US environmental regulators are stepping up efforts to root out fraud in the trading of renewable fuel blending credits that some small refiners have called a drag on the industry.
The Office of Inspector General for the US Environmental Protection Agency (EPA) plans to audit trading of invalid Renewable Identification Numbers, a type of credit used to signify compliance with federal fuel blending standards, according to an EPA letter dated 17 September.
RIN credits, which are generated when renewable fuels are blended with traditional fuels for the US transportation supply, have been the subject of controversy since they were introduced as part of the Renewable Fuel Standard in the mid-2000's. Small independent refiners, which typically lack blending capabilities, have alleged the credits disproportionately affect them, while stakeholders on all sides of the issue have called for more transparency into RIN generation, trading and regulation.
In the audit, the EPA inspector will evaluate whether the agency's Moderated Transaction System used to verify RIN trades includes "controls to identify and reduce the generation and trading of invalid RINs."
The US over the past decade has successfully prosecuted a number of RIN fraud cases.
The EPA's latest probe into RIN trading was identified earlier this year as one measure the agency could use to ensure better data reliability as part of its fiscal year 2021 oversight plan. The inquiry comes at a time when rising prices for credits have prompted some obligated parties to step away from the market, while political calls for reformation of the credit system continue to increase.
Prices for RINs, as reflected by the Argus-assessed Renewable Volume Obligation (RVO) benchmark, reached all-time highs this summer, topping 20¢/USG, amid uncertainty about how the new administration of President Joe Biden planned to handle renewable fuel mandates after a raft of lawsuits from US refiners and biofuel interests. The RVO so far this month has averaged 16.08¢/USG, down from the recent record but still more than triple the price 16 months ago and more than five times the average price in 2019.
Several refiners, including Delek, have called RIN credits an "overhang on the industry." Delta Airlines, owner of the 185,000 b/d Trainer refinery outside Philadelphia, Pennsylvania, responded in July to a question about its RIN obligations by saying it was not planning to "spend good cash chasing a marketplace that isn't transparent."
The credit compliance system is also a hot-button political issue in states with strong refining and union interests, as well as those with the agricultural interests backing renewable fuels production. On 16 September, Pennsylvania lawmakers wrote a letter to President Biden claiming that the Trainer refinery's operators will be required this year to "spend twice as much to comply with the RFS program as it spent to purchase the entire company only ten years ago," in a plea to the White House to provide the EPA "with a stronger hand in stabilizing RINs pricing."
Conversely, biofuel lobby Growth Energy in a letter today asked the EPA to set "ambitious" biofuel blending targets when it updates RFS blending obligations later this year.
This is not the first time potential RIN fraud has come under the eye of US oversight bodies. In 2019, the US Government Accountability Office drew attention to "opportunities for fraud" in the trading of computerized RIN numbers, such as the double counting of RINs or generation of RINs for biofuels that do not exist.
