Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...
Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...
Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...
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more than is already required under existing EPA gasoline regulations. In the case <strong>of</strong><br />
renewable fuel exporters, the attest engagement would verify the volume <strong>of</strong> renewable fuel<br />
exported <strong>and</strong> therefore the magnitude <strong>of</strong> their RVO. Attest engagement reports would be<br />
submitted to the party that commissioned the engagement, <strong>and</strong> to EPA.<br />
b. Valid Life Of RINs<br />
The Act requires that renewable fuel credits be valid to show compliance for 12<br />
months as <strong>of</strong> the date <strong>of</strong> generation. This section describes our proposed interpretation <strong>of</strong><br />
this provision in the context <strong>of</strong> a RIN-based program. We also discuss some possible<br />
alternative interpretations that we have considered.<br />
As described in Section III.D.1.a, credits represent renewable fuel volumes in excess<br />
<strong>of</strong> what an obligated party needs to meet their annual compliance obligation. Given that the<br />
renewable fuel st<strong>and</strong>ard is an annual st<strong>and</strong>ard, compliance would be determined shortly after<br />
the end <strong>of</strong> the year, <strong>and</strong> credits would be identified at that time. Compliance is typically<br />
demonstrated by submitting a compliance demonstration to EPA. Given the 12-month life <strong>of</strong><br />
a credit as stated in the Act, we interpret this provision as meaning that credits would only be<br />
valid for compliance purposes for the following compliance year. Hence if a refiner or<br />
importer overcomplied with their 2007 obligation they would generate credits that could be<br />
used to show compliance with the 2008 compliance obligation, but the credits could not be<br />
used to show compliance for later years.<br />
The Act's limit on credit life helps balance the risks between the needs <strong>of</strong> renewable<br />
fuel producers <strong>and</strong> obligated parties. Producers are currently making investments in<br />
exp<strong>and</strong>ed production capacity on the expectation <strong>of</strong> a statutorily guaranteed minimum<br />
market. Under the market conditions we are experiencing today that make ethanol use more<br />
economically attractive, the annual volume requirements in the RFS program will not drive<br />
consumption <strong>of</strong> renewable fuels. However, if the price <strong>of</strong> crude oil dropped significantly <strong>and</strong><br />
the use <strong>of</strong> ethanol in gasoline became less economically attractive, obligated parties could<br />
use stockpiled credits to comply with the program requirements. As a result, dem<strong>and</strong> for<br />
renewable fuel could fall well below the RFS program requirements, <strong>and</strong> many producers<br />
could find themselves with a str<strong>and</strong>ed investment. The 12 month valid life limit for credits<br />
minimizes the potential for this type <strong>of</strong> result.<br />
For obligated parties, the 12 month valid life for credits provides a window within<br />
which parties who do not meet their renewable fuel obligation through their own physical use<br />
<strong>of</strong> renewable fuel can obtain credits from other parties who have excess. This critical aspect<br />
<strong>of</strong> the credit trading system allows the renewable fuels market to continue operating<br />
according to natural market forces, avoiding the possibility that every single refiner would<br />
need to purchase renewable fuel for blending into its own gasoline. But the 12 month life<br />
also provides a window within which banking <strong>and</strong> trading can be used to <strong>of</strong>fset the negative<br />
effects <strong>of</strong> fluctuations in either supply <strong>of</strong> or dem<strong>and</strong> for renewable fuels. For instance, if<br />
crude oil prices were to drop significantly <strong>and</strong> thus natural market dem<strong>and</strong> for ethanol<br />
likewise fell, the RFS program would normally bring dem<strong>and</strong> back up to the minimum<br />
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