EPA Inspector General will probe RFS credit market

Source: By InsideEPA • Posted: Wednesday, September 22, 2021

EPA’s Office of Inspector General (OIG) is launching an investigation into the agency’s handling of the renewable fuel standard (RFS) credit market, long-criticized as opaque and prone to high price volatility by opponents of the RFS biofuels blending program, as some East Coast lawmakers press for price controls on the credits to aid refiners.

In a Sept. 17 memo, Mike Davis, director of environmental investment and infrastructure at the OIG’s Office of Audit, tells EPA acting air chief Joe Goffman that the OIG will audit the market for RFS credits, known as renewable identification numbers (RINs). The OIG intends to determine whether the market is sufficiently protected against fraud, David writes.

“The OIG’s objective is to determine whether the EPA’s Moderated Transaction System and Quality Assurance Program include controls to identify and reduce the generation and trading of invalid RINs,” Davis says.

“The anticipated benefits of this audit are identifying and correcting procedural or automated systems problems that increase fraud risks and reduce the positive environmental impacts of the Renewable Fuel Standards program,” David adds.

While the RFS has in the past experienced fraudulent generation of RINs, much opposition to the RFS from small and independent refiners flows from the high volatility of RIN prices and their current high level. While large oil companies can generate their own RINs by blending biofuels, smaller merchant refiners often lack blending capacity and are dependent on buying RINs from others at sometimes inflated prices.

Reflecting this concern, Sen. Robert Casey (D-PA) and six Pennsylvania House Democrats in a Sept. 16 letter to President Joe Biden urge the administration to “reform” the RIN market to benefit Philadelphia-area refiner Monroe Energy and other similarly situated refineries.

“We urge you to act quickly and address the disproportionately negative financial impact that Pennsylvania’s independent refiners are experiencing as a result of the RFS,” the lawmakers write.

The administration should assess “the financial challenges faced by independent refiners associated with RFS compliance and consider potential solutions-including: providing the EPA with a stronger hand in stabilizing RINs pricing, studying the drivers of this market volatility and long-term implications for the market and RFS program, improving coordination with other relevant federal agencies that protect against market manipulation, and considering reconfiguring the RFS compliance system to more fairly distribute this obligation across the manufacturing chain, and weighing any other solutions that would provide independent refiners with greater RIN cost containment and price certainty,” the lawmakers write.

Also, the administration should recognize “the unprecedented economic crisis presented by the COVID-19 pandemic and consider allowing for greater flexibility in repayment of RINs obligations by independent refiners.”

Republican Pennsylvania lawmakers then weighed in with a similar letter to Biden Sept. 20, calling for “meaningful reforms” to the RFS to protect refiners’ interests. “We urge you to act quickly by directing EPA to implement reforms to provide more certainty and price stability at sustainable RIN prices. There are many reforms that could be implemented to benefit farmers and biofuels producers while also taking steps to reduce the disproportionately negative financial impact that our independent refiners continue to experience,” the lawmakers say.

“Importantly, the price of RINs has no relation to the amount of ethanol blended into the nation’s fuel supply — a fact that [the Energy Information Administration] has acknowledged, and a fact that shows just how broken the current RFS system is,” say the GOP lawmakers, including Reps. Brian Fitzpatrick, Fred Keller, Guy Reschenthaler, John Joyce, Dan Meuser, Mike Kelly and Lloyd Smucker.

The letters come as merchant refiners, their larger competitors, biofuels producers and others are making last-minute lobbying pitches to the White House and EPA, ahead of the agency’s forthcoming proposal on biofuel blending volumes for 2021 and 2022. Biofuels groups are seeking to maximize blending, while refiners are seeking lower RFS blending mandates.