Source: https://www.federalregister.gov/documents/2008/10/02/E8-23131/regulation-of-fuels-and-fuel-additives-modifications-to-renewable-fuel-standard-program-requirements
Timestamp: 2017-09-24 14:21:34
Document Index: 180621953

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A Rule by the Environmental Protection Agency on 10/02/2008
57248-57259 (12 pages)
E8-23131
https://www.federalregister.gov/d/E8-23131 https://www.federalregister.gov/d/E8-23131
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Docket: All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly Start Printed Page 57249available, 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, 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 and Radiation Docket is (202) 566-1742.
Following publication of the final Renewable Fuel Standard (RFS) program regulations (72 FR 23900, May 1, 2007), EPA discovered a number of areas within the RFS regulations at 40 Start Printed Page 57250CFR Part 80, Subpart K that were in error, were unclear, or otherwise could benefit from modification. We have attempted to clarify some ambiguities in our Question and Answer document for the RFS program.[1] However, in some cases we believe it is appropriate to modify the regulations. As a result, we are making the following amendments to the RFS regulations in Subpart K.
80.1128(a)(5)(ii) and (iii); removed (a)(5)(iv) and (v) Revised this paragraph to allow parties to use an equivalence value of 2.5 RINs per gallon for any renewable fuel for purposes of calculating the end-of-quarter check. See Section IV.C.
80.1132(a), (b) and (c) Revised to clarify that the requirements in § 80.1132 apply to fuel that has been disposed of as well as fuel that has been spilled. See Section IV.F.
80.1152(c)(1)(iii) and (v), (c)(2) Deleted requirement to report “expired RINs,” since it will be apparent when a RIN has expired from other information provided in the reports. Paragraph (c)(2) has also been renumbered. See Section IV.G. Deleted provisions relating to the submission of transaction and quarterly gallon-RIN reports on a facility-by-facility basis, since RIN trading activities are conducted on a company basis.
Section 80.1101(d)(3) specifies that ethanol must contain a denaturant to be covered by the definition of “renewable fuel” under the RFS rule. For purposes of compliance with the RFS, a volume of ethanol includes the volume of denaturant contained in the ethanol. Under § 80.1107(d), renewable fuel, including denatured ethanol, is excluded from the volume of gasoline produced or imported for purposes of calculating an obligated party's RVO. Under § 80.1130, any denatured ethanol that is exported is included in the volume of renewable fuel exported for purposes of calculating the exporter's RVO. However, the regulations do not specify a maximum limit on the amount of denaturant that may be included in the volume of ethanol produced, imported or exported for purposes of these compliance calculations and other requirements under the RFS rule.
Section 80.1128(a)(5) provides that any party who owns assigned RINs must demonstrate that the sum of all assigned gallon-RINs that the party owns at the end of a quarter does not exceed the sum of all volumes of renewable fuel the party owns at the end of the quarter multiplied by their respective equivalence values. Section 80.1128(a)(4) allows a party to transfer to another party up to 2.5 assigned RINs per gallon of any renewable fuel. Therefore, in some cases, a party could receive fuel with more assigned RINs than would be calculated for that volume of fuel using its equivalence value. As a result, the party could be out of compliance with the end-of-quarter check requirement in § 80.1128(a)(5), unless the party had enough fuel to sell with the excess RINs by the end of the quarter. For example, a marketer that receives a gallon of biodiesel with 2.5 assigned gallon-RINs must calculate compliance with § 80.1128(a)(5) based on the equivalence value of the biodiesel, which is 1.5. If this were the marketer's only transaction, the marketer would be out of compliance at the end of the quarter since he would have an excess of 1.0 assigned gallon-RINs. To remedy this situation, we are amending § 80.1128(a)(5) to allow an equivalence value of 2.5 to be used for any volume of renewable fuel for purposes of calculating compliance with the end-of-quarter check requirement in § 80.1128(a)(5).
Since the start of the RFS program, there have been numerous circumstances in which parties who purchase renewable fuel from a producer or importer wanted to avoid the registration, recordkeeping and reporting requirements of the program. To do this, they had to avoid taking ownership of RINs. In some cases the producer or importer has accommodated such parties by taking ownership of renewable fuel from another party, thereby becoming a marketer who is not subject to § 80.1128(a)(6). However, this has not always been possible, and in such cases the purchaser has been forced to seek out alternative sources of renewable fuel. This latter outcome is inconsistent with one of our goals for the RFS program—structuring the program so it would have only a minimal effect on common business practices.
After further consideration, we do not believe that producers and importers of renewable fuel should be required to transfer all RINs generated with every batch of renewable fuel that is produced. Instead, we believe that it should be sufficient that they comply with the end-of-quarter check in § 80.1128(a)(5) and the restriction in that section on the number of gallon-RINs that can be transferred with each gallon. This change recognizes that most producers and importers can already avoid the limitations of § 80.1128(a)(6) by buying a small quantity of renewable fuel from another party and thereby becoming a marketer. The change would also have minimal impact on the transfer of RINs with volume, as Start Printed Page 57252producers and importers would be limited in the number of RINs they could hold onto given the end-of-quarter check. As a result, we are amending the regulations to delete the provisions contained in § 80.1128(a)(6).
Section 80.1129(b)(1) provides that an obligated party must separate any RINs that have been assigned to a volume of renewable fuel that the obligated party owns. An exception to this requirement is provided in § 80.1129(b)(6) for obligated parties who also generate RINs. Under this provision, an obligated party who generates RINs may separate such RINs from volumes of renewable fuel only up to the level of gallon-RINs of the party's RVO. The limitation in § 80.1129(b)(6) was included in the regulations to prevent a renewable fuel producer from importing a small amount of gasoline, which would qualify the producer as an obligated party, in order to separate the RINs from all of the renewable fuel that the party produced.
It has come to our attention that the limitation in § 80.1129(b)(6) may be problematic in situations where a party imports gasoline that contains renewable fuel. Under § 80.1126(d), RINs must be generated for any renewable fuel that is imported, including any renewable fuel contained in imported gasoline. For example, if a party imports 100 gallons of E10, the party would be required to generate RINs for the volume of ethanol in the E10, which would be 10 gallon-RINs. The party also would calculate its RVO based on the applicable RFS standard, which for 2008 is 7.76%. The standard as applied to the gasoline part of the volume of imported E10 in the example would result in an RVO of 6.98 gallon-RINs (7.76% × 90 gallons). Since the party would be able to separate RINs only up to the party's RVO, or 6.98 gallon-RINs, the party would have 3.02 assigned gallon-RINs which could not be separated. Under § 80.1128(a)(5), each party that owns assigned RINs must demonstrate that the party does not own more assigned gallon-RINs at the end of each quarter than the amount of renewable fuel in the party's inventory, multiplied by its equivalence value. In the example above, the party would own 3.02 assigned gallon-RINs at the end of the quarter, but would not have any renewable fuel in its inventory. As a result, the party would not be in compliance with the requirement in § 80.1128(a)(5).
To address this situation, this rule modifies the regulations to apply the limitation in § 80.1129(b)(6) only to neat renewable fuel for which the party generates RINs and not to renewable fuel already blended in gasoline. Thus, in the example above, the party would generate 10 gallon-RINs for the ethanol contained in the E10 and the party's RVO would be 6.98 gallon-RINs, but the party would be able to separate all of the 10 gallon-RINs from the fuel. The party then would have no assigned RINs at the end of the quarter and would not be in violation of the requirement in § 80.1128(a)(5). If the party in our example imported 100 gallons of non-ethanol gasoline and 10 gallons of neat renewable fuel, the party would generate 10 gallon-RINs, but could only separate RINs up to the party's RVO, which be 7.76 gallon-RINs (7.76% × 100 gallons). As a result, the party would have 2.24 assigned gallon-RINs left, but would also have 10 gallons of renewable fuel in its inventory, and, therefore, the party would be in compliance with the requirement in § 80.1128(a)(5).
Under § 80.1132, in the event of a spillage of renewable fuel that is required by a Federal, State or local authority to be reported, the owner of the renewable fuel must retire an appropriate number of gallon-RINs. Since the RFS rule was promulgated, it has come to our attention that disposal of renewable fuel may also be required to be reported to a government authority. We believe it is appropriate to treat such disposals of renewable fuel in the same manner as spillages of renewable fuel, since in both situations the fuel will not ultimately be used in motor vehicle fuel. As a result, § 80.1132 has been amended to apply to reportable disposals of renewable fuel as well as reportable spillages of renewable fuel.
Under § 80.1127(a)(3), RINs may only be used to demonstrate compliance with the RVO for the calendar year in which they were generated or the following year. Therefore, after two years, RINs have no value and are deemed to have expired. The regulations currently require information regarding expired RINs to be retained and included in the reports submitted to EPA. However, since EPA will know from the information contained in the RIN when the RIN was generated, EPA will also know when the RIN has expired. Therefore, we have determined that the requirements to retain records of expired RINs and to include information regarding expired RINs in the reports submitted to EPA are unnecessary, and, as a result, we are amending the regulations to eliminate the requirements to retain records and report information regarding expired RINs.
This rule makes several revisions to the attest engagement provisions in § 80.1164 in order to correct minor technical errors, clarify the procedures required to be fulfilled by the attest auditor, and, where possible, revise the procedures to make them less burdensome without compromising the goals of the program. For audits of the obligated party compliance demonstration reports, the rule is revised to require the attest auditor to calculate the total number of RINs used for compliance by year of generation and reconcile that total with the information reported to EPA rather than calculating and reporting as a finding all RINs used for compliance. For audits of the RIN transaction and RIN activity reports, the rule is revised to clarify the type of documentation that is required to be provided to the attest auditor for purposes of verifying the information contained in the reports. The rule is also revised to require the attest auditor to review product transfer documents (PTDs) for a representative sample of RINs used for compliance and for a representative sample of renewable fuel batches that any party sells to another party. Under the current regulations, the auditor is required to review PTDs for each batch of renewable fuel produced or imported by a renewable fuel producer or importer, which we believe is unnecessarily burdensome, and does not require review of PTDs generated by other parties. In addition, the rule is revised to provide that the documentation required for the attest audit of the RIN activity reports must include, for owners of assigned RINs, the volume of renewable fuel owned at the end of the quarter in order to verify the accuracy of information relating to compliance with the end-of-quarter inventory check in § 80.1128(a)(5). The rule adds a requirement that a company representative must provide the attest auditor with a written representation that the copies of the EPA reports provided to the auditor are complete and accurate copies of the reports. This is a requirement for attest procedures under other fuels programs and omission of this requirement in the RFS rule was an oversight. The rule also includes a provision which requires the attest auditor to identify the commercial computer program used by the regulated party to track the data required for Start Printed Page 57253purposes of compliance with the RFS requirements.
Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have Start Printed Page 57254federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”
2. Section 80.1101 is amended by revising paragraphs (d)(2) and (d)(3) to read as follows:
3. Section 80.1107 is amended by revising paragraph (c) introductory text to read as follows:
§ 80.1107
4. Section 80.1126 is amended by revising paragraphs (a)(1), (b) and (d)(1) to read as follows:
§ 80.1126
How are RINs generated and assigned to batches of renewable fuel by renewable fuel producers and importers?
(b) Volume threshold. Renewable fuel producers located within the United States that produce less than 10,000 gallons of renewable fuel each year, and importers that import less than 10,000 gallons of renewable fuel each year, are not required to generate and assign RINs to batches of renewable fuel. Such producers and importers are also exempt from the registration, reporting, and recordkeeping requirements of §§ 80.1150-80.1152, and the attest engagement requirements of § 80.1164. However, for such producers and importers that voluntarily generate and assign RINs, all the requirements of this subpart apply.
5. Section 80.1127 is amended by revising paragraph (b)(2) to read as follows:
Di = RVOi = [(ΣRINNUM)i + (ΣRINNUM)i-1]
Di = The deficit, in gallons, generated in calendar year i that must be carried over to year i+1 if allowed to do so pursuant to paragraph (b)(1)(i) of this section.
RVOi = The Renewable Volume Obligation for the obligated party or renewable fuel exporter for calendar year i, in gallons.
(ΣRINNUM)i = Sum of all acquired gallon-RINs that were generated in year i and are being applied towards the RVOi, in gallons.
(ΣRINNUM)i-1 = Sum of all acquired gallon-RINs that were generated in year i-1 and are being applied towards the RVOi, in gallons.
6. Section 80.1128 is amended as follows:
a. By revising paragraphs (a)(5)(ii) and (a)(5)(iii).
§ 80.1128
(6) Any transfer of ownership of assigned RINs must be documented on product transfer documents generated pursuant to § 80.1153.
7. Section 80.1129 is amended as follows:
a. By revising paragraphs (b)(1), (b)(2), (b)(4) and (b)(6).
(1) Except as provided in paragraphs (b)(6) and (b)(8) of this section, a party that is an obligated party according to § 80.1106 must separate any RINs that have been assigned to a volume of renewable fuel if they own that volume.
(8) For a party that has received a small refinery exemption under § 80.1141 or a small refiner exemption under § 80.1142, during the period of time that the small refinery or small refiner exemption is in effect, the party may only separate RINs that have been assigned to volumes of renewable fuel that the party blends into motor vehicle fuel.
(d) Upon and after separation of a RIN from its associated volume, product transfer documents used to transfer ownership of the volume must continue Start Printed Page 57256to meet the requirements of § 80.1153(a)(5)(iii).
8. Section 80.1131 is amended by adding paragraph (a)(8) and removing paragraph (b)(4) to read as follows:
9. Section 80.1132 is amended as follows:
§ 80.1132
10. Section 80.1141 is amended by revising paragraph (a)(1), adding paragraph (a)(4), and revising paragraph (b)(2)(ii) to read as follows:
§ 80.1141
(a)(1) Gasoline produced at a refinery by a refiner, or foreign refiner (as defined at § 80.1165(a)), is exempt from the renewable fuel standards of § 80.1105 and the requirements that apply to obligated parties under this subpart if that refinery meets the definition of a small refinery under § 80.1101(g) for calendar year 2004.
11. Section 80.1142 is amended by revising paragraph (a)(1) introductory text, adding paragraph (a)(4), and revising paragraph (e) to read as follows:
§ 80.1142
(a)(1) Gasoline produced by a refiner, or foreign refiner (as defined at § 80.1165(a)), is exempt from the renewable fuel standards of § 80.1105 and the requirements that apply to obligated parties under this subpart if the refiner or foreign refiner does not meet the definition of a small refinery under § 80.1101(g) but meets all of the following criteria:
12. Section 80.1151 is amended by revising paragraphs (a)(3)(i), (b)(4)(i), and (d)(3)(i) to read as follows:
§ 80.1151
13. Section 80.1152 is amended by removing and reserving paragraph (c)(1)(iii), and revising paragraphs (c)(1)(v) and (c)(2) to read as follows:
§ 80.1152
14. Section 80.1153 is amended by revising paragraph (a)(5)(iii) to read as follows:
§ 80.1153
15. Section 80.1154 is amended by adding paragraph (a)(4) and revising paragraph (b) to read as follows:
§ 80.1154
(4) The attest engagement requirements of § 80.1164.
(b) Renewable fuel producers and importers who produce or import less than 10,000 gallons of renewable fuel each year and that generate and/or assign RINs to batches of renewable fuel are subject to the provisions of §§ 80.1150 through 80.1152, and § 80.1164.
16. Section 80.1160 is amended by revising paragraphs (a) and (b)(1), and by adding paragraph (f) to read as follows:
§ 80.1160
(a) Renewable fuel producer or importer violation. Except as provided in § 80.1154, no person shall produce or import a renewable fuel without generating a batch-RIN as required under § 80.1126.
17. Section 80.1164 is amended as follows:
a. By revising paragraphs (a)(1)(ii) through (a)(1)(v).
§ 80.1164
(iii) Compare the volumes of gasoline reported to EPA in the report required under § 80.1152(a)(1) with the volumes, excluding any renewable fuel volumes, contained in the inventory reconciliation analysis under § 80.133, and verify that the volumes reported to EPA agree with the volumes in the inventory reconciliation analysis.
(vi) Identify a representative sample, selected in accordance with the guidelines in § 80.127, of RINs used for compliance during the year being reviewed.
(viii) Verify that the product transfer documents for the representative sample of RINs used for compliance contain the applicable information required under § 80.1153 and report as a finding any product transfer document that does not contain the required information; verify the accuracy of the information contained in the product transfer documents for the representative sample and report as a finding any exceptions.
(i) Identify a representative sample, selected in accordance with the guidelines in § 80.127, separately for each RIN transaction type (RINs purchased, RINs sold, RINs retired) included in the RIN transaction reports required under § 80.1152(a)(2) for the compliance year.
(iii) Verify that the product transfer documents for the representative sample of RINs sold and the representative sample of RINs purchased contain the applicable information required under § 80.1153 and report as a finding any product transfer document that does not contain the required information; verify the accuracy of the information contained in the product transfer documents for the representative samples and report as a finding any exceptions.
(ii) Obtain production data for each renewable fuel batch produced or imported during the year being reviewed; compute the RIN numbers, production dates, types, volumes of denaturant and applicable equivalence values, and production volumes for each batch; state whether this Start Printed Page 57258information agrees with the party's reports to EPA and report as a finding any exceptions.
(iii) Verify that the proper number of RINs were generated and assigned for each batch of renewable fuel produced or imported, as required under § 80.1126.
(iv) Identify a representative sample, selected in accordance with the guidelines in § 80.127, of renewable fuel batches produced or imported during the year being reviewed; obtain product transfer documents for the representative sample; verify that the product transfer documents contain the applicable information required under § 80.1153; verify the accuracy of the information contained in the product transfer documents; report as a finding any product transfer document that does not contain the applicable information required under § 80.1153.
(i) Identify a representative sample, selected in accordance with the guidelines in § 80.127, separately for each transaction type (RINs purchased, RINs sold, RINs retired) included in the RIN transaction reports required under § 80.1152(b)(2) for the compliance year.
(i) Identify a representative sample, selected in accordance with the guidelines in § 80.127, separately for each RIN transaction type (RINs purchased, RINs sold, RINs retired) included in the RIN transaction reports required under § 80.1152(c)(1) for the compliance year.
(iii) Verify that the transfer documents for the representative sample of RINs sold and the representative sample of RINs purchased contain the applicable information required under § 80.1153 and report as a finding any product transfer document that does not contain the required information; verify the accuracy of the information contained in the product transfer documents for the representative samples and report as a finding any exceptions.
18. Section 80.1165 is amended by revising paragraphs (f)(1)(vi) and (o)(2) to read as follows:
§ 80.1165
19. Section 80.1166 is amended by revising paragraph (o)(2) to read as follows:
§ 80.1166
I hereby certify: (1) That I have actual authority to sign on behalf of and to Start Printed Page 57259bind [insert name of foreign producer] with regard to all statements contained herein; (2) that I am aware that the information contained herein is being Certified, or submitted to the United States Environmental Protection Agency, under the requirements of 40 CFR part 80, subpart K, and that the information is material for determining compliance under these regulations; and (3) that I have read and understand the information being Certified or submitted, and this information is true, complete and correct to the best of my knowledge and belief after I have taken reasonable and appropriate steps to verify the accuracy thereof. I affirm that I have read and understand the provisions of 40 CFR part 80, subpart K, including 40 CFR 80.1165 apply to [insert name of foreign producer]. Pursuant to Clean Air Act section 113(c) and 18 U.S.C. 1001, the penalty for furnishing false, incomplete or misleading information in this certification or submission is a fine of up to $10,000 U.S., and/or imprisonment for up to five years.
20. Section 80.1167 is amended by revising paragraph (e) introductory text and paragraph (j)(2) to read as follows:
§ 80.1167