In November, the EPA announced that it would deny a petition sought by refiners and importers of fuel to change the regulatory “point of obligation” within the RFS program. In light of strong public interest, however, the agency announced that it will extend public comment an additional 30 days, through February 23, 2017. The announcement can be found here.
The RFS was established during the George W. Bush administration to advance domestic renewable fuel production and diminish dependence on foreign oil imports. It sought to accomplish this by establishing a tradeable credit program whereby those that blend and generate renewable fuel can derive a credit (known as a “RIN”) that they can then sell to those that are obligated to purchase such credits (unless those obligated parties generate their own renewable fuel).
The RFS program was designed to ensure that renewable fuel targets would be met in an economically feasible manner, but it hasn’t worked out that way. The EPA has the discretion to determine where in the process of fuel production the obligation for compliance would be placed (known as “the point of obligation”), and the agency previously decided that the obligation would be with refiners and importers rather than blenders.
This regulatory decision has led to an upending of equities in this petroleum sector where Wall Street speculators have opened trading desks for RINs, blenders (who essentially mix the fuel) have reaped billions of dollars in RIN profits with no incentive to police the market, and refiners are forced to pay-up every year with little ability to influence the blending or legitimacy of renewable fuel.
The RFS has also been subject to massive amounts of fraud by those who have illegally exploited the current regulatory structure and lack of accountability.
Moving the point of obligation to blenders would help incentivize compliance, reduce fraud, save consumers money, and ultimately would help the small businesses in the renewable fuel sector that have been unfairly stung by the fraud in the system. Here’s hoping that the agency moves toward common sense change in the RFS by moving the point of obligation to tilt the balance back toward fairness and market efficiency.
For more information regarding the RFS, contact Doug Parker, President, Earth & Water Strategies, at Doug.Parker@earthandwatergroup.com.