Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

equired volumes shown in Table I.B-1. But in this circumstance, the use of ethanol in
gasoline would be less economically attractive, since demand for ethanol would not be
following price but rather the statutorily required minimum volumes. As a result, the price of
RINs, and thus ethanol blends, could spike above the levels that would exist if no minimum
required volumes existed. The 12 month valid life creates some flexibility in the market to
help mitigate these potential price spikes. The renewable fuels market could also experience
a significant drop in supply if, for instance, a drought were to limit the production of the
feedstocks needed to produce renewable fuel. Obligated parties could use banked credits to
comply rather than carry a deficit into the next year.
In the context of our proposed RIN-based program, we are able to accomplish the
same objective as the Act's 12 month life of credits by allowing RINs to be used to show
compliance for the year in which the renewable fuel was produced and its associated RIN
first generated, or the following year. RINs not used for compliance purposes in the year in
which they were generated would by definition be in excess of the RINs an obligated party
needed in that year, making excess RINs equivalent to credits. Excess RINs would be valid
for compliance purposes in the year following the one in which they initially came into
existence. 31 RINs not used within their valid life would expire. This would satisfy the Act's
12 month duration for credits.
Thus we propose that every RIN be valid for the calendar-year compliance period in
which it was generated, or the following year. If a RIN was created in one year but was not
used by an obligated party to meet its RVO for that year, the RIN could be used for
compliance purposes in the next year (subject to certain provisions to address RIN rollover as
discussed below). If, however, a RIN was created in one year and was not used for
compliance purposes in that year or in the next year, it would expire.
There are alternative approaches that could be taken to establishing the valid life of a
RIN. For instance, excess RINs could be deemed to be generated not at the end of an annual
compliance period, but rather on the date that an obligated party must submit its annual
report to the Agency (February 28 as described in Section IV.A.2). In this case the 12-month
valid life could extend into the following calendar year. As described above, the fact that
compliance is determined on an annual basis means that RINs that are valid for any portion
of a calendar year should be available for demonstrating compliance with that year's
compliance obligation. Under this alternative approach, RINs would be valid for three full
compliance periods: the calendar year in which the original RIN came into existence, the
following year during which it was deemed to be in excess of an obligated party's RVO, and
a third year within which the 12 month valid life expired. We do not believe that this
interpretation is most consistent with the Act's purposes. This could allow a given year's
exceptional overcompliance to effectively reduce required renewable fuel volumes for two
years in the future. We do not believe that this would promote the best balance between
allowing flexibility for obligated parties while also increasing the use of renewable fuels
annually.
31 The use of previous-year RINs for current year compliance purposes would also be limited by the 20
percent RIN rollover cap under today's proposal. However, as discussed in the next section, we believe that
this proposed cap will still provide a significant amount of flexibility to obligated parties.
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