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

Our proposed program is designed to ensure that the existing market mechanisms
for the distribution of renewable fuel can be used for the distribution of RINs as well.
The need for independent RIN markets is minimized, and likewise the regulatory
oversight of such markets is minimized. Under the direct transfer alternative described
above, however, not only does an independent RIN market become a central feature of
the RFS program, but the regulations might need to specify the many various aspects of
RIN transfers as described above, and doing so would represent an intervention into the
market that the Agency has not exercised before. It may be necessary to design the
regulatory provisions in this way in order to have an enforceable program under this
alternative, but we would have to be convinced that such an approach could be properly
structured and that it was superior to other alternatives.
Under this option, non-obligated parties such as marketers or brokers would not
be allowed to own RINs. It could be possible to add in this flexibility, but in effect this
option would then operate similarly to our proposed approach, but with additional
complications and transaction costs due to the fact RINs would not follow batches
through the distribution system. Therefore, we do not believe it is appropriate to provide
this flexibility as part of the direct-transfer option.
b. Producer With Open RIN Market
Another approach would allow producers and importers of renewable fuels to
transfer RINs separately from the renewable fuel to any party. If a renewable fuel
producer did choose to transfer the RIN with the batch, any downstream party would
have the right to separate that RIN from the batch.
Although we believe that the recordkeeping burden placed upon marketers and
distributors under our proposed program would be minimal, this alternative approach
would essentially eliminate that burden altogether. Marketers and distributors would not
have to ensure that RINs were transferred with batches and keep a record of those
transfers, and would not be responsible for ensuring that RINs remain assigned to batches
during batch splits and mergers. Any marketer or distributor that did receive a batch with
an assigned RIN could separate the RIN from the batch and transfer it, maximizing the
choices available to them.
However, this alternative approach would increase the burdens for obligated
parties to comply with their renewable fuel obligation since all RINs would be controlled
by producers and marketers at the point of generation. The concerns described above
regarding the exercising of market power in the RIN market by a small number of nonobligated
parties would apply to this alternative. Although these concerns may be less
significant under EIA's current projections that renewable fuel production volumes will
exceed the RFS program requirements, we believe that we should design the RFS
program to function smoothly under any future market scenario. Since it is possible that
the market conditions leading to EIA's projections could change, we believe that the
concern about producers and marketers exercising market power in the RIN market is
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