Document ID: EPA-HQ-OAR-2012-0401-0199
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2014-05-29T04:00Z

May 27, 2014

Administrator Gina McCarthy
U.S. Environmental Protection Agency
1200 Pennsylvania Ave., N.W.
Washington, D.C. 20460

Re: Inappropriate Foreign RIN generation on renewable fuel that never arrives in the United States (not intended for use in the 48 contiguous states or Hawaii).

Dear Administrator McCarthy:

Today, we bring to your attention an important matter that, if not addressed, will continue to hamper the efforts of EPA in eliminating fraud from the Renewable Fuel Standard (RFS). 

We have reason to believe that RINs are being generated by bonded foreign producers for renewable fuel that is subsequently sold to destinations or companies outside the United States that are not obligated parties or other regulated entities under the RFS. In other words, RINs are being generated on fuel that never reaches the United States. Additionally, we understand that these RINs are not being retired, which is a violation under the regulation. 

The National Biodiesel Board (NBB) is the national trade association representing the biodiesel industry as the coordinating body for research and development in the United States. NBB's membership includes biodiesel producers, feedstock organizations and suppliers, fuel marketers and distributors, and technology providers.

We have worked very closely with EPA through the development of the Quality Assurance Plan (QAP), which was created to help eliminate fraud under the RFS, and we continue to work with your teams on enforcement-related issues.  

The regulation states, as a requirement for RIN generation, that renewable fuel must be "produced or imported for use as transportation fuel, heating oil, or jet fuel in the 48 contiguous states or Hawaii." If a RIN is generated by a foreign bonded renewable fuel producer on a batch of renewable fuel that is not produced or imported for use in the 48 contiguous states or Hawaii, those RINs should be retired based on §80.1431(a)(ix) [was otherwise improperly generated]. Additionally, per §80.1431(b)(1), "(t)he party must retire the invalid RINs in the applicable RIN transaction reports under §80.1451(c)(2) for the quarter in which the RINs were determined to be invalid".

This situation presents problems on many levels for the industry and the program, one of which is that on the EPA's EMTS it can appear to market participants that there are more RINs available for compliance than actually exist.  In fact, these RINs should have never been generated - or perhaps are waiting to be retired. 

EPA has the ability to eliminate this and decrease the risk for potential fraudulent RINs in the system. 

NBB supports additional assurances that foreign producers of renewable fuel are in compliance with the RFS2, and we support additional provisions to assist EPA's enforcement efforts. Specifically we encourage EPA to require each gallon of imported biofuel be subject to a Quality Assurance Plan and a bond of at least 10% of the value of the imported gallons. 

In our comments on Pathways II, the QAP proposal, and the 2014 RVO, we discuss at length how a "quality assurance plan" should be applied to foreign biofuel producers. Specifically, we believe it is critical that the EPA strengthen its oversight of foreign-generated fuel seeking to participate in the RFS.

In our comments, we asked the question: How does EPA best protect obligated parties and the RFS from fraud or invalid RINs that are illegally or invalidly generated from foreign producers? We noted that without a QAP in place it is nearly impossible to track where the feedstocks come from  -  once biodiesel is in its final form and shipped to the United States it is nearly impossible to tell whether it was made from recycled cooking oil, palm oil or some other oil that may or may not qualify for the program. It is also impossible to distinguish a D4 gallon of biodiesel from a D6 gallon.  

Issues with foreign RIN generation continue to surface in the program. The feedstock restrictions require a rigorous tracking program. Unfortunately, with little inspection, review or other enforcement mechanism on imported fuels, we have no reason to believe that once a company is registered with the EPA that their feedstocks are consistent with those feedstocks registered. Again, we think this is an important issue for the EPA to get right, as there are currently hundreds of millions and potentially billions of RINs that will likely be generated under the program.  

Import issues are difficult and should be decided in a coordinated fashion as it relates to all pending proposals under the RFS, including QAP, the pathways II and the RVO discussion. We strongly encourage the EPA to update the regulatory system, based on the EPA's limited enforcement ability, and create a system in which all foreign-produced renewable fuel (where RINs are generated by the foreign producer or a domestic importer) would be required to subscribe to a QAP.  A functioning QAP program of this type is the only way to ensure that RINs are generated only on gallons of qualifying renewable fuels that actually arrive in the 48 contiguous states or Hawaii. It would also ensure that invalidly generated RINs be retired in a timely manner. NBB has suggested retirement in 30 days. Furthermore, we would encourage the EPA to require bonding for this same group of foreign producers, because it would add another level of security for valid RIN generation. 

Additionally, and we did not include this nuance in our formal comments, we would encourage a regulatory change that would require that RIN generation by a bonded foreign renewable fuel producer, or other importer, occur only at the point of sale of a batch of fuel to a US registered company. Based on the current regulations, RIN generating "bonded" producers have the ability to generate RINs upon "production or sale."  This change  -  requiring RIN generation at the point of sale for foreign produced product, rather than the point of production  -  would eliminate excess RIN generation for renewable fuel that never comes to the US and eliminate confusion over the potential use of invalid RINs for compliance. 

Finally, on a related issue to foreign RIN generation.  We are aware that there are instances where foreign producers that have been approved for multiple pathways under the RFS use the multiple pathways or "D" codes to manipulate appropriate RIN generation. For example, a bonded foreign company could be approved to generate RINs under at least three different D codes (4, 5 and 6).   That same company could produce an 80/20 mix of renewable fuel with corresponding RINs attached at generation (80% D6 RINs and 20% D4 RINs). When shipped this 80/20 mix is then split into five tankers - one to the United States and four to other destinations. Under this scenario, the producer is required to retire RINs for the fuel that did not arrive in the US. The producer should retire 80% as D6 RINs and 20% as D4 RINs from each shipment that did not make it to the United States; however, we have reason to believe that some companies retire only the 80% of the least valuable RINs (in this case 80% of D6 RINs)  -  and never retire any of the 20% of the D4 RINs. This type of "selective" RIN retirement action is clearly inappropriate and we do not believe that EPA has approved it for any renewable fuel producer. 

Again, the options to address this potentially troubling issues would be to require a QAP on each gallon arriving in the United States and to allow RIN generation specifically on those gallons that arrive in the United States (rather than those gallons "intended to arrive" in the United States).  

As always, we look forward to discussing these issues with your team.  

Sincerely, 

Anne Steckel
Vice-President, Federal Affairs
National Biodiesel Board

cc:  	Janet McCabe, Acting Assistant Administrator for the Office of Air and Radiation
      Cynthia Giles, Assistant Administrator, Office of Enforcement and Compliance Assurance (OECA)