EPA Adopts Quality Assurance Program to Reduce RIN Fraud

To address past issues associated with invalid Renewable Identification Numbers (RINs) generated for compliance with the renewable fuels standard (RFS), EPA has established a voluntary quality-assurance program (QAP).  79 Fed. Reg. 42,078 (July 18, 2014).

Types of RINs Available

Under the voluntary QAP, independent third-party auditors can certify the validity of various types of RINs.  Three of the four types of RINs available to establish compliance under the RFS program are verified RINs:

  1. RINs verified by a third-party auditor between February 21, 2013 and December 31, 2014, which the third-party auditor would be responsible for replacing in the event they were invalidly generated and not replaced by the RIN generator (A-RINs);
  2. RINs verified by a third-party auditor between February 21, 2013 and December 31, 2014, which the obligated party would be responsible for replacing in the event they were invalidly generated and not replaced by the RIN generator (B-RINs);
  3. RINs verified by a third-party auditor on January 1, 2015 or thereafter, which the obligated party would be responsible for replacing in the event they were invalidly generated and not replaced by the RIN generator (Q-RINs);
  4. Unverified RINs, which the obligated party would be responsible for replacing in the event they were invalidly generated and not replaced by the RIN generator.

Distinction Between Types of RINs

The key distinction between verified and unverified RINs is that unverified RINs do not qualify for the affirmative defense and exceptions available to verified RINs.  The elements of the affirmative defense available vary slightly based upon whether the invalid RIN was an A-RIN, B-RIN or Q-RIN, but the general elements are as follows:

  1. The invalid RIN was verified by an independent third-party auditor in accordance with the appropriate auditing standards for that type of RIN.
  2. The RIN owner did not know or have reason to know that the RIN was invalidly generated at the time of transfer or use for compliance - unless the RIN generator replaced the invalid RIN pursuant to 40 C.F.R. § 80.1474.
  3. If the person self-identified the RIN as having been invalidly generated, the person informed EPA within five (5) business days of making the discovery.
  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.
  6. For Q-RINs and B-RINs, if the person used the invalid RIN for compliance, the person adjusted its records, reports, and compliance calculations in which the invalid RIN was used, unless the RIN generator replaced the RIN pursuant to 40 C.F.R. § 80.1474.

Notably, the affirmative defense protects obligated parties from only civil penalties associated with the use or transfer of invalidly generated A-RINs, B-RINs, and Q-RINs.  However, for a limited time, EPA will provide the following interim flexibilities to smooth the transition for these new types of RINs:

  • EPA will excuse a small percentage of invalid Q- and B-RINs  so the obligated party will not need to replace that portion of invalid RINs.
    • For calendar years 2014 - 2016, EPA created a 2% exception on the obligated party's renewable volume obligation (RVO) for the compliance year in which invalid Q-RINs were generated and verified.
    •  EPA also provided a 2% exception for invalidly generated B-RINs for 2013-2014.
    •  These limited exemptions apply separately to each obligated party and to each of the four standards (cellulosic biofuel, biomass-based biofuel, advanced biofuel, and total renewable fuel).
    • Any invalid RINs that exceed the 2% cap would need to be replaced by the obligated party if the RIN generator fails to replace them.
  • For A-RINs, EPA established a liability cap for QAP auditors who are responsible for replacing any invalidly generated A-RINs they verified.  This cap limits the auditor's liability to replace A-RINs at 2% for those A-RINs verified between February 21, 2013 and December 31, 2014.

Photo credit: _-0-_ / Foter / Creative Commons Attribution 2.0 Generic (CC BY 2.0)