PROPOSED QAP RULE

U.S. EPA released its renewable identification number (RIN) quality assurance program (QAP) proposed rule in late January.  The proposal establishes guidelines for third-party auditors and provides obligated parties an affirmative defense against civil liability for retiring invalid RINs. It includes three options: Option A, Option B, and the “buyer beware” approach currently in effect. Options A and B provide obligated parties with an affirmative defense against civil liabilities. Under Option A, if the biodiesel producer were unable to replace invalid QAP-A RINs they generated, the proposal requires the QAP auditor to bear the replacement cost. Under Option B, the obligated party that retired the invalid QAP-B RINs would be responsible. Option A requires a much more rigorous and comprehensive audit procedure than Option B; the former involves near real-time, ongoing auditing and reporting while quarterly auditing suffices for the latter. QAP-A replacement by the auditor, as the proposed rule exists now, must be backstopped by one or more replacement mechanisms: a RIN escrow account, a RIN bank or a financial instrument. Byron Bunker with EPA says obligated parties want QAP-A RINs, but notes QAP-B is less oversight at less cost to producers. 

Option A limits the auditor’s replacement obligation to 2 percent of RINs audited over a five-year period. Under Option B, there is a limited exemption for obligated parties (for years 2013-’14 only) to not have to replace up to 2 percent of their total renewable volume obligation if they retire invalid QAP-B RINs. This was put in the proposal to encourage obligated parties to buy RINs again.

The start date is Jan. 1 even though the rule came out in late January. Bunker says the QAP provider can do a retrospective audit back to Jan. 1 by auditing the plant’s records. This is a unique situation in that, for this year, EPA is finalizing a proposal, but for 2014 on, the actual final rule will be in effect. A public hearing will be held March 19, and comments must be posted within 30 days after the hearing. Bunker strongly suggests biodiesel industry stakeholders post comments to help make the rule as sound as possible.

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Ron Kotrba
Editor
Biodiesel Magazine
rkotrba@bbiinternational.com