U.S. EPA yesterday released a draft plan that would take steps to protect refiners from liability if they unknowingly purchase fraudulent credits to meet their obligations under the renewable fuel standard.

Under the plan, EPA would authorize third-party auditors to certify that renewable identification numbers, or RINs, the 38-digit unique numbers tied to gallons of biofuels, are valid. Refiners that purchase those certified RINs would be protected from penalty if those credits later turn out to be fraudulent.

The quality assurance program in the draft is similar to a system laid out by oil industry groups in a white paper earlier this year (E&ENews PM, July 20). EPA would also require continual monitoring of biofuel producers.

EPA said it expects the proposal will "promote greater liquidity in the transfer and use of RINs, helping to make the RFS program more efficient and effective."

The federal agency allows refiners to meet their annual renewable fuel standard obligations by purchasing RINs as an alternative to blending biofuel into petroleum-based gasoline. The proposal released yesterday addresses several cases of fraud in the biodiesel credit marketplace in which individuals sold millions of dollars worth of fake credits to refiners.

EPA penalized both the companies that produced the fake RINs and the refiners that purchased them, drawing criticism from the oil industry and lawmakers representing refining interests.

Refiners have also criticized EPA for moving too slowly with a solution. The American Petroleum Institute's head of downstream activities, Bob Greco, said today that the draft plan was a "constructive first step" but that refiners were still concerned.

"EPA needs to address the issue of RIN validity and restore confidence in the RIN market quickly. EPA has the responsibility to develop a regulatory solution that provides for an efficient and cost-effective process, avoids unnecessary complexity and is implemented by Jan. 1, 2013," Greco said. "Our industry remains concerned about potentially invalid RINs remaining in the system."

In a statement with the proposal, EPA said it would issue a proposed rule by the end of the year. According to an industry insider, the agency plans to issue a final rule by July of next year.

"By providing this early draft, parties considering participation in the quality assurance program that is under development can begin making some preparations to conduct audits, since they will have an early understanding of the elements that are likely to be proposed for [quality assurance programs]," EPA said.

The agency said it could still change aspects of the plan before issuing a proposed rule.

Stephen Brown, a lobbyist with Tesoro Corp., said that he was optimistic but that there were still issues EPA needed to address. Tesoro was one of two dozen oil companies penalized for purchasing fake credits made by Clean Green Fuel.

"EPA is probably going as fast as it can while trying to make sure all stakeholders get a full hearing," Brown said. "There are still several outstanding issues that need closure, including interim enforcement status, but we remain hopeful a final product can be obtained that strikes a balance between obligated parties and producers."

Anne Steckel, vice president of federal affairs at the National Biodiesel Board, also said the draft was "not perfect" but characterized the plan as a first step that took into account recommendations from a task force formed by the association to address RIN fraud.

"We applaud EPA for moving their initial guidelines for the quality assurance plan into the private sector, and we anticipate this will move the regulatory process forward in a constructive and efficient manner," Steckel said.

"Once EPA approves quality assurance providers, and many providers have already completed real-world assessments at nearly every biodiesel facility, then all sectors of the biofuels market will have greater confidence in day-to-day RIN transactions."