Assuring RIN Validity

FROM THE JANUARY ISSUE: For some biodiesel, cellulosic and biogas fuel producers, EPA’s quality assurance program is virtually a requirement. Corn ethanol has gotten a pass, but that could change as the industry diversifies.
By Susanne Retka Schill | December 19, 2017

Only a few ethanol producers to date have paid much attention to the U.S. EPA’s quality assurance program for renewable identification numbers (RINs). EPA reports about 12 percent of all RINs are Q-RINs. The bulk of those are for D4 biomass-based diesel RINs, though not all. Biogas producers generating D3 cellulosic RINs and many advanced biofuel producers generating D5 RINs use Quality Assurance Plans (QAP) as well. 

Under the Renewable Fuel Standard, RINs are used by obligated parties to demonstrate compliance. Every gallon of renewable fuel is assigned a RIN—a long number that includes the fuel type and D-code, whether the RIN is a Q-RIN, and other information. RINs are recorded in EPA’s Moderated Transaction System (EMTS) and tracked until they are separated. Obligated parties use separated RINs to demonstrate compliance, and any surplus or RINs separated by nonobligated parties can be sold. While worth just pennies in the beginning, RIN value has risen to more than $1 at times and, in the case of cellulosic D3 RINs, are expected to be much higher to support cellulosic biofuel development. From the start, the system has been based on a buyer beware approach. Under the regulations, the obligated party is liable if RINs are found to be invalid and must purchase new ones as replacement, plus be at risk for Clean Air Act violations.

RIN Fraud Trouble
For corn ethanol, with its single feedstock, large scale and automation, not to mention a D6 RIN value of just a couple cents in the early years of the program, RIN validation was not an issue. But biodiesel was another story. The EPA created the voluntary QAP program in 2014, following a high-profile RIN fraud case involving a biodiesel producer early in the RFS. The agency laid out a system where third-party auditors would verify RINs following EPA-approved QAPs that are reviewed annually. Four companies have been approved as QAP providers: EcoEngineers, Weaver, RINtrust and Genscape.

When the quality assurance program was established, the EPA said obligated parties would have an affirmative defense should any Q-RINs be found invalid, and clarified the process for RIN replacement. EPA lists 13 enforcement actions on its website since 2013, all of them for biomass-based diesel. In response to one of those actions, the EPA published a notice of intent a year ago to revoke Genscape’s ability to verify RINs, saying that it had failed to “meet all elements of its approved Quality Assurance Plan, and for verifying millions of RINs that were fraudulently generated by two companies, Gen-X Energy Group Inc. and Southern Resources and Commodities.” Both are biodiesel producers. The invalid RINs are A-RINs, which were verified under the interim program used until the final rule was published in July of 2014. In the Q&A accompanying the notice on its website, EPA said Genscape could “function normally as a QAP provider unless the EPA issues a final decision to revoke Genscape’s registration.” Genscape had until April 18 to respond to EPA’s notice. No update on the notice was found on the EPA website in early November, and Genscape declined to comment on the pending issue for this article.

Demand for QAP
As a result of the issues in biodiesel RINs, smaller independent biodiesel producers are virtually required by buyers to be part of a QAP program, says Pete Moss, president of RINtrust. “The ethanol industry—D6 corn ethanol—has gotten somewhat of a pass. They have been in business for so much longer, are well established and have long-term buyers of their products, so they have not been under the same microscope as you’ve seen in the biodiesel industry.” He adds that not all biodiesel producers use QAP, even some of the largest companies.

Jim Ramm, director of engineering at EcoEngineers, estimates around 7 to 8 percent of ethanol plants have participated in Q-RINs on D6 starch ethanol. “They’ve done it to differentiate themselves and as an additional quality standard,” he says. “Where ethanol producers are diversifying into D3 cellulosic, D4 renewable diesel or D5 advanced, the great majority of those producers do put a Q-RIN on the D3, D4 or D5.”

Other cases where buyers may want QAP would be a new plant just starting up, plants producing small quantities or foreign producers, says David Bennett, partner in the energy compliance service group at Weaver. As renewable fuel facilities become more complex, the possibility of issues increases, he says. “In the example of a biodiesel plant, the more types of feedstocks, the higher the potential for error. Are they mixing the feedstock? Are they keeping it separate? Are they following the regulations?” The QAP process is not necessarily designed to detect fraud, he adds, though it should uncover any major issues. “The source of that might be clerical error or it could be an error with equipment in the plant.”

QAP Elements
The EPA lays out the basic elements of a QAP. QAP providers must be independent third parties that will review a plant’s systems and records and verify the information being reported to the EPA. That includes one-time verification of such things as compliance with relevant RFS requirements and being properly registered in the EPA Moderated Transaction System. It also requires ongoing verification of production volumes and the RINs being generated and recorded in EMTS. The regulations specify quarterly and annual reporting.

While the “what” is set by the EPA, the “how” varies by the QAP provider and facility. The plans are highly customized. “We set up a series of audits and confirmations, mass and energy balances and site visits in order to verify their RINs are valid,” Ramm says. “Measurement and yield varies from facility to facility and pathway to pathway, so it’s a site-specific plan tailored to the fuel type.” Kernel fiber to cellulosic will have additional requirements, he adds. “For every 500,000 D3 gallons produced or at least annually, you’ll need to submit new data supporting the converted fraction.”

Complexity Drives Need
QAP goes beyond accounting to technology, Moss says. “We have to be careful with cellulosic ethanol or biogas, making sure we understand the technical side, so we can properly account for what is happening. It’s not just accounting, it’s a technical function.” As plants move toward the biorefinery model, adding feedstocks and products and more diverse technologies, the increased complexity is likely to drive the need for quality assurance, he says. “The last thing obligated parties want is for later down the road, something to be called into question just because it was different and wasn’t monitored appropriately.”

Moss suggests corn ethanol producers should not be concerned that QAP will interfere with operations. “In reality, it might help determine some things that may be slightly out of compliance and help them do a better job of accounting.”

Bennett adds that Weaver strives to provide value by maximizing efficiency and ensuring clients’ compliance, maintaining the integrity of the RFS. “Our overall goal is to work with our clients to justify their investment in the QAP program and help improve profitability.”

Ramm suggests ethanol producers look at Q-RINs as a diversification tool, and not a requirement. “Look at it as a way to get involved in additional fuel types, or additional types of blending, marketing and RIN separation.” 

EcoEngineers is preparing for another level of verification coming down the road, he adds. “The California Low Carbon Fuel Standard will be requiring a verification program in 2019 that we’ll be offering,” he says. “They’re developing their own program for the verification of LCFS credit generation.”

If history is any predictor, California’s system is likely to be quite different from the  EPA’s. With the size of California’s market, carbon intensity validation is likely to draw a much larger segment of the corn ethanol industry into quality assurance.

Author: Susanne Retka Schill
Freelance Journalist