Following several recent high-profile enforcement cases that invalidated more than 140 million biomass-based diesel renewable identification numbers (“RINs”) because no renewable fuel was actually produced, the U.S. Environmental Protection Agency has proposed a new voluntary quality assurance program for use by RIN purchasers to ensure that the RINs are valid. EPA has indicated that its purpose in developing the program is to ensure that certain smaller biodiesel producers who EPA claims were shut out of the RIN market based on concerns about the validity of their RINs could continue to freely market their RINs.

Under EPA’s Renewable Fuel Standard program, a specified volume of renewable fuels must be used for transportation fuel, home heating oil, and/or jet fuel in the U.S. each year. EPA establishes a yearly percentage of the total volume of all gasoline or diesel fuel produced or imported that must be renewable fuels, also referred to as “renewable volume obligations” (“RVOs”). Refiners and importers then meet that standard by acquiring RINs from biofuel producers.

The regulations prohibit invalid RINs being used to achieve compliance with RVOs, even if the RINs were purchased with a good-faith belief that they were valid. This means that purchasers of invalid RINs are obligated to incur additional costs in purchasing additional valid RINs to meet RVOs.

Pursuant to the voluntary program proposed by EPA, a purchaser’s first option is to purchase RINs that have been verified as valid by third-party auditors using a fairly detailed quality assurance plan approved by EPA. The third-party auditor, rather than the purchaser, would be responsible for replacing any RINs later found to be invalid. The purchaser would have an affirmative defense to a civil enforcement action by establishing that it did not know or have reason to know that the RINs were invalid at the time they were verified.

The purchaser’s second option is to purchase RINs that have been verified by a third-party auditor using a less rigorous quality assurance plan. The purchaser would have responsibility for any RINs found to be invalid, but the purchaser would have an affirmative defense to an enforcement action if the purchaser could establish that it did not know or have reason to know that the RIN was invalid at the time the RIN was used for compliance or transferred to another party. Purchasers would also have a final option of not using any third-party auditors to verify RINs. In this case, the purchaser would remain obligated to replace any RINs later found invalid, consistent with the current regulatory scheme.

Although EPA is still reviewing public comments received on the proposal rule through April 18, 2013, EPA is implementing some portions of the proposed rule immediately. To that end, EPA issued a revised enforcement policy on January 31, 2013 stating that it does not intend to seek enforcement against purchasers who use RINs in 2013 that have been verified in accordance with the proposed rule and who meet the other requirements outlined in the enforcement policy. EPA has indicated that it intends to finalize this rule “well in advance” of the February 28, 2014 compliance date for 2013 RVOs.