EPA issues final QAP rule, phases out more costly QAP-A option

The U.S. EPA released its much-anticipated final rule on the renewable fuel standard’s (RFS) quality assurance plan (QAP), a voluntary third-party auditing protocol for renewable identification number (RIN) credits that regulated parties may use as a supplement to the “buyer beware” liability prescribed under RFS regulations. The final rule comes a year and a half after the proposal was issued in January 2013. The QAP program provides an affirmative defense against liability for civil violations under certain conditions for the transfer or use of invalidly generated RINs. The proposal established two tiers, QAP-A and QAP-B, with the former option being much more stringent and, as a result, more costly. In its final rule, the agency finalized both proposed QAP program options included in the proposed rule for an interim period that spans from Feb. 21, 2013 through Dec. 31, 2014. Beginning Jan. 1, 2015, the program will consist of a single QAP option (Q-RINs).

“Given the difficulty experienced by auditors in setting up Option-A QAPs, the apparent lack of use of the Option-A QAP in the interim period, and the overwhelmingly negative comments regarding Option-A by producers and obligated parties alike, we are not finalizing Option-A as a compliance alternative for use after the interim period,” the agency stated in its final rule. The single QAP option closely resembles the QAP-B option established in the proposal.

“We are pleased to see the rule finalized so that there is more clarity and accountability in the program,” said the National Biodiesel Board in a statement. “However, it's obviously a lengthy and complicated decision and we need some time to review it and discuss it with our membership before providing further comment.”

Biodiesel Magazine spoke with two leading QAP providers about the final rule. It should be noted that their comments should be considered a preliminary digestion of the final QAP rule released just days ago.

“EcoEngineers is pleased that the EPA included all of our recommendations to make the program simpler and more cost-effective for producers,” Shashi Menon, managing partner at EcoEngineers, told Biodiesel Magazine. “The final version of the rules only has one QAP RIN type, a Q-RIN, as opposed to the A and B types in the proposed rules. The final rule has also taken a strong and sensible stand on the issue of independence of third party auditors. We anticipate a smooth transition from our existing program to the version detailed in the final rules.”

Regarding independent auditors, Susan Olson, vice president of biofuels at Genscape Inc., said the final rule disallows RIN generators to be QAP auditors. “This appears to apply to RIN agents,” Olson told Biodiesel Magazine, adding that Genscape is seeking more clarity on the issue.

Although the QAP-A portion of the program is being phased out, Genscape has been working on a commercial RIN replacement solution outside of the EPA’s program and plans to launch a commercial offering well ahead of the QAP-A phase out. “We listened to the industry and our clients, and recognized that there might be a better way to provide a RIN replacement solution,” Olson said. “The economics tell us that there is a place for RIN ‘insurance’ in the market.” Genscape will continue to provide QAP-A and QAP-B services until the programs are phased out and will transition its services to the new Q-RINs for 2015. “If EMTS can accommodate Q-RINs before Jan. 1, 2015, then tagging of Q-RINs may become available before that time,” added Olson.

The final QAP rule also includes a 2 percent limited exemption for invalid B-RINs and Q-RINs for calendar years 2014, 2015 and 2016. “This appears to be an annual exemption calculated by D-code through 2016,” Olson said. “The 2014 exemption appears to include the entire ‘interim period’ of QAP from Feb. 21, 2013, to Dec. 31, 2014.” The rule also establishes minimum requirements for feedstock verification, the verification that volumes produced are consistent with the amount of feedstock processed, and verification that RINs are appropriately categorized. The rule also establishes qualification for independent third-party auditors, and sets requirements for audits of biofuel production facilities. “Site visits are required twice a year without remote sensor monitoring and once a year with remote sensor monitoring,” Olson said.

“There are also some new export RVO and downstream use rules, and we are still getting are hands around those,” Olson said. According to the EPA, these changes will help ensure that an appropriate number and type of RINs are retired when renewable fuel is exported. Finally, the rule finalizes changes to components of the RFS regulation that governs the transfer and use of RINs that become invalid downstream from the producer.

“The QAP rule is a major step towards developing stable RIN markets, and we are very pleased that the EPA has finalized this important rule,” Menon said. “As the oldest and largest QAP provider regulated by the EPA, we witnessed RIN fraud play havoc with RIN markets, and then we saw our producers able to sell their RINs as a result of our verification services. Now there will be standard verification programs for RINs that will mitigate the risks of purchasing RINs of unknown origins. These rules will make the QAP program mainstream and it will become a standard feature of operating a renewable fuel facility.”

The QAP rule becomes effective 60 days following publication in the Federal Register.