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

(though not by record) the excess RINs from 2007 can be used for compliance purposes in
2009, a year after they should have expired. Thus excess RINs have "rolled over" multiple
years.
The rollover issue essentially could make the applicable valid life for RINs virtually
meaningless in practice. Even though individual RINs technically could only be used for
compliance purposes for the year generated and the following year, in practice obligated
parties could use previous-year RINs to generate new excess current-year RINs which could
then be carried into the following year. This could continue for every year in which the
volume of renewable fuel produced in a given year exceeds the RFS requirements for that
year, up to limit of 100 percent of the standard for that year. The net result is that the RFS
program could operate as if there was virtually no valid life limit for RINs at all.
RIN rollover also undermines the ability of a limit on credit life to guarantee a market
for renewable fuels. As described in Section III.D.3.b, if the natural market demand for
ethanol was higher than the volumes required under the RFS program for several years in a
row, as may occur in practice, obligated parties could amass RINs that, in the extreme, could
be used entirely in lieu of actually demanding ethanol in some subsequent year.
Some stakeholders do not perceive a problem with the RIN rollover issue. They point
to the need for maximum flexibility in responding to fluctuations in the market, and they are
primarily concerned about potential supply problems. For instance, if a drought were to
reduce the availability of corn for ethanol production, there may simply not be sufficient
RINs available for compliance purposes. A drought situation actually occurred in 1996, and
as a result 1996 ethanol production was 21% less than it had been in 1995. In 1997,
production had not even returned to the 1995 levels. Although the Agency has the authority
to waive the required renewable fuel volumes in whole or in part in the event of inadequate
domestic supply, this can occur only on petition by one or more states, and then only after
consultation with both the Department of Agriculture and the Department of Energy.
Obligated parties have expressed concern that such a waiver would not occur in a timely
fashion. The availability of excess previous-year RINs would thus provide compliance
certainty in the event that the supply of current-year RINs falls below the RFS program
requirements and the Agency does not waive any portion of the program requirements.
We believe that the rollover issue can and should be addressed. The Act's provision
regarding the valid life of credits is clearly intended to obtain the benefits associated with a
limited credit life. Any program structure in which some RINs have a de facto infinite life,
regardless of the technical life of individual RINs, does not appropriately achieve the benefits
expected from the Act's provision regarding the 12-month life of credits. The authority to
establish a credit program and to implement a limited life for credits includes the authority to
limit actions that have the practical effect of circumventing this limited credit life.
To be consistent with the Act, we believe that the rollover issue should be addressed
in our regulations. However, we also believe that the limits to preclude such unhindered
rollovers should not preclude all previous-year RINs from being used for current-year
compliance. To accomplish this, we must restrict the number of previous-year RINs that can
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