EPA warns companies to trade RINs properly

By Kris Bevill | June 02, 2008
Web exclusive posted June 30, 2008 at 12:01 p.m. CST

Established by the U.S. EPA as a way to track the amount of renewable fuel produced in the United States, renewable identification numbers (RINs) have only been around since September 2007 and regulations for them are often overlooked or disregarded.

As a result, the EPA recently reissued a document warning companies about improper and illegal RIN trading practices. No changes have been made to the regulations. The document merely serves as a stern reminder from the EPA for companies to comply - or face fines. Violators of RIN regulations can be punished with fines established under the Clean Air Act that can be up to $32,500 per day.

The EPA document covers three commonly occurring RIN transactions that defy regulations. The first is a situation in which an error during the sale was made, either a billing or volume error, and the seller "re-bills" RINs that have already been transferred. For producers, this is illegal because renewable fuel must be transferred with the correct number of RINs attached. Also, the ownership of RINs is transferred along with the fuel, so those RINs automatically become owned by the receiving company and cannot be simply transferred back to the seller.

Clayton McMartin is President of Clean Fuels Clearinghouse which manages the only operating registry of RIN numbers. He likens the reselling of RINs to someone selling a car, handing over the title, and then months later selling the car to a different person and asking the original buyer to just give the car back. McMartin said the equivalency is happening with some frequency in the world of RIN trading.

The second situation addressed by the EPA involves transferring assigned RINs, also known as K1s, without renewable fuel. Assigned RINs cannot be transferred separately from fuel, under any circumstances. Any attempt to do so is a violation of EPA regulations and voids the transfer of those RINs to the potential buyer. McMartin said the illegal transfer of K1s is occurring by both ignorant and fraudulent practices. Some people simply do not yet understand the complexity of RIN regulations and others who do are figuring out ways to defraud the system. According to McMartin, a fraudulent transfer of K1s can be achieved simply by changing the number of the RIN. The only true way for a buyer or seller of RINs to protect against RIN fraud, in McMartin's opinion, is to use a registry that tracks RIN numbers and prevents owners from actually physically having access to the number, therefore preventing changes to the number.

The final situation addressed by the EPA is the issue of tardy product transfer documents (PTD). Buyers are apparently experiencing situations where the PTD for RINs is being delivered much later than the PTD for fuel. This can be a confusing issue because there are no regulatory requirements for the timeliness of transferring PTDs, rather the EPA leaves it up to companies to follow industry standards. One solution is to include RIN information on the fuel invoice. Another solution is to provide RIN information on a separate document to be transferred to the buyer within 24 hours of the invoice transfer.

McMartin said Clean Fuels Clearinghouse's RINSTAR registry operates by transferring separate RIN documents. He said that is the most efficient way to handle transfers - preventing RIN documentation from being delayed by shipping and the movement of RINs can continue smoothly through the line of buyers and sellers.

The EPA's document addressing improper RIN transactions can be viewed in its entirety at http://www.epa.gov/otaq/renewablefuels/impropertrading.htm.