SPOTLIGHT Reiter Software; Used Cooking Oil: Staying in Compliance for Incentives

The collection and sale of used cooking oil and its use in producing biodiesel are regulated at both the federal and state levels.
By Biodiesel Magazine | December 18, 2022

In 2020, industry trade groups sued the U.S EPA over its final 2020 Renewable Fuel Standard. Part of the suit challenged the RFS requirements regarding separated food waste—the Clean Fuels Alliance of America alleged that new recordkeeping requirements were actively harming its member businesses. Since then, the EPA agreed to work with Clean Fuels to revise its recordkeeping requirements for biodiesel and renewable diesel producers.

Recordkeeping challenges in renewable diesel aren’t new, but the struggle to balance the desire to incentivize production of low-carbon-intensity (low CI) fuels without harming collectors or tolerating fraud has come to a head. The following is what stakeholders need to know about the regulations.

The collection and sale of used cooking oil and its use in producing biodiesel are regulated at both the federal and state levels. Essentially, some U.S. state and federal governments incentivize the use of low-carbon-intensity fuels, such as sustainably grown virgin oil as well as ultra-low-CI recycled feedstocks, to help lower greenhouse gas emissions and reduce the country’s reliance on foreign sources of fuel. To do this, the government has designed three programs: a federal tax policy that rewards use of low CI fuel, the federal Renewable Fuel Standard and the California Air Resources Board’s Low Carbon Fuel Standard, the latter two of which set standards for the quantity of carbon reduction credits (RIN and LCFS credits, respectively) that an obligated party must accumulate via creation or purchase each year.
EPA’s RFS and California’s LCFS
The EPA manages the RFS program, which is very similar to a reverse cap and trade program in that rather than limiting the production of a pollutant, it mandates the production of a substitute. The national policy was enacted in 2005 and expanded two years later. Its purpose is to reduce greenhouse gas emissions created by the use of petroleum-based fuel by requiring that some of it be replaced by renewable fuels, including fuel made from both recycled and virgin fats and oils with approved pathways.

To comply with the RFS and meet the EPA-specified RVOs, those who refine or import gasoline or diesel need to blend renewable fuels that meet certain emissions requirements into transportation fuel. The EPA allows biofuel producers to create renewable identification numbers (RINs) based on the volume and type of fuel produced (anywhere) and then sold for end use in the U.S. The RINs then migrate through the supply chain either connected to the liquid fuel, or separated and traded at market value. Fuel producers that make only renewable fuel sell all of their RINs, revenue that is critical to profitability. In essence, the value of the RIN must trade at a level that incentivizes biofuel producers to create the RINs needed by the obligated parties.

 The California Air and Resources Board enacted an additional program, similar to the RFS, called the Low Carbon Fuel Standard. Since many in the industry sell oil into the state of California, it's relevant to more than just California residents. Like the RFS, CARB’s LCFS awards companies credits based on the volume of low-carbon-intensity fuels they produce. One notable difference between the federal and California programs are that under the California LCFS program, each feedstock pathway generates a different number of credits, making feedstock tracking critical even amongst the basket of approved and sustainable feedstocks.
Compliance and Verification
The high value of oil could also inspire bad actors to steal used cooking oil (UCO) from facilities that have not agreed for them to take it—a growing problem in the industry that harms restaurants, used cooking oil collectors and even the surrounding communities. If an aggregator purchases stolen cooking oil, oil that by definition lacks a verifiable supply chain, then there’s no way to confirm that their feedstock meets the requirements to produce renewable fuel that will reduce greenhouse gases. If unverified, stolen UCO can enter the supply chain, so what is to stop millions of gallons of unapproved palm oil from also slipping through the cracks? It also means that unscrupulous blenders, aggregators or traders could pass off noncompliant feedstocks such as virgin palm oil at a hefty profit, or perhaps, blend it with actual low CI, recycled feedstock to better cover their molecular tracks.

 Enter the recordkeeping requirements. A producer must be able to document the location of origin of all of the renewable fuel feedstock it uses, so that if one of the regulating agencies chose to conduct an audit, it could account for its renewable fuel throughout its lifecycle, proving that it really was renewable with the claimed carbon intensity.

Prior to the 2020 RVO, “From our understanding, for these record-keeping requirements, ‘location’ could be broad enough to be a small area, so whether that's a county or certain zip code or a certain suburb area,” explains Kate Shenk, regulatory director at Clean Fuels. “That way, if you were adding new restaurants or changing up where you're getting your UCO from, you weren't updating each restaurant location each time.”

 But that changed with the 2020 iteration of the RFS. In 2020, the EPA updated the preamble to the rule, adding, “Since many renewable fuel producers receive wastes used as feedstocks from an aggregator, we interpret the term ‘location’ to mean the physical address that the aggregator obtained the wastes used as feedstocks from, not the physical or company address of the aggregator.”

Ashley Player, a partner in Energy Compliance Services at Weaver, explains that now, “In order to be in compliance with these regulations, renewable fuel producers that purchase UCO from aggregators must obtain documents demonstrating all of the sources of the oil collected, down to the restaurant addresses.”

The news was met with frustration and skepticism because many large biofuel producers don’t just buy UCO, they also collect it—if those companies had access to the client lists of the collectors they’re buying from, what’s to stop them from targeting those restaurants and facilities themselves? “This is considered confidential and proprietary information by collectors and aggregators, putting renewable fuel producers in a tough situation,” Player says.

 When the EPA announced the updated RVO in 2021, smaller biofuel producers were left behind, Shenk says. These smaller producers had voluntarily enrolled in a Quality Assurance Plan for the RFS. QAP required the producers to submit the compliance data for the UCO they purchased to a third party auditor who could verify its authenticity. Having this verification protects a small producer from liability for invalidated RINs.

Unfortunately, with the new interpretation of the RFS rule, producers enrolled in the program weren’t able to buy oil from their usual collectors, because some of the collectors were unable or unwilling to hand over the addresses of the facilities from which they’d collected the oil, which they now needed for verification. Only “larger producers who are not under QAP could take [the oil],” Shenk says, because they hadn’t enrolled in the QAP.

Ultimately, the Clean Fuels Alliance sued the EPA over the new regulations. Rather than animosity, the lawsuit has clarified industry needs, and the EPA seems to be listening. “We’ve had a lot of really great conversations [with the EPA] since this rule came out,” Shenk says.

On Dec.  1, the EPA released the new RFS rule for public comment. In it, the agency outlined a system by which third parties, rather than the biofuel producers, could collect, maintain and verify records from UCO collectors, keeping the restaurant addresses confidential. "A third party having those records and being able to verify the collections if there's a need for an audit will allow our industry to keep doing what it's already doing,” says Paul Winters, public affairs director at Clean Fuels.

Reiter software can securely maintain records with GPS confirmation and volume retrieved at each location, and allow for a nearly instant third-party audit. “Reiter software is always adapting, and as the industry evolves, our software will continue to streamline the work of UCO collectors,” adds Kristof Reiter, CEO of Reiter Software.

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