The American Fuel & Petrochemical Manufacturers petitioned the US Environmental Protection Agency to move the point of obligation under the Renewable Fuel Standard to the owner of hydrocarbons at the rack, the same point at which excise taxes are collected.
“EPA committed to reconsidering the point of obligation if it became clear that the Renewable Identification Numbers (RIN) market is not functioning as it intended. And, with RIN prices trading recently at a dollar or more, this is certainly the case,” AFPM Pres. Chet Thompson said on Aug. 4 when the trade association filed its rulemaking petition.
“Moving the point of obligation closer to the point of compliance would make the RFS program more sensitive to market needs and reduce consumer costs, and provide some relief until Congress can take appropriate action,” Thompson said.
Each year, EPA must translate mandated volumes under the RFS into percentage standards that obligated parties use to determine their individual renewable volume obligations (RVO), AFPM said.
It said the agency created the RIN system for refiners and other obligated parties to demonstrate compliance by acquiring enough RINs each year to address the compliance obligations (i.e., their individual RVOs multiplied by their gasoline and diesel fuel production in a given year).
EPA described the RIN-based trading program as “an essential component of the RFS program, ensuring that every obligated party can comply with the standard while providing the flexibility for each obligated party to use renewable fuel in the most economical ways possible,” AFPM’s petition said. “The RIN-based system was recognition that some refiners would have access to terminal blending facilities (allowing them to acquire RINs in this fashion) and that other refiners would not have such access.”
Not working as intended
The system, however, is not working as EPA intended, particularly after the agency decided to breach the E10 blend wall that was reached in 2013 and expanded the RIN acquisition requirement to diesel fuel, it said. RIN prices increased to $1.40/gal from 2¢/gal at that time, and while prices have fallen from their record peaks, RINs still trade at $1 or more per credit after EPA announced its 2017 RFS quotas (OGJ Online, May 19, 2016), AFPM said.
“RINs have evolved from their intended purpose of facilitating a program where the use of biofuels would be uneven among regions to a commodity that has become a profit center for large fuel retailers with dominant positions in certain geographic markets. This has dramatically increased the costs of implementation for certain obligated parties and disadvantaged consumers,” it contended.
The petition used the term “rack seller” to identify parties that hold title to the petroleum fuel at the blending point that are currently responsible for excise taxes. The term is distinct from “below the rack” blenders, which would remain unobligated under AFPM’s proposed definition.
“This proposed definition will reduce the number of obligated parties, make the RFS more sensitive to market realities, and more equitably distribute the compliance burden among those parties in the best position to determine feasible compliance scenarios,” the petition said. “And, for these reasons, it would reduce the systemic and compliance costs of the RFS program, which ultimately would benefit consumers.”
Thompson said AFPM continues to believe that Congress should repeal the RFS, which the 2005 Energy Policy Act established and the 2007 Energy Independence and Security Act expanded, because declining demand resulting from stronger automotive fuel efficiency requirements and lower crude oil imports resulting from the US unconventional production boom have changed the rationale for the program’s existence.
“The problems with the RFS are pervasive and AFPM will continue to fight for its repeal,” Thompson said. “But until that happens, EPA has the responsibility to ensure that the program is operating as effectively as possible, which today it is not.”
Contact Nick Snow at [email protected].
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.