RIN management strategies: prepping for new EPA RIN quality rules
RINAlliance was established in 2007 to assist petroleum marketers and renewable fuel blenders with U.S. EPA blending compliance requirements. Today, RINAlliance serves 130 blenders with EPA reporting and RIN marketing. It currently manages more than 2 million RINs per day while aggregating and marketing RINs that have been separated within the RINAlliance system.
Managing RIN transactions and completing EPA reports has become slightly easier under RFS2 and EMTS rules. RIN marketing, however, has become increasingly difficult in a market that has been rocked with fraud and belligerent acts of noncompliance. Petroleum marketers that were once incentivized to blend renewable fuels due to the healthy value of the associated RINs soon found that many of their RINs had a lesser value or no value at all.
In the wake of 140 million fraudulent RINs circulating within the RFS RIN system, blender groups such as RINAlliance had to design a new system of due diligence that was capable of reestablishing the relationships between RIN buyers and sellers. Risk management strategies had to be employed from the beginning of the RIN life cycle. Initial response from downstream parties was a series of “blocks” on all RIN generators that fell under a shadow of suspicion. For example, RINAlliance currently has 39 blocks in place to protect its blender clients from receiving RINs that have no market value.
Once the blocks were in place, focus turned to creating more transparency in the RIN generation and production process. Since 2011, RINAlliance has been partnering with EcoEngineers to design a third-party assurance plan that provided on-site audits and continual monitoring of feedstock, production, fuel quality and overall mass-balance of facilities. EPA is currently drafting rules that promote a similar process [RIN Quality Assurance Program/Plan (QAP)] for the identical reason of making the RIN market stable. EPA rules will go so far as providing obligated parties an affirmative defense against EPA presumptive liability policies, which will remove the threat of receiving a Notice of Violation if the RIN generator adopts a third-party RIN QAP program.
From a risk management standpoint, renewable fuel producers that adopt a third-party QAP will provide more protection for the obligated party than will a large, well-established RIN generator that does not have a QAP in place. Some may see this as an added value to the RINs themselves.
As EPA works on drafting rules that will support proper RIN generation, downstream blenders need to focus on their role under the RFS. The blender's job is to make sure that the RIN is properly separated from the liquid gallon. We have many nuances to work under when it comes to changing the status of a RIN from assigned to separated, but many of the basic principles have remained unchanged since the inception of the RFS. Yet we still hear the stories of a “blender” separating RINs as they blend biodiesel from B100 to B99 (this is an IRS-blended gallon and not an EPA-blended gallon), or when the marketer sells neat fuel (B100) as a “designated transportation fuel without further blending” but the downstream party is, in fact, blending the fuel further. The scenarios extend to exporters mishandling RINs and other RIN separation events that occur outside of the RFS rules.
The point to be made is that these are known issues, and blenders and exporters must be prepared to support their RIN separation and overall RIN management due diligence. Upcoming EPA rules will likely not touch upon all these issues, but the RIN buyer is fully aware of these problems and will likely require supporting information on RIN separation reasons in the near future, if they have not already. Thus, it is important to stay ahead of the curve when it comes to RIN marketing strategies and recognize all of the potential pitfalls that may create a noncompliant RIN.
RINAlliance has made concerted efforts to document the quality of RINs entering into its system, and has already taken steps to assure obligated parties that the RINs have been properly generated and separated. RINs marketed by RINAlliance have already been earmarked by obligated parties for the 2013 compliance year, which helps provide the stability required to keep petroleum marketers and blenders interested in renewable fuels.
More importantly, the steps outlined above have created a broad supply of biodiesel and advanced renewable fuels from small to large facilities. This process yields increased competition, which, in turn, keeps costs down and incentives to blend high.