Washington, 15 August (Argus) — The US Environmental Protection Agency (EPA) is setting a year-end deadline to propose a rule aimed at restoring confidence in the rattled market for federal biofuel credits. The agency plans to finalize the new fraud protections “as soon as possible” next year.
The EPA has already developed a framework for the rule, which would limit liability for buying invalid credits. The so-called renewable identification numbers (RINs) represent individual gallons of ethanol or biodiesel used to satisfy federal biofuel blending requirements under the Renewable Fuel Standard.
The market for biodiesel credits has been in a state of shock since it was revealed that firms issued at least 140mn RINs without producing the underlying fuel.
“We understand that many in industry are seeking a resolution to these market uncertainties before making purchasing decisions for RINs in the new year,” EPA assistant administrator Gina McCarthy said in a letter yesterday. “To that end, on an expedited basis, the EPA expects to issue a proposal before the end of 2012, with a final action as soon as possible in 2013.”
Refiners and lawmakers have been pressing the EPA to issue a rule by the end of 2012. Representatives Pete Olson (R-Texas), Gene Green (D-Texas) and Marsha Blackburn (R-Tennessee) have been preparing to introduce a bill in September aimed at addressing RINs fraud. Green today said he was pleased the EPA was committing to a regulatory timeline.
“I can't speak on behalf of the obligated party community writ large, but my personal view is that progress appears to be being made toward a regulatory solution that will help independent biodiesel producers as well as obligated parties,” refiner Tesoro's vice-president of government affairs Stephen Brown said.
The EPA's framework contains a number of elements requested by refiners. The regulation would create a so-called “affirmative defense” that would limit liability for parties holding fraudulent RINs if they could demonstrate the credits were validated through a third-party auditor that followed EPA guidelines.
Refiners sought the affirmative defense protection after having to pay penalties for the recent rash of invalid credits. The experience has deterred some refiners this year from dealing with small biodiesel producers.
“The affirmative defense would ensure that refiners and other program participants who meet the conditions of the affirmative defense who will not face civil penalties,” McCarthy said.
The biodiesel industry is less adamant about shifting liability through the affirmative defense protection, and it has been pushing the verification system. “We continue to believe that this issue can be resolved most effectively through private-sector solutions with the help of modifications to the regulatory rule in a timely manner,” the National Biodiesel Board said.
The EPA is investigating ways to allow the industry to implement the validation program as soon as the rule is proposed, allowing all RINs produced in 2013 to be covered under the new policy, McCarthy said.
“The agency needs to reach a solution by the end of the year,” oil and gas trade association the American Petroleum Institute said.
The EPA rule is likely to be the quickest fix the federal government can issue. The RINs fraud bill in the Republican-led House of Representatives is unlikely to gain traction this year.
“Any bill would not move this Congress anyway and with the rule going final early 2013, the next Congress seems like a moot point,” a House aide said.
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