 
RVOCB,i, in gallons.
RVOCB,i = The Renewable Volume Obligation for cellulosic 
biofuel for the obligated party for calendar year i, in gallons, 
pursuant to Sec.  80.1407.

    (ii) Biomass-based diesel. Except as provided in paragraph (a)(7) 
of this section,

([sum]RINNUM)BBD,i + ([sum]RINNUM)BBD,i-1 = 
RVOBBD,i

Where:

([sum]RINNUM)BBD,i = Sum of all owned gallon-RINs that 
are valid for use in complying with the biomass-based diesel RVO, 
were generated in year i, and are being applied towards the 
RVOBBD,i, in gallons.
([sum]RINNUM)BBD,i-1 = Sum of all owned gallon-RINs that 
are valid for use in complying with the biomass-based diesel RVO, 
were generated in year i-1, and are being applied towards the 
RVOBBD,i, in gallons.
RVOBBD,i = The Renewable Volume Obligation for biomass-
based diesel for the obligated party for calendar year i after 2010, 
in gallons, pursuant to Sec.  80.1407.

    (iii) Advanced biofuel.

([sum]RINNUM)AB,i + ([sum]RINNUM)AB,i-1 = 
RVOAB,i

Where:

([sum]RINNUM)AB,i = Sum of all owned gallon-RINs that are 
valid for use in complying

[[Page 42115]]

with the advanced biofuel RVO, were generated in year i, and are 
being applied towards the RVOAB,i, in gallons.
([sum]RINNUM)AB,i-1 = Sum of all owned gallon-RINs that 
are valid for use in complying with the advanced biofuel RVO, were 
generated in year i-1, and are being applied towards the 
RVOAB,i, in gallons.
RVOAB,i = The Renewable Volume Obligation for advanced 
biofuel for the obligated party for calendar year i, in gallons, 
pursuant to Sec.  80.1407.

    (iv) Renewable fuel.

([sum]RINNUM)RF,i + ([sum]RINNUM)RF,i-1 = 
RVORF,i

Where:

([sum]RINNUM)RF,i = Sum of all owned gallon-RINs that are 
valid for use in complying with the renewable fuel RVO, were 
generated in year i, and are being applied towards the 
RVORF,i, in gallons.
([sum]RINNUM)RF,i-1 = Sum of all owned gallon-RINs that 
are valid for use in complying with the renewable fuel RVO, were 
generated in year i-1, and are being applied towards the 
RVORF,i, in gallons.
RVORF,i = The Renewable Volume Obligation for renewable 
fuel for the obligated party for calendar year i, in gallons, 
pursuant to Sec.  80.1407.
* * * * *
    (b) * * *
    (1) An obligated party that fails to meet the requirements of 
paragraph (a)(1) or (a)(7) of this section for calendar year i is 
permitted to carry a deficit into year i+1 under the following 
conditions:
* * * * *
    (c) Exporter Renewable Volume Obligations (ERVOs). (1) Each 
exporter of renewable fuel that is obligated to meet Exporter Renewable 
Volume Obligations under Sec.  80.1430 must demonstrate pursuant to 
Sec.  80.1451(a)(1) that is has retired for compliance purposes a 
sufficient number of RINs to meet its ERVOs by the deadline specified 
in Sec.  80.1430(f).
    (2) In fulfillment of its ERVOs, each exporter is subject to the 
provisions of paragraphs (a)(2), (a)(3), (a)(6), and (a)(8) of this 
section.
    (3) No more than 20 percent of the ERVO calculated according to a 
formula at Sec.  80.1430(b) may be fulfilled using RINs generated in 
the year prior to the year in which the RVO was incurred.

0
5. Section 80.1429 is amended by adding paragraph (b)(10) and removing 
and reserving paragraph (f) to read as follows:

Sec.  80.1429  Requirements for separating RINs from volumes of 
renewable fuel.

* * * * *
    (b) * * *
    (10) Any party that produces a volume of renewable fuel may 
separate any RINs that have been generated to represent that volume of 
renewable fuel or that blend if that party retires the separated RINs 
to replace invalid RINs according to Sec.  80.1474.
* * * * *
    (f) [Reserved]
* * * * *

0
6. Section 80.1430 is amended as follows:
0
a. By revising paragraph (a).
0
b. By revising paragraph (b).
0
c. By revising paragraph (e) introductory text.
0
d. By revising paragraph (f).
0
e. By adding paragraph (g).

Sec.  80.1430  Requirements for exporters of renewable fuel.

    (a) Any exporter of renewable fuel, whether in its neat form or 
blended shall acquire sufficient RINs to comply with all applicable 
Renewable Volume Obligations under paragraphs (b) through (e) of this 
section representing the exported renewable fuel. No provision of this 
section applies to renewable fuel purchased directly from the renewable 
fuel producer and for which the exporter can demonstrate that no RINs 
were generated through the recordkeeping requirements of Sec.  
80.1454(a)(6).
    (b) Exporter Renewable Volume Obligations (ERVOs). An exporter of 
renewable fuel shall determine its Exporter Renewable Volume 
Obligations from the volumes of the renewable fuel exported.
    (1) Cellulosic biofuel.

ERVOCB,k = VOLk* EVk

Where:

ERVOCB,k = The Exporter Renewable Volume Obligation for 
cellulosic biofuel for discrete volume k in gallons.
k = A discrete volume of renewable fuel that the exporter knows or 
has reason to know is cellulosic biofuel that is exported in a 
single shipment.
VOLk = The standardized volume of discrete volume k, in 
gallons, calculated in accordance with Sec.  80.1426(f)(8).
EVk = The equivalence value associated with discrete 
volume k.

    (2) Biomass-based diesel.

ERVOBBD,k = VOLk* EVk

Where:

ERVOBBDI,k = The Exporter Renewable Volume Obligation for 
biomass-based diesel for discrete volume k, in gallons.
k = A discrete volume of renewable fuel that is biodiesel or 
renewable diesel and is exported in a single shipment.
VOLk = The standardized volume of discrete volume k 
calculated in accordance with Sec.  80.1426(f)(8).
EVk = The equivalence value associated with discrete 
volume k.

    (3) Advanced biofuel.

ERVOAB,k = VOLk* EVk

Where:

ERVOAB,k = The Exporter Renewable Volume Obligation for 
advanced biofuel for discrete volume k, in gallons.
k = A discrete volume of renewable fuel that is advanced biofuel 
(including biomass-based diesel, renewable diesel, cellulosic 
biofuel and other advanced biofuel) and is exported in a single 
shipment.
VOLk = The standardized volume of discrete volume k, in 
gallons, calculated in accordance with Sec.  80.1426(f)(8).
EVk = The equivalence value associated with discrete 
volume k.

    (4) Renewable fuel.

ERVORF,i = VOLk* EVk

Where:

ERVORF,i = The Renewable Volume Obligation for renewable 
fuel for discrete volume k, in gallons.
k = A discrete volume of exported renewable fuel that is exported in 
a single shipment.
VOLk = The standardized volume of discrete volume k, in 
gallons, calculated in accordance with Sec.  80.1426(f)(8).
EVk = The equivalence value associated with discrete 
volume k.
* * * * *
    (e) For renewable fuels that are in the form of a blend at the time 
of export, the exporter shall determine the volume of exported 
renewable fuel based on one of the following:
* * * * *
    (f) Each exporter of renewable fuel must fulfill its ERVO for each 
discrete volume of exported renewable fuel within thirty days of 
export, and must demonstrate compliance with its ERVOs pursuant to 
Sec.  80.1427(c).
    (g) Each exporter of renewable fuel must fulfill any 2014 ERVOs 
existing as of September 16, 2014 for which RINs have not yet been 
retired by the compliance demonstration deadline for the 2013 
compliance period, and must demonstrate compliance with such ERVOs 
pursuant to Sec.  80.1427(c).

0
7. Section 80.1431 is amended by removing and reserving paragraph 
(a)(1)(viii) and revising paragraph (b) introductory text to read as 
follows:

Sec.  80.1431  Treatment of invalid RINs.

    (a) * * *
    (1) * * *
    (viii) [Reserved]
* * * * *
    (b) Except as provided in Sec.  80.1473, the following provisions 
apply in the case of RINs that are invalid:
* * * * *

0
8. Section 80.1450 is amended as follows:
0
a. By adding paragraph (b)(1)(xii).
0
b. By revising paragraph (g).

[[Page 42116]]

    The revisions and additions read as follows:

Sec.  80.1450  What are the registration requirements under the RFS 
program?

* * * * *
    (b) * * *
    (1) * * *
    (xii) For a producer or importer of any renewable fuel other than 
ethanol, biodiesel, renewable gasoline, renewable diesel that meets the 
ASTM 975-13a Grade No. 1-D or No. 2-D specifications (incorporated by 
reference, see Sec.  80.1468), biogas or renewable electricity all the 
following:
    (A) A description of the renewable fuel and how it will be blended 
to into gasoline or diesel fuel to produce a transportation fuel, 
heating oil or jet fuel that meets all applicable standards.
    (B) A statement regarding whether the renewable fuel producer or 
importer will blend the renewable fuel into gasoline or diesel fuel or 
enter into a written contract for the sale and use of a specific 
quantity of the renewable fuel with a party who blends the fuel into 
gasoline or diesel fuel to produce a transportation fuel, heating oil 
or jet fuel that meets all applicable standards.
    (C) If the renewable fuel producer or importer enters into a 
written contract for the sale and use of a specific quantity of the 
renewable fuel with a party who blends the fuel into gasoline or diesel 
fuel to produce a transportation fuel, heating oil or jet fuel, provide 
all the following:
    (1) The name, location and contact information for the party that 
will blend the renewable fuel.
    (2) A copy of the contract that requires the party to blend the 
renewable fuel into gasoline or diesel fuel to produce a transportation 
fuel, heating oil or jet fuel that meets all applicable standards.
* * * * *
    (g) Any independent third-party auditor described in Sec.  80.1471 
must register with the EPA as an independent third-party auditor and 
receive an EPA issued company identification number prior to conducting 
quality assurance audits pursuant to Sec.  80.1472. Registration 
information must be submitted at least 30 days prior to conducting 
audits of renewable fuel production facilities. The independent third-
party auditor must provide to the EPA all the following:
    (1) The information specified under Sec.  80.76, if such 
information has not already been provided under the provisions of this 
part.
    (2) Documentation of professional qualifications as follows:
    (i) For a professional engineer as described in Sec.  
80.1450(b)(2)(i)(A) and (b)(2)(i)(B).
    (ii) For a domestic independent third-party auditor or a foreign 
independent third-party auditor, a certified public accountant who is 
licensed by an appropriate state agency in the United States.
    (iii) For a foreign independent third-party auditor, an accountant 
who is a foreign equivalent to a certified public accountant licensed 
in the United States.
    (3) Documentation of professional liability insurance as described 
in Sec.  80.1471(c).
    (4) Any quality assurance plans as described in Sec.  80.1469.
    (5) Name, address, and company and facility identification numbers 
of all renewable fuel production facilities that the independent third-
party auditor intends to audit under Sec.  80.1472.
    (6) An affidavit, or electronic consent, from each renewable fuel 
producer or foreign renewable fuel producer stating its intent to have 
the independent third-party auditor conduct a quality assurance audit 
of any of the renewable fuel producer's or foreign renewable fuel 
producer's facilities.
    (7) An affidavit stating that an independent third-party auditor 
and its contractors and subcontractors are independent, as described in 
Sec.  80.1471(b), of any renewable fuel producer or foreign renewable 
fuel producer.
    (8) The name and contact information for each person employed (or 
under contract or subcontract) by the independent third-party auditor 
to conduct audits or verify RINs, as well as the name and contact 
information for any professional engineer and certified public 
accountant performing the review.
    (9) Registration updates--(i) Any independent third-party auditor 
who makes changes to its quality assurance plan(s) that will allow it 
to audit new renewable fuel production facilities, as defined in Sec.  
80.1401 that is not reflected in the producer's registration 
information on file with the EPA must update its registration 
information and submit a copy of an updated QAP on file with the EPA at 
least 60 days prior to producing the new type of renewable fuel.
    (ii) Any independent third-party auditor who makes any other 
changes to a QAP that will affect the third-party auditor's 
registration information but will not affect the renewable fuel 
category for which the producer is registered per paragraph (b) of this 
section must update its registration information 7 days prior to the 
change.
    (iii) Independent third-party auditors must update their QAPs at 
least 60 days prior to verifying RINs generated by a renewable fuel 
facility uses a new pathway.
    (iv) Independent third-party auditors must update their QAPs at 
least 60 days prior to verifying RINs generated by any renewable fuel 
facility not identified in their existing registration.
    (10) Registration renewal. Registrations for independent third-
party auditors expire December 31 of each calendar year. Previously 
approved registrations will renew automatically if all the following 
conditions are met:
    (i) The independent third-party auditor resubmits all information, 
updated as necessary, described in Sec.  80.1450(g)(1) through (g)(7) 
no later than October 31 before the next calendar year.
    (ii) The independent third-party auditor submits an affidavit 
affirming that he or she has only verified RINs using a QAP approved 
under Sec.  80.1469, notified all appropriate parties of all 
potentially invalid RINs as described in Sec.  80.1471(d), and 
fulfilled all of his or her RIN replacement obligations under Sec.  
80.1474.
    (iii) The auditor has not received a notice of deficiency from the 
EPA regarding its registration renewal materials.
    (11) Revocation of registration. (i) The Administrator may issue a 
notice of intent to revoke the registration of a third-party auditor if 
the Administrator determines that the auditor has failed to fulfill any 
requirement of this subpart. The notice of intent shall include an 
explanation of the reasons for the proposed revocation.
    (ii) Within 60 days of receipt of the notice of intent to revoke, 
the independent third-party auditor may submit written comments 
concerning the notice, including but not limited to a demonstration of 
compliance with the requirements which provide the basis for the 
proposed revocation. Communications should be sent to the EMTS support 
line (/support.com">support.com">support@epamts-support.com). The Administrator shall review and 
consider any such submission before taking final action concerning the 
proposed revocation.
    (iii) If the auditor fails to respond in writing within 60 days to 
the notice of intent to revoke, the revocation shall become final by 
operation of law and the Administrator shall notify the independent 
third-party auditor of such revocation.

0
9. Section 80.1451 is amended as follows:

[[Page 42117]]

0
a. By adding and reserving paragraph (a)(1)(xv).
0
b. By adding paragraphs (a)(1)(xvi) through (xviii).
0
c. By revising paragraph (b)(1)(ii)(T).
0
d. By revising paragraphs (c)(2)(x) through (xvi).
0
e. By adding paragraphs (c)(2)(xvii) and (c)(2)(xviii).
0
f. By revising paragraph (g).
0
g. By revising paragraphs (h)(1) through (5).
0
h. By adding paragraph (i).
    The revisions and additions read as follows:

Sec.  80.1451  What are the reporting requirements under the RFS 
program?

    (a) * * *
    (1) * * *
    (xv) [Reserved]
    (xvi) The total current-year RINs by category of renewable fuel, as 
those fuels are defined in Sec.  80.1401 (i.e., cellulosic biofuel, 
biomass-based diesel, advanced biofuel, renewable fuel, and cellulosic 
diesel), retired for compliance that are invalid as defined in Sec.  
80.1431(a).
    (xvii) The total prior-year RINs by renewable fuel category, as 
those fuels are defined in Sec.  80.1401, retired for compliance that 
are invalid as defined in Sec.  80.1431(a).
    (xviii) A list of all RINs that were retired for compliance in the 
reporting period and are invalid as defined in Sec.  80.1431(a).
* * * * *
    (b) * * *
    (1) * * *
    (ii) * * *
    (T) Producers or importers of any renewable fuel other than 
ethanol, biodiesel, renewable gasoline, renewable diesel that meets 
ASTM D 975-13a Grade No. 1-D or No. 2-D specifications (incorporated by 
reference, see Sec.  80.1468), biogas or renewable electricity, shall 
report, on a quarterly basis, all the following for each volume of 
fuel:
    (1) Total volume of renewable fuel produced or imported, total 
volume of renewable fuel blended into gasoline and diesel fuel by the 
producer or importer, and the percentage of renewable fuel in each 
batch of finished fuel.
    (2) If the renewable fuel producer or importer enters into a 
written contract for the sale of a specific quantity of the renewable 
fuel to a party who blends the fuel into gasoline or diesel fuel to 
produce a transportation fuel, heating oil or jet fuel, or who uses the 
neat fuel for a qualifying fuel use, the name, location and contact 
information for each purchasing party, and one or more affidavits from 
that party including all the following information:
    (i) Quantity of renewable fuel received from the producer or 
importer.
    (ii) Date the renewable fuel was received from producer.
    (iii) A description of the fuel that the renewable fuel was blended 
into and the blend ratios for each batch, if applicable.
    (iv) A description of the finished fuel, and a statement that the 
fuel meets all applicable standards and was sold for use as a 
transportation fuel, heating oil or jet fuel.
    (v) Quantity of assigned RINs received with the renewable fuel, if 
applicable.
    (vi) Quantity of assigned RINs that the end user separated from the 
renewable fuel, if applicable.
    (c) * * *
    (2) * * *
    (x) The total current-year RINs retired that are invalid as defined 
in Sec.  80.1431(a).
    (xi) The total prior-year RINs retired.
    (xii) The total prior-year RINs retired that are invalid as defined 
in Sec.  80.1431(a).
    (xiii) The number of current-year RINs owned at the end of the 
quarter.
    (xiv) The number of prior-year RINs owned at the end of the 
quarter.
    (xv) The number of RINs generated.
    (xvi) The volume of renewable fuel (in gallons) owned at the end of 
the quarter.
    (xvii) The total 2009 and 2010 retired RINs reinstated.
    (xviii) Any additional information that the Administrator may 
require.
* * * * *
    (g) All independent third-party auditors. Any party that is an 
independent third-party auditor that verifies RINs must submit to the 
EPA reports according to the schedule, and containing all the 
information, that is set forth in this paragraph (g).
    (1)(i) For RINs verified beginning on September 16, 2014, RIN 
verification reports for each facility audited by the independent 
third-party auditor shall be submitted according to the schedule 
specified in paragraph (f)(2) of this section.
    (ii) The RIN verification reports shall include all the following 
information for each batch of renewable fuel produced or imported 
verified per Sec.  80.1469(c), where ``batch'' means a discrete 
quantity of renewable fuel produced or imported and assigned a unique 
batch-RIN per Sec.  80.1426(d):
    (A) The RIN generator's name.
    (B) The RIN generator's EPA company registration number.
    (C) The renewable fuel producer EPA facility registration number.
    (D) The importer EPA facility registration number and foreign 
renewable producer company registration number, if applicable.
    (E) The applicable reporting period.
    (F) The quantity of RINs generated for each verified batch 
according to Sec.  80.1426.
    (G) The production date of each verified batch.
    (H) The D-code of each verified batch.
    (I) The volume of denaturant and applicable equivalence value of 
each verified batch.
    (J) The volume of each verified batch produced.
    (K) The volume and type of each feedstock used to produce the 
verified batch.
    (L) Whether the feedstocks used to produce each verified batch met 
the definition of renewable biomass.
    (M) Whether appropriate RIN generation calculations were followed 
per Sec.  80.1426(f)(3), (4), or (5) for each verified batch, as 
applicable.
    (N) The quantity and type of co-products produced.
    (O) Invoice document identification numbers associated with each 
verified batch, if applicable.
    (P) Laboratory sample identification numbers for each verified 
batch associated with the generation of any certificates of analysis 
used to verify fuel type and quality, if applicable.
    (Q) Any additional information the Administrator may require.
    (2) Aggregate RIN verification reports shall be submitted to the 
EPA according to the schedule specified in paragraph (f)(2) of this 
section. Each report shall summarize RIN verification activities for 
the reporting period. The quarterly aggregate RIN verification reports 
shall include all of the following information:
    (i) The submitting party's name.
    (ii) The submitting party's EPA company registration number.
    (iii) The number of current-year RINs verified at the start of the 
quarter.
    (iv) The number of prior-year RINs verified at the start of the 
quarter.
    (v) The total current-year RINs verified.
    (vi) The number of current-year RINs verified at the end of the 
quarter.
    (vii) A list of all facilities including the EPA's company and 
facility registration numbers audited under an approved quality 
assurance plan under Sec.  80.1469 along with the date the independent 
third-party auditor conducted the on-site visit and audit.
    (viii) Mass and energy balances calculated for each facility 
audited under an approved quality assurance plan under Sec.  80.1469.
    (ix) A list of all RINs that were identified as Potentially Invalid 
RINs

[[Page 42118]]

(PIRs) pursuant to Sec.  80.1474, along with a narrative description of 
why the RINs were not verified or were identified as PIRs.
    (x) Any additional information that the Administrator may require.
    (3) All reports required under this paragraph (g) must be signed 
and certified as meeting all the applicable requirements of this 
subpart by the independent third-party auditor or a responsible 
corporate officer of the independent third-party auditor.
    (h) * * *
    (1) Any detected growth of Arundo donax or Pennisetum purpureum 
outside the intended planting areas, both surrounding the field of 
production and feedstock storage sites, along the transportation route, 
and around the biofuel production facility, within 5 business days 
after detection and in accordance with the Risk Mitigation Plan, if 
applicable.
    (2) As available, any updated information related to the Risk 
Mitigation Plan, as applicable. An updated Risk Mitigation Plan must be 
approved by the Administrator in consultation with USDA and as 
appropriate other federal agencies prior to its implementation.
    (3) On an annual basis, a description of and maps or electronic 
data showing the average and total size and prior use of lands planted 
with Arundo donax or Pennisetum purpureum, the average and total size 
and prior use of lands set aside to control the invasive spread of 
these crops, and a description and explanation of any change in land 
use from the previous year.
    (4) On an annual basis, the report from an independent third party 
auditor evaluating monitoring and reporting activities conducted in 
accordance with the Risk Mitigation Plan, as applicable subject to 
approval of a different frequency by the EPA.
    (5) Information submitted pursuant to paragraphs (h)(3) and (h)(4) 
of this section must be submitted as part of the producer or importer's 
fourth quarterly report, which covers the reporting period October-
December, according to the schedule in paragraph (f)(2) of this 
section.
    (i) All reports required under this section shall be submitted on 
forms and following procedures prescribed by the Administrator.

0
10. Section 80.1453 is amended as follows:
0
a. By revising paragraph (a) introductory text.
0
b. By adding paragraph (a)(12).
    The revisions and additions read as follows:

Sec.  80.1453  What are the product transfer document (PTD) 
requirements for the RFS program?

    (a) On each occasion when any party transfers ownership of neat 
and/or blended renewable fuels or separated RINs subject to this 
subpart, the transferor must provide to the transferee documents that 
include all of the following information, as applicable:
* * * * *
    (12) Except as provided in Sec.  80.1433, for the transfer of 
renewable fuel for which RINs were generated, an accurate and clear 
statement on the product transfer document of the fuel type from Table 
1 to Sec.  80.1426, and designation of the fuel use(s) intended by the 
transferor, as follows:
    (i) Ethanol. ``This volume of neat or blended ethanol is designated 
and intended for use as transportation fuel or jet fuel in the 48 U.S. 
contiguous states and Hawaii. Any person exporting this fuel is subject 
to the requirements of 40 CFR 80.1430.''.
    (ii) Biodiesel. ``This volume of neat or blended biodiesel is 
designated and intended for use as transportation fuel, heating oil or 
jet fuel in the 48 U.S. contiguous states and Hawaii. Any person 
exporting this fuel is subject to the requirements of 40 CFR 
80.1430.''.
    (iii) Renewable heating oil. ``This volume of heating oil is 
designated and intended for use as heating oil in the 48 U.S. 
contiguous states and Hawaii. Any person exporting this fuel is subject 
to the requirements of 40 CFR 80.1430.''.
    (iv) Renewable diesel. ``This volume of neat or blended renewable 
diesel is designated and intended for use as transportation fuel, 
heating oil or jet fuel in the 48 U.S. contiguous states and Hawaii. 
Any person exporting this fuel is subject to the requirements of 40 CFR 
80.1430.''.
    (v) Naphtha. ``This volume of neat or blended naphtha is designated 
and intended for use as transportation fuel or jet fuel in the 48 U.S. 
contiguous states and Hawaii. This naphtha may only be used as a 
gasoline blendstock or jet fuel. Any person exporting this fuel is 
subject to the requirements of 40 CFR 80.1430.''.
    (vi) Butanol. ``This volume of neat or blended butanol is 
designated and intended for use as transportation fuel or jet fuel in 
the 48 U.S. contiguous states and Hawaii. This butanol may only be used 
as a gasoline blendstock or jet fuel. Any person exporting this fuel is 
subject to the requirements of 40 CFR 80.1430.''.
    (vii) Renewable fuels other than ethanol, biodiesel, heating oil, 
renewable diesel, naptha or butanol. ``This volume of neat or blended 
renewable fuel is designated and intended to be used as transportation 
fuel, heating oil, or jet fuel in the 48 U.S. contiguous states and 
Hawaii. Any person exporting this fuel is subject to the requirements 
of 40 CFR 80.1430.''.
* * * * *

0
11. Section 80.1454 is amended as follows:
0
a. By adding paragraphs (a)(6)(i) and (ii).
0
b. By adding paragraph (b)(9).
0
c. By revising paragraphs (l) through (p).
0
d. By adding paragraphs (q) and (r).
    The revisions and additions read as follows:

Sec.  80.1454  What are the recordkeeping requirements under the RFS 
program?

    (a) * * *
    (6) * * *
    (i) For exporters of renewable fuel for which no RINs were 
generated, an affidavit signed by the producer of the exported 
renewable fuel affirming that no RINs were generated for that volume of 
renewable fuel.
    (ii) [Reserved]
    (b) * * *
    (9) Records, including contracts, related to the implementation of 
a QAP under Sec.  80.1469.
* * * * *
    (l) Requirements for producers or importers of any renewable fuel 
other than ethanol, biodiesel, renewable gasoline, renewable diesel 
that meets ASTM D 975-13a Grade No. 1-D or No. 2-D specifications 
(incorporated by reference, see Sec.  80.1468), biogas or renewable 
electricity. A renewable fuel producer that generates RINs for any 
renewable fuel other than ethanol, biodiesel, renewable gasoline, 
renewable diesel that meets ASTM D 975-13a Grade No. 1-D or No. 2-D 
specifications (incorporated by reference, see Sec.  80.1468), biogas 
or renewable electricity shall keep all of the following additional 
records:
    (1) Documents demonstrating the total volume of renewable fuel 
produced, total volume of renewable fuel blended into gasoline and 
diesel fuel, and the percentage of renewable fuel in each batch of 
finished fuel.
    (2) Contracts and documents memorializing the sale of renewable 
fuel to parties who blend the fuel into gasoline or diesel fuel to 
produce a transportation fuel, heating oil or jet fuel, or who use the 
renewable fuel in its neat form for a qualifying fuel use.
    (3) Such other records as may be requested by the Administrator.
    (m) Requirements for independent third-party auditors. Any 
independent

[[Page 42119]]

third-party auditor (as described at Sec.  80.1471) must keep all of 
the following records for a period of at least five years:
    (1) Copies of all reports submitted to the EPA under Sec.  
80.1451(g), as applicable.
    (2) Records related to the implementation of a QAP under Sec.  
80.1469 for each facility including records from facility audits and 
ongoing and quarterly monitoring activities.
    (3) Records related to the verification of RINs under Sec.  
80.1471(e).
    (4) Copies of communications sent to and received from renewable 
fuel producers or foreign renewable fuel producers, feedstock 
suppliers, purchasers of RINs, and obligated parties.
    (5) Copies of all notes relating to the implementation of a QAP 
under Sec.  80.1469.
    (6) List of RINs reported to the EPA and renewable fuel producers 
or foreign renewable fuel producers as potentially invalidly generated 
under Sec.  80.1474 compliance.
    (7) Records related to the professional liability insurance 
requirement under Sec.  80.1471(c).
    (8) Copies of all records related to any financial assurance 
instrument as required under Sec.  80.1470 under a quality assurance 
plan implemented under Sec.  80.1469(a) during the interim period.
    (9) Copies of all records and notifications related to the 
identification of a potentially invalid RIN under Sec.  80.1474(b).
    (10) Such other records as may be requested by the Administrator.
    (n) The records required under paragraphs (a) through (d) and (f) 
through (l) of this section and under Sec.  80.1453 shall be kept for 
five years from the date they were created, except that records related 
to transactions involving RINs shall be kept for five years from the 
date of the RIN transaction.
    (o) The records required under paragraph (e) of this section shall 
be kept through calendar year 2022.
    (p) On request by the EPA, the records required under this section 
and under Sec.  80.1453 must be made available to the Administrator or 
the Administrator's authorized representative. For records that are 
electronically generated or maintained, the equipment or software 
necessary to read the records shall be made available; or, if requested 
by the EPA, electronic records shall be converted to paper documents.
    (q) The records required in paragraphs (b)(3) and (c)(1) of this 
section must be transferred with any renewable fuel sent to the 
importer of that renewable fuel by any foreign producer not generating 
RINs for its renewable fuel.
    (r) Copies of all reports required under Sec.  80.1464.

0
12. Section 80.1460 is amended by adding paragraphs (h) and (i) to read 
as follows:

Sec.  80.1460  What acts are prohibited under the RFS program?

* * * * *
    (h) RIN separation violations. No person shall do any of the 
following:
    (1) Identify separated RINs in EMTS with the wrong separation 
reason code.
    (2) Identify separated RINs in EMTS without having a qualifying 
separation event pursuant to Sec.  80.1429.
    (3) Separate more than 2.5 RINs per gallon of renewable fuel that 
has a valid qualifying separation event pursuant to Sec.  80.1429.
    (4) Separate RINs outside of the requirements in Sec.  80.1452(c).
    (5) Improperly separate RINs in any other way not listed in 
paragraphs (h)(1)-(4) of this section.
    (i) Independent third-party auditor violations. No person shall do 
any of the following:
    (1) Fail to fully implement a QAP approved under Sec.  80.1469.
    (2) Fail to fully, accurately, and timely notify all appropriate 
parties of potentially invalid RINs under Sec.  80.1474(b).
    (3) Verify a RIN under Sec.  80.1471(e) without verifying every 
applicable requirement in Sec.  80.1469 and verifying each element in 
an approved QAP.

0
13. Section 80.1461 is amended by revising paragraphs (a)(1) and (a)(2) 
to read as follows:

Sec.  80.1461  Who is liable for violations under the RFS program?

    (a) * * *
    (1) Any person who violates a prohibition under Sec.  80.1460(a) 
through (d) or Sec.  80.1460(g) through (h) is liable for the violation 
of that prohibition.
    (2) Any person who causes another person to violate a prohibition 
under Sec.  80.1460(a) through (d) or Sec.  80.1460(g) through (h) is 
liable for a violation of Sec.  80.1460(e).
* * * * *

0
14. Section 80.1464 is amended by adding and reserving paragraph (h), 
and adding paragraph (i), to read as follows:

Sec.  80.1464  What are the attest engagement requirements under the 
RFS program?

* * * * *
    (h) [Reserved]
    (i) Independent third-party auditors. The following attest 
procedures shall be completed for any independent third-party auditor 
that implements a quality assurance plan in a calendar year:
    (1) Comparing RIN verification reports with approved QAPs.
    (i) Obtain and read copies of reports required under Sec.  
80.1451(g)(1).
    (ii) Obtain and read copies of any quality assurance plans approved 
under Sec.  80.1469.
    (iii) Confirm that the independent third-party auditor only 
verified RINs covered by approved QAPs under Sec.  80.1469. Identify as 
a finding any discrepancies.
    (2) Checking third-party auditor's RIN verification.
    (i) Obtain and read copies of reports required under Sec.  
80.1451(g)(2).
    (ii) Obtain all notifications of potentially invalid RINs submitted 
to the EPA under Sec.  80.1474(b)(3).
    (iii)(A) Obtain the database, spreadsheet, or other documentation 
used to generate the information in the RIN verification reports;
    (B) Obtain all underlying documents that the QAP provider relied 
upon to verify the RINs;
    (C) Review the documents that the QAP auditor relied on to prepare 
the reports obtained in paragraph (d)(2)(i) of this section, verify 
that the underlying documents appropriately reflect the information 
reported to the EPA, and identify as a finding any discrepancies 
between the underlying documents and the information in the RIN 
verification reports;
    (D) Compute the total number of current-year RINs and current-year 
potentially invalid RINs verified at the start and end of each quarter, 
as represented in these documents; and state whether this information 
agrees with the party's reports to the EPA; and
    (E) Verify that all parties were appropriately notified under Sec.  
80.1474(b)(3) and report any missing notifications as a finding.

0
15. Section 80.1468 is amended by adding paragraph (b)(8) as follows.

Sec.  80.1468  Incorporation by reference.

* * * * *
    (b) * * *
    (8) ASTM D 975-13a, Standard Specification for Diesel Fuel Oils, 
Approved December 1, 2013; IBR approved for Sec. Sec.  80.1401, 
80.1426(f), 80.1450(b), 80.1451(b), and 80.1454(l).

0
16. A new Sec.  80.1469 is added to subpart M to read as follows:

Sec.  80.1469  Requirements for Quality Assurance Plans.

    This section specifies the requirements for Quality Assurance Plans 
(QAPs).
    (a) Option A QAP Requirements, for Option A QAPs that were 
performed during the interim period.

[[Page 42120]]

    (1) Feedstock-related components. (i) Components requiring ongoing 
monitoring:
    (A) Feedstocks are renewable biomass as defined in Sec.  80.1401.
    (B) Feedstocks are being separated according to a separation plan, 
if applicable under Sec.  80.1426(f)(5)(ii).
    (C) Crop and crop residue feedstocks meet land use restrictions, or 
alternatively the aggregate compliance provisions of Sec.  80.1454(g).
    (D) If applicable, verify that feedstocks with additional 
recordkeeping requirements meet requirements of Sec.  80.1454(d).
    (E) Feedstocks are valid for the D code being used, and are 
consistent with information recorded in EMTS.
    (F) Feedstock is consistent with production process and D code 
being used as permitted under Table 1 to Sec.  80.1426 or a petition 
approved through Sec.  80.1416.
    (G) Feedstock is not renewable fuel for which RINs were previously 
generated.
    (ii) Components requiring quarterly monitoring:
    (A) Separated food waste or separated yard waste plan is accepted 
and up to date, if applicable under Sec.  80.1426(f)(5)(ii).
    (B) Separated municipal solid waste plan is approved and up to 
date, if applicable under Sec.  80.1426(f)(5)(ii).
    (C) Contracts or agreements for feedstock acquisition are 
sufficient for facility production.
    (D) Feedstock processing and storage equipment are sufficient and 
are consistent with the most recent engineering review under Sec.  
80.1450(b)(2).
    (E) If applicable, accuracy of feedstock energy FE calculation 
factors related to feedstocks, including average moisture content m and 
feedstock energy content E.
    (2) Production process-related components. (i) Components requiring 
ongoing monitoring:
    (A) Production process is consistent with that reported in EMTS.
    (B) Production process is consistent with D code being used as 
permitted under Table 1 to Sec.  80.1426 or a petition approved through 
Sec.  80.1416.
    (C) Certificates of analysis verifying fuel type and quality, as 
applicable.
    (ii) Components requiring quarterly monitoring:
    (A) Mass and energy balances are appropriate for type and size of 
facility.
    (B) Workforce size is appropriate for type and size of facility, 
and sufficient workers are on site for facility operations.
    (C) If applicable, process-related factors used in feedstock energy 
FE calculation are accurate, in particular the converted fraction CF.
    (D) Verify existence of quality process controls designed to ensure 
that fuel continues to meet applicable property and quality 
specifications.
    (E) Volume production is consistent with that reported to the EPA 
and EIA, as well as other federal or state reporting.
    (F) Volume production is consistent with storage and distribution 
capacity.
    (G) Volume production capacity is consistent with RFS registration.
    (3) RIN generation-related components. (i) Components requiring 
ongoing monitoring:
    (A) Standardization of volumes pursuant to Sec.  80.1426(f)(8) are 
accurate.
    (B) Renewable fuel type matches the D code being used.
    (C) RIN generation is consistent with wet gallons produced or 
imported.
    (D) Fuel shipments are consistent with production volumes.
    (E) If applicable, renewable content R is accurate pursuant to 
Sec.  80.1426(f)(9).
    (F) Equivalence value EV is accurate and appropriate.
    (G) Renewable fuel was intended and sold for qualifying uses as 
transportation fuel, heating oil, or jet fuel.
    (H) Verify that appropriate RIN generation calculations are being 
followed under Sec.  80.1426(f)(3), (f)(4), or (f)(5), as applicable.
    (ii) Components requiring quarterly monitoring:
    (A) Registration, reporting and recordkeeping components.
    (B) [Reserved]
    (4) RIN separation-related components. (i) Components requiring 
ongoing monitoring:
    (A) If applicable, verify that RIN separation is appropriate under 
Sec.  80.1429(b)(4).
    (B) If applicable, verify that RINs were retired for any fuel that 
the producer produced and exported.
    (ii) Components requiring quarterly monitoring:
    (A) Verify that annual attestation report is accurate.
    (B) [Reserved]
    (b) Option B QAP Requirements, for Option B QAPs that were 
performed during the interim period. All components specified in this 
paragraph (b) require quarterly monitoring, except for paragraph 
(b)(4)(iii) of this section, which must be done annually.
    (1) Feedstock-related components. (i) Feedstocks are renewable 
biomass as defined in Sec.  80.1401.
    (ii) If applicable, separated food waste or separated yard waste 
plan under Sec.  80.1426(f)(5)(ii) is accepted and up to date.
    (iii) If applicable, separated municipal solid waste plan under 
Sec.  80.1426(f)(5)(ii) is approved and current.
    (iv) Feedstocks are being separated according to a separation plan, 
if applicable under Sec.  80.1426(f)(5)(ii).
    (v) Crop and crop residue feedstocks meet land use restrictions, or 
alternatively the aggregate compliance provisions of Sec.  80.1454(g).
    (vi) Feedstock is consistent with production process and D code 
being used as permitted under Table 1 to Sec.  80.1426 or a petition 
approved through Sec.  80.1416, and is consistent with information 
recorded in EMTS.
    (vii) Feedstock is not renewable fuel for which RINs were 
previously generated.
    (viii) If applicable, accuracy of feedstock energy FE calculation 
factors related to feedstocks, including average moisture content m and 
feedstock energy content E.
    (2) Production process-related components. (i) Production process 
is consistent with that reported in EMTS.
    (ii) Production process is consistent with D code being used as 
permitted under Table 1 to Sec.  80.1426 or a petition approved through 
Sec.  80.1416.
    (iii) Mass and energy balances are appropriate for type and size of 
facility.
    (iv) If applicable, process-related factors used in feedstock 
energy FE calculation are accurate, in particular the converted 
fraction CF.
    (3) RIN generation-related components. (i) Renewable fuel was 
intended and sold for qualifying uses as transportation fuel, heating 
oil, or jet fuel.
    (ii) Certificates of analysis verifying fuel type and quality, as 
applicable.
    (iii) Renewable fuel type matches the D code being used.
    (iv) If applicable, renewable content R is accurate pursuant to 
Sec.  80.1426(f)(9).
    (v) Equivalence value EV is accurate and appropriate.
    (vi) Volume production capacity is consistent with RFS 
registration.
    (vii) Verify that appropriate RIN generation calculations are being 
followed under Sec.  80.1426(f)(3), (f)(4), or (f)(5), as applicable.
    (4) RIN separation-related components. (i) If applicable, verify 
that RIN separation is appropriate under Sec.  80.1429(b)(4).
    (ii) Verify that fuel that is exported was not used to generate 
RINs, or alternatively that were generated but retired.
    (iii) Verify that annual attestation report is accurate.
    (c) QAP Requirements. All components specified in this paragraph 
(c) require quarterly monitoring, except

[[Page 42121]]

for paragraph (c)(4)(iii) of this section which must be done annually.
    (1) Feedstock-related components. (i) Feedstocks are renewable 
biomass as defined in Sec.  80.1401.
    (ii) If applicable, separated food waste or separated yard waste 
plan under Sec.  80.1426(f)(5)(ii) is accepted and up to date.
    (iii) If applicable, separated municipal solid waste plan under 
Sec.  80.1426(f)(5) is approved and current.
    (iv) Feedstocks are being separated according to a separation plan, 
if applicable under Sec.  80.1426(f)(5).
    (v) Crop and crop residue feedstocks meet land use restrictions, or 
alternatively the aggregate compliance provisions of Sec.  80.1454(g).
    (vi) Feedstock is consistent with production process and D code 
being used as permitted under Table 1 to Sec.  80.1426 or a petition 
approved through Sec.  80.1416, and is consistent with information 
recorded in EMTS.
    (vii) Feedstock is not renewable fuel for which RINs were 
previously generated.
    (viii) If applicable, accuracy of feedstock energy FE calculation 
factors related to feedstocks, including average moisture content m and 
feedstock energy content E.
    (2) Production process-related components. (i) Production process 
is consistent with that reported in EMTS.
    (ii) Mass and energy balances are appropriate for type and size of 
facility.
    (iii) If applicable, process-related factors used in feedstock 
energy FE calculation are accurate, in particular the converted 
fraction CF, pursuant to Sec.  80.1426(f)(3).
    (3) RIN generation-related components. (i) Renewable fuel was 
designated for qualifying uses as transportation fuel, heating oil, or 
jet fuel in the 48 contiguous states or Hawaii pursuant to Sec.  
80.1453.
    (ii) Certificates of analysis verifying fuel type and quality, as 
applicable.
    (iii) Renewable fuel type matches the D code being used.
    (iv) If applicable, renewable content R is accurate pursuant to 
Sec.  80.1426(f)(9).
    (v) Equivalence value EV is accurate and appropriate.
    (vi) Volume production capacity is consistent with RFS 
registration.
    (vii) Verify that appropriate RIN generation calculations are being 
followed under Sec.  80.1426(f)(3), (f)(4), or (f)(5), as applicable.
    (viii) RIN generation is consistent with wet gallons produced or 
imported.
    (4) RIN separation-related components. (i) If applicable, verify 
that RIN separation is appropriate under Sec.  80.1429(b)(4).
    (ii) Verify that fuel that is exported was not used to generate 
RINs, or alternatively that were generated but retired pursuant to 
Sec.  80.1430.
    (iii) Verify that annual attestation report is accurate.
    (5) Representative sampling. Independent third-party auditors may 
use a representative sample of batches of renewable fuel in accordance 
with the procedures described in Sec.  80.127 for all components of 
this paragraph (c) except for paragraphs (c)(1)(ii), (c)(1)(iii), 
(c)(2)(ii), (c)(3)(vi), (c)(4)(ii), and (c)(4)(iii) of this section.
    (d) In addition to a general QAP encompassing elements common to 
all pathways, for each QAP there shall be at least one pathway-specific 
plan for a RIN-generating pathway as provided in Table 1 to Sec.  
80.1426 or as approved by the Administrator pursuant to Sec.  80.1416, 
and shall contain elements specific to particular feedstocks, 
production processes, and fuel types as applicable.
    (e) Submission and approval of a QAP. (1) Each independent third-
party auditor shall annually submit a general and at least one pathway-
specific QAP to the EPA which demonstrates adherence to the 
requirements of paragraphs (a) and (d), (b) and (d), or (c) and (d) of 
this section, as applicable, and request approval on forms and using 
procedures specified by the Administrator.
    (2) No third-party independent auditor may present a QAP as 
approved by the EPA without having received written approval from the 
EPA.
    (3) A QAP is approved on the date that the EPA notifies the third-
party independent auditor of such approval.
    (4) The EPA may revoke its approval of a QAP for cause, including, 
but not limited to, an EPA determination that the approved QAP has 
proven to be inadequate in practice.
    (5) The EPA may void ab initio its approval of a QAP upon the EPA's 
determination that the approval was based on false information, 
misleading information, or incomplete information, or if there was a 
failure to fulfill, or cause to be fulfilled, any of the requirements 
of the QAP.
    (f) Conditions for revisions of a QAP. (1) A new QAP shall be 
submitted to the EPA according to paragraph (e) of this section 
whenever any of the following changes occur at a production facility 
audited by a third-party independent auditor and the auditor does not 
possess an appropriate pathway-specific QAP that encompasses the 
changes:
    (i) Change in feedstock.
    (ii) Change in type of fuel produced.
    (iii) Change in facility operations or equipment that may impact 
the capability of the QAP to verify that RINs are validly generated.
    (2) A QAP ceases to be valid as the basis for verifying RINs under 
a new pathway until a new pathway-specific QAP, submitted to the EPA 
under this paragraph (f), is approved pursuant to paragraph (e) of this 
section.

0
17. A new Sec.  80.1470 is added to subpart M to read as follows:

Sec.  80.1470  RIN replacement mechanisms for Option A independent 
third party auditors.

    (a) Applicability. This section applies to independent third-party 
auditors using a QAP approved under Option A pursuant to Sec.  
80.1469(a) and (d) during the interim period.
    (b) Requirements. An independent third party auditor must establish 
or participate in the establishment of a RIN replacement mechanism. The 
RIN replacement mechanism must fulfill, at a minimum, all the following 
conditions:
    (1) The RIN replacement mechanism must be capable of fulfilling the 
independent third party auditor's RIN replacement responsibility, as 
described in Sec.  80.1474(b)(5)(i).
    (2) The independent third party auditor is responsible for 
calculating and maintaining the minimum coverage afforded by the RIN 
replacement mechanism at all times.
    (3) RINs held by the RIN replacement mechanism (if any) must be 
identified in a unique EMTS account designated for the exclusive use of 
the replacement mechanism.
    (4) Distribution and removal of RINs from the replacement mechanism 
may not be under the sole operational control of the third-party 
auditor.
    (5) An originally signed duplicate of the agreement or contract 
establishing the RIN replacement mechanism must be submitted to the EPA 
by the independent third party auditor in accordance with Sec.  
80.1450(g)(7).
    (6) Any substantive change to the agreement establishing the RIN 
replacement mechanism must be submitted to the EPA within 30 days of 
the change.
    (c) Cap on RIN replacement for independent third party auditors of 
A-RINs. (1) If required to replace invalid A-RINs pursuant to paragraph 
(b) of this section, the independent third party auditor shall be 
required to replace no more than the percentage specified in paragraph 
(c)(2) of this section of each D code of A-RINs verified by the auditor 
in the current calendar year and four previous calendar years.
    (2) The cap on RIN replacement for auditors of A-RINs shall be two 
percent

[[Page 42122]]

for A-RINs generated in the interim period.
    (3) The auditor's potential replacement responsibility for a given 
RIN will expire at the end of the fourth calendar year after the 
calendar year in which the RIN was verified.
    (d) Applicability of the RIN replacement cap. The cap on RIN 
replacement does not apply when invalid verified RINs are a result of 
auditor error, omission, negligence, fraud, collusion with the 
renewable fuel producer, or a failure to implement the QAP properly or 
fully.

0
18. A new Sec.  80.1471 is added to subpart M to read as follows:

Sec.  80.1471  Requirements for QAP auditors.

    (a) QAP audits conducted pursuant to Sec.  80.1472 must be 
conducted by an independent third-party auditor.
    (b) To be considered an independent third-party auditor under 
paragraph (a) of this section:
    (1) The independent third-party auditor and its contractors and 
subcontractors shall not be owned or operated by the renewable fuel 
producer or foreign ethanol producer, or any subsidiary or employee of 
the renewable fuel producer or foreign ethanol producer.
    (2) The independent third-party auditor and its contractors and 
subcontractors shall not be owned or operated by an obligated party or 
any subsidiary or employee of an obligated party as defined in Sec.  
80.1406.
    (3) The independent third-party auditor shall not own, buy, sell, 
or otherwise trade RINs unless required to maintain a financial 
assurance mechanism for a QAP implemented under QAP Option A pursuant 
to Sec.  80.1469(a) during the interim period or to replace an invalid 
RIN pursuant to Sec.  80.1474.
    (4) The independent third-party auditor and its contractors and 
subcontractors shall be free from any interest or the appearance of any 
interest in the renewable fuel producer or foreign renewable fuel 
producer's business.
    (5) The renewable fuel producer or foreign renewable fuel producer 
shall be free from any interest or the appearance of any interest in 
the third-party auditor's business and the businesses of third-party 
auditor's contractors and subcontractors.
    (6) The independent third-party auditor and its contractors and 
subcontractors shall not have performed an attest engagement under 
Sec.  80.1464 for the renewable fuel producer or foreign renewable fuel 
producer in the same calendar year as a QAP audit conducted pursuant to 
Sec.  80.1472.
    (7) The independent third-party auditor and its contractors and 
subcontractors must not be debarred, suspended, or proposed for 
debarment pursuant to the Government-wide Debarment and Suspension 
regulations, 40 CFR part 32, or the Debarment, Suspension and 
Ineligibility provisions of the Federal Acquisition Regulations, 48 CFR 
part 9, subpart 9.4.
    (c) Independent third-party auditors shall maintain professional 
liability insurance, as defined in 31 CFR 50.5(q). Independent third-
party auditors shall use insurance providers that possess a financial 
strength rating in the top four categories from either Standard & 
Poor's or Moody's, i.e., AAA, AA, A or BBB for Standard & Poor's and 
Aaa, Aa, A, or Baa for Moody's. Independent third-party auditors shall 
disclose the level of professional liability insurance they possess 
when entering into contracts to provide RIN verification services.
    (d)(1) In the event that an independent third-party auditor 
identifies a RIN that may have been invalidly generated, the 
independent third-party auditor shall, within the next business day, 
send notification of the potentially invalidly generated RIN to the EPA 
and the renewable fuel producer that generated the RIN.
    (2) The independent third-party auditor shall provide the 
notification required under paragraph (d)(1) of this section in writing 
(which includes email or facsimile) and, if requested by the party 
being notified of a potentially invalidly generated RIN, by telephone.
    (e) The independent third-party auditor shall identify RINs 
generated from a renewable fuel producer or foreign renewable fuel 
producer as having been verified under a QAP.
    (1) For RINs verified under QAP Option A pursuant to Sec.  
80.1469(a) during the interim period, RINs shall be designated as A-
RINs.
    (2) For RINs verified under QAP Option B pursuant to Sec.  
80.1469(b), during the interim period, RINs shall be designated as B-
RINs.
    (3) For RINs verified under a QAP pursuant to Sec.  80.1469(c), 
RINs shall be designated as Q-RINs and shall be identified as having 
been verified under a QAP in EMTS.
    (4) The independent third-party auditor shall not identify RINs 
generated from a renewable fuel producer or foreign renewable fuel 
producer as having been verified under a QAP if a revised QAP must be 
submitted to and approved by the EPA under Sec.  80.1469(f).
    (f)(1) Except as specified in paragraph (f)(2) of this section, 
auditors may only verify RINs that have been generated after the audit 
required under Sec.  80.1472 has been completed.
    (i) For A-RINs, ongoing monitoring must have been initiated.
    (ii) Verification of RINs may continue for no more than 200 days 
following an on-site visit or 380 days after an on-site visit if a 
previously the EPA-approved remote monitoring system is in place at the 
renewable fuel production facility.
    (2) Auditors may verify RINs that were generated before the audit 
required under Sec.  80.1472 has been completed, under the following 
conditions:
    (i) The RINs in question were generated during the interim period.
    (ii) The audit is completed during the interim period.
    (iii) The audit is performed in accordance with the elements 
specified in a QAP that has been approved by the EPA per Sec.  
80.1469(e).
    (iv) The audit requirements of Sec.  80.1472 are met for every 
batch of renewable fuel for which RINs were generated and are being 
verified.
    (v) The auditor may not perform more than one audit under this 
subparagraph for any single RIN generator.
    (g) The independent third-party auditor shall permit any 
representative of the EPA to monitor at any time the implementation of 
QAPs and renewable fuel production facility audits.
    (h) Any person who fails to meet a requirement under of this 
section shall be subject to a separate violation pursuant to Sec.  
80.1460(f).

0
19. A new Sec.  80.1472 is added to subpart M to read as follows:

Sec.  80.1472  Requirements for quality assurance audits.

    (a) General requirements. (1) An audit shall be performed by an 
auditor who meets the requirements of Sec.  80.1471.
    (2) An audit shall be based on either an Option A QAP per Sec.  
80.1469(a) during the interim period, an Option B QAP per Sec.  
80.1469(b) during the interim period, or a QAP per Sec.  80.1469(c).
    (3) Each audit shall verify every element contained in an 
applicable and approved QAP.
    (4) Each audit shall include a review of documents generated by the 
renewable fuel producer.
    (b) On-site visits--(1) Option A QAP during the interim period. (i) 
The auditor shall conduct an on-site visit at the renewable fuel 
production facility at least 4 times per calendar year.
    (ii) The on-site visits specified in paragraph (b)(1)(i) of this 
section shall occur at least 60 days apart. The 60-day period shall 
start the day after the previous on-site ends.

[[Page 42123]]

    (iii) The on-site visit shall include verification of all QAP 
elements that require inspection or evaluation of the physical 
attributes of the renewable fuel production facility, except for any 
physical attribute that is verified through remote monitoring equipment 
per the applicable QAP.
    (2) Option B QAP during the interim period. (i) The auditor shall 
conduct an on-site visit at the renewable fuel production facility at 
least 4 times per calendar year.
    (ii) The on-site visits specified in paragraph (b)(2)(i) of this 
section shall occur at least 60 days apart. The 60-day period shall 
start the day after the previous on-site ends.
    (iii) The on-site visit shall include verification of all QAP 
elements that require inspection or evaluation of the physical 
attributes of the renewable fuel production facility.
    (3) QAP. (i) The auditor shall conduct an on-site visit at the 
renewable fuel production facility:
    (A) At least two times per calendar year; or
    (B) In the event an auditor uses a remote monitoring system 
approved by the EPA, at least one time per calendar year.
    (ii) An on-site visit specified in paragraph (b)(3)(i) of this 
section shall occur no more than:
    (A) 200 days after the previous on-site visit. The 200-day period 
shall start the day after the previous on-site visit ends; or
    (B) 380 days after the previous on-site visit if a previously 
approved by the EPA remote monitoring system is in place at the 
renewable fuel production facility. The 380-day period shall start the 
day after the previous on-site visit ends.
    (iii) An on-site visit shall include verification of all QAP 
elements that require inspection or evaluation of the physical 
attributes of the renewable fuel production facility.
    (iv) The on-site visit shall be overseen by a professional 
engineer, as specified in Sec.  80.1450(b)(2)(i)(A) and (b)(2)(i)(B).

0
20. A new Sec.  80.1473 is added to subpart M to read as follows:

Sec.  80.1473  Affirmative defenses.

    (a) Criteria. Any person who engages in actions that would be a 
violation of the provisions of either Sec.  80.1460(b)(2) or (c)(1), 
other than the generator of an invalid RIN, will not be deemed in 
violation if the person demonstrates that the criteria under paragraphs 
(c), (d), or (e) of this section are met.
    (b) Applicability of affirmative defenses. The following provisions 
apply to affirmative defenses asserted under paragraph (a) of this 
section:
    (1) Affirmative defenses only apply to RINs that were invalidly 
generated and verified through a quality assurance audit using an EPA-
approved QAP.
    (2) Affirmative defenses only apply in situations where an 
invalidly generated verified RIN is either transferred to another 
person (violation of Sec.  80.1460(b)(2)) or used for compliance for an 
obligated party's RVO (use violation of Sec.  80.1460(c)(1)).
    (3) Affirmative defenses do not apply to the generator of an 
invalid RIN.
    (c) Asserting an affirmative defense for invalid A-RINs verified 
during the interim period. To establish an affirmative defense to a 
violation of Sec.  80.1460(b)(2) or (c)(1) involving invalid A-RINs, 
the person must meet the notification requirements of paragraph (f) of 
this section and prove by a preponderance of evidence all of the 
following:
    (1) The RIN in question was verified through a quality assurance 
audit pursuant to Sec.  80.1472 using an approved Option A QAP as 
defined in Sec.  80.1469(a).
    (2) The person did not know or have reason to know that the RINs 
were invalidly generated prior to being verified by the independent 
third-party auditor.
    (3) If the person self-identified the RIN as having been invalidly 
generated, the person notified the EPA within five business days of 
discovering the invalidity.
    (4) The person did not cause the invalidity.
    (5) The person did not have a financial interest in the company 
that generated the invalid RIN.
    (d) Asserting an affirmative defense for invalid B-RINs verified 
during the interim period. To establish an affirmative defense to a 
violation of Sec.  80.1460(b)(2) or (c)(1) involving invalid B-RINs, 
the person must meet the notification requirements of paragraph (f) of 
this section and prove by a preponderance of evidence all of the 
following:
    (1) The RIN in question was verified through a quality assurance 
audit pursuant to Sec.  80.1472 using an approved Option B QAP as 
defined in Sec.  80.1469(b).
    (2) The person did not know or have reason to know that the RINs 
were invalidly generated at the time of transfer or use for compliance, 
unless the RIN generator replaced the RIN pursuant to Sec.  80.1474.
    (3) If the person self-identified the RIN as having been invalidly 
generated, the person notified the EPA within five business days of 
discovering the invalidity.
    (4) The person did not cause the invalidity.
    (5) The person did not have a financial interest in the company 
that generated the invalid RIN.
    (6) If the person used the invalid B-RIN for compliance, the person 
adjusted its records, reports, and compliance calculations in which the 
invalid B-RIN was used as required by Sec.  80.1431, unless the RIN 
generator replaced the RIN pursuant to Sec.  80.1474.
    (e) Asserting an affirmative defense for invalid Q-RINs. To 
establish an affirmative defense to a violation of Sec.  80.1460(b)(2) 
or (c)(1) involving invalid Q-RINs, the person must meet the 
notification requirements of paragraph (f) of this section and prove by 
a preponderance of evidence all of the following:
    (1) The RIN in question was verified through a quality assurance 
audit pursuant to Sec.  80.1472 using an approved QAP as defined in 
Sec.  80.1469(c).
    (2) The person did not know or have reason to know that the RINs 
were invalidly generated at the time of transfer or use for compliance, 
unless the RIN generator replaced the RIN pursuant to Sec.  80.1474.
    (3) If the person self-identified the RIN as having been invalidly 
generated, the person notified the EPA within five business days of 
discovering the invalidity.
    (4) The person did not cause the invalidity.
    (5) The person did not have a financial interest in the company 
that generated the invalid RIN.
    (6) If the person used the invalid Q-RIN for compliance, the person 
adjusted its records, reports, and compliance calculations in which the 
invalid Q-RIN was used as required by Sec.  80.1431, unless the RIN 
generator replaced the RIN pursuant to Sec.  80.1474.
    (f) Notification requirements. A person asserting an affirmative 
defense to a violation of Sec.  80.1460(b)(2) or (c)(1), arising from 
the transfer or use of an invalid A-RIN, B-RIN, or Q-RIN must submit a 
written report to the EPA via the EMTS support line (/support.com">support.com">support@epamts-support.com), including all pertinent supporting documentation, 
demonstrating that the requirements of paragraphs (c), (d), or (e) of 
this section were met. The written report must be submitted within 30 
days of the person discovering the invalidity.

0
21. A new Sec.  80.1474 is added to subpart M to read as follows:

[[Page 42124]]

Sec.  80.1474  Replacement requirements for invalidly generated RINs.

    (a) Responsibility for replacement of invalid verified RINs. (1) 
The generator of the A-RIN and the independent third-party auditor that 
verified the A-RIN are required to replace invalidly generated A-RINs 
with valid RINs pursuant to the procedures specified in paragraph (b) 
of this section.
    (2) The generator of the B-RIN and the obligated party that owns 
the B-RIN are required to replace invalidly generated B-RINs with valid 
RINs pursuant to the procedures specified in paragraph (b) of this 
section.
    (3) The generator of the Q-RIN and the obligated party that owns 
the Q-RIN are required to replace invalidly generated Q-RINs with valid 
RINs pursuant to the procedures specified in paragraph (b) of this 
section.
    (4) The generator of an unverified RIN and the obligated party that 
owns an unverified RIN are required to replace invalidly generated and 
unverified RINs pursuant to the procedures specified in paragraph (b) 
of this section.
    (b) Identification and treatment of potentially invalid RINs 
(PIRs). (1) Any RIN can be identified as a PIR by the RIN generator, an 
independent third-party auditor that verified the RIN, or the EPA.
    (2) For PIRs identified by the RIN generator, the generator is 
required to notify the EPA via the EMTS support line (/support.com">support.com">support@epamts-support.com) within five business days of the identification, including 
an initial explanation of why the RIN is believed to be invalid, and is 
required to take any of the following corrective actions within 30 
days:
    (i) Retire the PIR.
    (ii) Retire a valid RIN meeting the requirements of paragraph (d) 
of this section.
    (3) For PIRs identified by the independent third-party auditor that 
verified the RIN, the independent third-party auditor is required to 
notify the EPA via the EMTS support line (/support.com">support.com">support@epamts-support.com) 
and the RIN generator in writing within five business days of the 
identification, including an initial explanation of why the RIN is 
believed to be invalid.
    (4) Within 30 days of being notified by the EPA or the independent 
third-party auditor that verified the RIN that a RIN is a PIR, the RIN 
generator is required to take one of the following actions:
    (i) In the event that the EPA identifies a RIN as a PIR, do one of 
the following:
    (A) Retire the PIR.
    (B) Retire a valid RIN following the requirements of paragraph (d) 
of this section.
    (C) Submit a demonstration in writing to the EPA via the EMTS 
support line (/support.com">support.com">support@epamts-support.com) that the PIR is valid.
    (1) If the EPA determines that the demonstration is satisfactory, 
the RIN will no longer be considered a PIR.
    (2) If the EPA determines that the demonstration is not 
satisfactory, the PIR will be deemed invalid and the PIR generator must 
retire the PIR or a valid RIN following the requirements of paragraph 
(d) of this section within 30 days of notification by the EPA.
    (ii) In the event that the independent third-party auditor 
identifies a RIN as a PIR, do one of the following:
    (A) Retire the PIR.
    (B) Retire a valid RIN following the requirements of paragraph (d) 
of this section.
    (C) Submit a demonstration in writing to the independent third-
party auditor and the EPA via the EMTS support line (/support.com">support.com">support@epamts-support.com) that the PIR is valid.
    (1) If the independent third-party auditor determines that the 
demonstration is satisfactory, the PIR will be deemed to be a valid 
RIN; however, the EPA reserves the right to make a determination 
regarding the validity of the RIN.
    (2) If the independent third-party auditor determines that the 
demonstration is not satisfactory, the EPA will then make a 
determination whether the demonstration is not satisfactory, and if so, 
the PIR will be deemed invalid and the PIR generator must retire the 
PIR or a valid RIN following the requirements of paragraph (d) of this 
section within 30 days of notification by the EPA.
    (5) Within 60 days of receiving a notification from the EPA that a 
PIR generator has failed to perform a corrective action required 
pursuant to this section:
    (i) For A-RINs, the independent third-party auditor that verified 
the PIR is required to retire valid RINs meeting the requirements of 
paragraph (d) of this section.
    (ii) For Q-RINs, B-RINs, and unverified RINs, the party that owns 
the invalid RIN is required to do one of the following:
    (A) Retire the invalid RIN.
    (B) If the invalid RIN has already been used for compliance with an 
obligated party's RVO, correct the RVO to subtract the invalid RIN.
    (c) Failure to take corrective action. Any person who fails to meet 
a requirement under paragraph (b)(4) or (b)(5) of this section shall be 
liable for full performance of such requirement, and each day of non-
compliance shall be deemed a separate violation pursuant to Sec.  
80.1460(f). The administrative process for replacement of invalid RINs 
does not, in any way, limit the ability of the United States to 
exercise any other authority to bring an enforcement action under 
section 211 of the Clean Air Act, the fuels regulations at 40 CFR part 
80, or any other applicable law.
    (d) The following specifications apply when retiring valid RINs to 
replace PIRs or invalid RINs:
    (1) When a RIN is retired to replace a PIR or invalid RIN, the D 
code of the retired RIN must be eligible to be used towards meeting all 
the renewable volume obligations as the PIR or invalid RIN it is 
replacing, as specified in Sec.  80.1427(a)(2).
    (2) The number of RINs retired must be equal to the number of PIRs 
or invalid RINs being replaced, subject to paragraph (e) or (f) of this 
section if applicable, and Sec.  80.1470(c).
    (e) Limited exemption for invalid B-RINs verified during the 
interim period. (1) In the event that an obligated party is required to 
retire or replace an invalid RIN that is a B-RIN pursuant to paragraph 
(b) of this section, the obligated party will be afforded a ``limited 
exemption'' (LE) equal to two percent of its annual Renewable Volume 
Obligation (RVO) for calendar years 2013 and 2014 during the interim 
period.
    (2) Limited exemptions are calculated as follows:

LECB,i = 0.02 x RVOCB,i
LEBBD,i = 0.02 x RVOBBD,i
LEAB,i = 0.02 x RVOAB,i
LERF,i = 0.02 x RVORF,i

Where:

LECB,i = Limited exemption for cellulosic biofuel for 
year i.
LEBBD,i = Limited exemption for biomass-based diesel for 
year i.
LEAB,i = Limited exemption for advanced biofuel for year 
i.
LERF,i = Limited exemption for renewable for year i.
RVOCB,i = The Renewable Volume Obligation for cellulosic 
biofuel for the obligated party for calendar year i, in gallons, 
pursuant to Sec.  80.1407.
RVOBBD,i = The Renewable Volume Obligation for biomass-
based diesel for the obligated party for calendar year i after 2010, 
in gallons, pursuant to Sec.  80.1407.
RVOAB,i = The Renewable Volume Obligation for advanced 
biofuel for the obligated party for calendar year i, in gallons, 
pursuant to Sec.  80.1407.
RVORF,i = The Renewable Volume Obligation for renewable 
fuel for the obligated party for calendar year i, in gallons, 
pursuant to Sec.  80.1407.

[[Page 42125]]

    (3) If the number of invalidly generated B-RINs required to be 
retired or replaced in a calendar year is less than or equal to LE as 
calculated in paragraph (d)(2) of this section, the entire RIN 
retirement obligation is excused.
    (4) If the number of invalidly generated B-RINs required to be 
retired or replaced in a calendar year is greater than LE as calculated 
in paragraph (d)(2) of this section, the retirement of a number of B-
RINs equal to two percent of the obligated party's RVO is excused.
    (5) The limited exemption for B-RINs applies only in calendar years 
2013 and 2014 during the interim period.
    (f) Limited exemption for invalid Q-RINs. (1) In the event that an 
obligated party is required to retire or replace an invalid RIN that is 
a Q-RIN pursuant to paragraph (b) of this section, the obligated party 
will be afforded a ``limited exemption'' (LE) equal to two percent of 
its annual Renewable Volume Obligation (RVO) for calendar years 2014, 
2015, and 2016.
    (2) Limited exemptions are calculated as follows:

LECB,i = 0.02 x RVOCB,i
LEBBD,i = 0.02 x RVOBBD,i
LEAB,i = 0.02 x RVOAB,i
LERF,i = 0.02 x RVORF,i

Where:

LECB,i = Limited exemption for cellulosic biofuel for 
year i.
LEBBD,i = Limited exemption for biomass-based diesel for 
year i.
LEAB,i = Limited exemption for advanced biofuel for year 
i.
LERF,i = Limited exemption for renewable for year i.
RVOCB,i = The Renewable Volume Obligation for cellulosic 
biofuel for the obligated party for calendar year i, in gallons, 
pursuant to Sec.  80.1407.
RVOBBD,i = The Renewable Volume Obligation for biomass-
based diesel for the obligated party for calendar year i after 2010, 
in gallons, pursuant to Sec.  80.1407.
RVOAB,i = The Renewable Volume Obligation for advanced 
biofuel for the obligated party for calendar year i, in gallons, 
pursuant to Sec.  80.1407.
RVORF,i = The Renewable Volume Obligation for renewable 
fuel for the obligated party for calendar year i, in gallons, 
pursuant to Sec.  80.1407.

    (3) If the number of invalidly generated Q-RINs required to be 
retired or replaced in a calendar year is less than or equal to LE as 
calculated in paragraph (d)(2) of this section, the entire RIN 
retirement obligation is excused.
    (4) If the number of invalidly generated Q-RINs required to be 
retired or replaced in a calendar year is greater than LE as calculated 
in paragraph (d)(2) of this section, the retirement of a number of Q-
RINs equal to two percent of the obligated party's RVO is excused.
    (5) The limited exemption for Q-RINs applies only in calendar years 
2014, 2015, and 2016.
    (g) All parties who retire RINs under this section shall use the 
forms and follow the procedures prescribed by the Administrator.

[FR Doc. 2014-16487 Filed 7-17-14; 8:45 am]
BILLING CODE 6560-50-P
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