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

e used for current year compliance. We considered a number of possible approaches for
accomplishing this, some of which are discussed below. After consultation with
stakeholders, we decided that the best approach would be to place a percentage cap on the
amount of an obligated party's Renewable Volume Obligation (RVO) that can be met using
previous-year RINs. We are proposing that this cap be set at 20 percent. Thus each
obligated party would be required to use current-year RINs to meet at least 80 percent of its
RVO, with a maximum of 20 percent being derived from previous-year RINs. The cap
would not be effective until compliance year 2009, since no rollover is possible in years 2007
or 2008.
Any previous-year RINs that an obligated party may have that are in excess of the 20
percent cap could be traded to other obligated parties that need them. If the previous-year
RINs in excess of the 20 percent cap were not used by any obligated party for compliance,
they would expire. The net result would be that, for the market as a whole, no more than 20
percent of a given year's renewable fuel standard could be met with RINs from the previous
year.
Furthermore, we believe that the 20 percent cap provides the appropriate balance
between, on the one hand, allowing legitimate RIN carryovers and protecting against
potential supply shortfalls that could limit the availability of RINs, and on the other hand
ensuring an annual demand for renewable fuels as envisioned by the Act. We believe this
approach also provides the certainty all parties desire in implementing the program. The
same cap would apply equally to all obligated parties, and the cap would be the same for all
years, providing certainty on exactly how obligated parties must comply with their RVO
going out into the future. A 20 percent cap would be readily enforceable with minimal
additional program complexity, as each obligated party's annual report would simply provide
separate listings of previous-year and current-year RINs to establish that the cap had not been
exceeded. A 20 percent cap would have no impact on who would own RINs, their valid life,
or any other regulatory provision regarding compliance.
Rather than employing a fixed 20 percent cap, we also considered an approach
whereby we would set the cap annually based on the actual excess renewable fuel
production. Table III.D.3.c-2 provides an example of how the caps would be calculated if
the EIA projections for ethanol production prove accurate.
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