Blacklisted producers, or RIN separation anxiety?

Are small producers being blacklisted from selling their RINs, or are obligated parties reluctant to purchase RINs that may have been generated in a valid manner but improperly separated?
By Ron Kotrba | April 11, 2012

Imagine the scenario: You’re a small biodiesel producer making an honest living and paying your taxes, while helping oil companies meet their federal obligations under the renewable fuel standard (RFS2) by generating valid renewable identification number (RINs) credits alongside quality fuel. Your fuel is selling, you’re moving RINs, and business is in order and running like clockwork.

One day a representative from a law and accounting firm shows up at your plant, explaining that he is doing his due diligence for his client, a major oil company and obligated party under RFS2. You, being transparent and on the up-and-up wanting to comply, accommodate and supply the visitor with all of the paperwork and information he asks for. The man thanks you and goes on his way.

Shortly afterwards, you realize your RINs aren’t selling, almost as if you’ve become blacklisted. This is happening to small producers out there. If you’re reading this blog, you may be one of them, and this probably sounds all too familiar.

Several months ago the U.S. EPA put out an Enviroflash alert specifically on RIN separation, emphasizing parties may only separate RINs pursuant to one of nine conditions (I list the nine ways at the end of my blog entry). In its alert, the EPA stated, “Note that there is no condition that permits a party to separate (or retire) assigned RINs because the downstream purchaser of their renewable fuel is not able to accept RINs due to not being registered for RFS2. RINs, whether they are assigned or separated, may only be transferred to parties properly registered for the RFS2 program pursuant to §80.1450.”

Experts tell me the issue of improper RIN separation is a much bigger potential problem than fraudulent generation of RINs.

Our producer described in the situation above works with a local fuel distributor that has 12 to 15 retail outlets, a small, community producer selling to a local distributor. The fuel distributor is not registered with EPA under RFS2 and has no interest in RINs and extra paperwork.

When the distributor arrives at the plant, the producer takes possession of the diesel fuel already in the tanker and loads his biodiesel, blending it at less than 80 percent biodiesel as required by the statute (No. 6). When the tanker is full, a metered ticket validated by the state is stamped. The producer takes the ticket and generates the RIN at that point. Then the RINs are (or were, as it were) sold to a reputable broker.

Is the issue our small producer is facing due to the fact that the purchaser of the fuel is not registered with EPA under RFS2, an occurrence EPA says for which no circumstances allow?

Months ago Jess Hewitt with Gulf Hydrocarbon, also a consultant for Lee Enterprises, told me that with the high biomass-based diesel RIN prices today, biodiesel producers are getting calls from brokers encouraging them to separate the RINs from the gallons at the plant, something that could get the biodiesel producer, and the purchaser, in trouble with EPA.

Did this raise a red flag to the visitor doing his due diligence for his obligated party client?

RINs can be a complicated issue, is there possibly more to the producer’s situation? Has this happened to you?

Below are the nine ways EPA says RIN separation can occur.

A RIN that is assigned to a volume of renewable fuel can be separated from that volume only under one of the following conditions:

(1) Except as provided in paragraphs (b)(7) and (b)(9) of this section, a party that is an obligated party according to § 80.1406 must separate any RINs that have been assigned to a volume of renewable fuel if that party owns that volume.

(2) Except as provided in paragraph (b)(6) of this section, any party that owns a volume of renewable fuel must separate any RINs that have been assigned to that volume once the volume is blended with gasoline or diesel to produce a transportation fuel, heating oil, or jet fuel. A party may separate up to 2.5 RINs per gallon of blended renewable fuel.

(3) Any party that exports a volume of renewable fuel must separate any RINs that have been assigned to the exported volume. A party may separate up to 2.5 RINs per gallon of exported renewable fuel.

(4) Any party that produces, imports, owns, sells, or uses a volume of neat renewable fuel, or a blend of renewable fuel and diesel fuel, must separate any RINs that have been assigned to that volume of neat renewable fuel or that blend if:

(i) The party designates the neat renewable fuel or blend as transportation fuel, heating oil, or jet fuel; and

(ii) The neat renewable fuel or blend is used without further blending, in the designated form, as transportation fuel, heating oil, or jet fuel.

(5) Any party that produces, imports, owns, sells, or uses a volume of electricity or biogas for which RINs have been generated in accordance with § 80.1426(f) must separate any RINs that have been assigned to that volume of renewable electricity or biogas if:

(i) The party designates the electricity or biogas as transportation fuel; and

(ii) The electricity or biogas is used as transportation fuel.

(6) RINs assigned to a volume of biodiesel (mono-alkyl ester) can only be separated from that volume pursuant to paragraph (b)(2) of this section if such biodiesel is blended into diesel fuel at a concentration of 80 volume percent biodiesel (mono-alkyl ester) or less.

(i) This paragraph (b)(6) shall not apply to biodiesel owned by obligated parties or to exported volumes of biodiesel.

(ii) This paragraph (b)(6) shall not apply to parties meeting the requirements of paragraph (b)(4) of this section.

(7) For RINs that an obligated party generates for renewable fuel that has not been blended into gasoline or diesel to produce a transportation fuel, heating oil, or jet fuel, the obligated party can only separate such RINs from volumes of renewable fuel if the number of gallon-RINs separated in a calendar year are less than or equal to a limit set as follows:

(i) For RINs with a D code of 3, the limit shall be equal to RVOCB.

(ii) For RINs with a D code of 4, the limit shall be equal to RVOBBD.

(iii) For RINs with a D code of 7, the limit shall be equal to the larger of RVOBBD or RVOCB.

(iv) For RINs with a D code of 5, the limit shall be equal to RVOAB¥RVOCB¥RVOBBD.

(v) For RINs with a D code of 6, the limit shall be equal to RVORF¥RVOAB.

(8) Small refiners and small refineries may only separate RINs that have been assigned to volumes of renewable fuel that the party blends into gasoline or diesel to produce transportation fuel, heating oil, or jet fuel, or that the party used as transportation fuel, heating oil, or jet fuel. This paragraph (b)(8) shall apply only under the following conditions:

(i) During the calendar year in which the party has received a small refinery exemption under § 80.1441 or a small refiner exemption under § 80.1442; and

(ii) The party is not otherwise an obligated party during the period of time that the small refinery or small refiner exemption is in effect.

(9) Except as provided in paragraphs (b)(2) through (b)(5) and (b)(8) of this section, RINs owned by obligated parties whose non-export renewable volume obligations are solely related to the addition of blendstocks into a volume of finished gasoline, finished diesel fuel, RBOB, or CBOB, can only be separated from volumes of renewable fuel if the number of gallon-RINs separated in a calendar year are less than or equal to a limit set as follows:

(i) For RINs with a D code of 3, the limit shall be equal to RVOCB.

(ii) For RINs with a D code of 4, the limit shall be equal to RVOBBD.

(iii) For RINs with a D code of 7, the limit shall be equal to the larger of RVOBBD or RVOCB.

(iv) For RINs with a D code of 5, the limit shall be equal to RVOAB¥RVOCB¥RVOBBD.

(v) For RINs with a D code of 6, the limit shall be equal to RVORF¥RVOAB.

(c) The party responsible for separating a RIN from a volume of renewable fuel shall change the K code in the RIN from a value of 1 to a value of 2 prior to transferring the RIN to any other party.

(d) Upon and after separation of a RIN from its associated volume of renewable fuel, the separated RIN must be accompanied by a PTD pursuant to § 80.1453 when transferred to another party.

(e) Upon and after separation of a RIN from its associated volume of renewable fuel, product transfer documents used to transfer ownership of the volume must meet the requirements of § 80.1453.

(f) Any party that uses a renewable fuel in any application that is not transportation fuel, heating oil, or jet fuel, or designates a renewable fuel for use as something other than transportation fuel, heating oil, or jet fuel, must retire any RINs received with that renewable fuel and report the retired RINs in the applicable reports under § 80.1451.

(g) Any 2009 or 2010 RINs retired pursuant to § 80.1129 because renewable fuel was used in a nonroad vehicle or nonroad engine (except for ocean-going vessels), or as heating oil or jet fuel may be reinstated by the retiring party for sale or use to demonstrate compliance with a 2010 RVO.

 

 
 
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