EPA finalizes rules targeting biodiesel credit fraud, approving new technologies

Source: Amanda Peterka, E&E reporter • Posted: Thursday, July 3, 2014

U.S. EPA finalized two long-awaited rules today that create a program to address fraud in the biodiesel credit marketplace and add new technologies to its list of approved renewable fuels.

The fraud rule establishes an auditing system through which third parties ensure that renewable identification numbers, or RINs, which represent gallons of ethanol and advanced biofuel, are legitimate. It’s meant to protect refiners that purchased certified credits from liability if those credits are later found to be fraudulent.

The rule, which is retroactive to January 2013, was prompted by a series of high-profile fraud cases in which individuals made millions of dollars selling RINs for biodiesel that was never produced. EPA ruffled feathers in the oil industry by initially slapping penalties on the refiners that purchased fake credits because the fraudulent credits resulted in their falling short of their obligations under the renewable fuel standard.

“EPA is providing clarity regarding when invalid RINs must be replaced with valid RINs, and who is required to replace them,” the agency said in a statement.

EPA first announced the program on Jan. 31, 2013; the final rule has sat at the White House Office of Management and Budget since February of this year.

The agency is finalizing the rule as proposed but will make some changes to the program beginning Jan. 1, 2015, after an “interim period” is over. Those include changes to the minimum requirements for an audit, qualifications for third parties and the conditions under which a refiner can assert an affirmative defense for using an invalid RIN.

The agency also today finalized a rule that allows compressed and liquefied natural gas produced from certain sources of biogas to qualify for credit under the renewable fuel standard.

Electricity generated from those sources and used to power electric vehicles are also receiving the green light.

“This action has the potential to provide notable volumes of cellulosic biofuel to the marketplace,” EPA said in a statement, referring to fuels made from plant-based materials that have been slow to come on the market.

Approval of fuel technologies is widely seen as a market driver because refiners can then use those fuels to meet their annual targets under the renewable fuel standard. Before approving fuels under the standard, EPA is required by statute to analyze their estimated life-cycle greenhouse gas emissions reductions.

“This shows that the renewable fuel standard is a flexible policy, it’s not just about ethanol,” said Jeremy Martin, senior scientist at the clean vehicles program at the Union of Concerned Scientists. “It’s also good to see the EPA establish additional pathways for biofuels that don’t compete with food.”

In the rule today, EPA also lays out the process for using crop residue as a renewable fuel feedstock. The agency has also modified the definition of a small refinery to clarify which refineries can apply for a hardship exemption from renewable fuel requirements and the process by which it can deactivate a company registration under the RFS.

The rule also specifies the number of credits that may be generated for fuels made from various cellulosic feedstocks, among other modifications to RFS provisions.

EPA has chosen not to finalize compliance requirements for foreign renewable fuel producers that were opposed by Brazilian sugar cane ethanol producers, nor is it finalizing proposed pathways for advanced butanol and renewable diesel, naptha and gasoline made from biogas.

“The agency is deferring a final decision on these matters until a later time,” EPA said.

EPA first proposed the rule in June 2013. Advanced biofuel producers have long complained about the delays in approving new feedstocks and technologies in the RFS (Greenwire, April 29). Earlier this year, EPA said it would update the review process in an effort to make it more timely.

EPA is still considering a controversial RFS proposal to roll back this year’s requirements for ethanol and advanced biofuels.