June 13, 2019 1:00 PM, EDT

EPA Issues Rule to Create Transparency, Prevent Manipulation of RINs Market

Biodiesel fuel pumpA biodiesel pump at a fueling station in Kansas City. (United Soybean Board)

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The U.S. Environmental Protection Agency is taking steps to modify certain elements of the Renewable Fuel Standard compliance system to create more transparency and prevent manipulation of the Renewable Identification Number market.

“EPA takes claims of RIN market manipulation seriously,” the agency said in a June 10 Federal Register announcement. “Though, as stated in the proposal and reaffirmed in this action, we have yet to see data-based evidence of such behavior, the potential for manipulation is a concern.”

EPA-RIN by on Scribd

Specifically, EPA said it would require public disclosure when RIN holdings held by an individual actor exceed specified limits.

After studying cap-and-trade programs in California and Quebec, the agency determined that a hypothetical 3% threshold (of 15 billion gallons for compliance) is low enough to identify parties that have acquired RIN holdings “larger than necessary for normal business operations and may indicate an effort to assert inappropriate market power.”

The second reform calls for the agency to require parties to report the names of RIN-holding corporate affiliates and all contractual affiliates in their RIN activity reports.

RINs are credits generated upon production of qualifying renewable fuel and ultimately used by parties to demonstrate compliance with their obligations to blend biofuels with traditional fuels.

RINs can be transferred with the renewable fuel to downstream parties that blend the renewable fuel into transportation fuel. In lieu of blending the renewable fuels themselves to demonstrate compliance, obligated parties have the option to instead purchase RINs from other parties that blend renewable fuel.

In allegations contained in lawsuits and public comments to EPA, some blenders have described conditions that they believe make the RIN market vulnerable to anti-competitive behavior, EPA said.

The commenters have argued that a small number of sophisticated market participants control a large number of “surplus” RINs that they hoard to drive up prices, then at some point they can sell the RINs to realize a higher profit, EPA said.

But the agency said it recently conducted an analysis of the RINs market into the concerns raised by some biofuel producers that some blenders were amassing excess RIN holdings.

“From this analysis, we conclude that excess RIN holdings are spread across a large number of parties and that no single party controls an excessive share of the market,” EPA said.

Driver unloads corn at refinery

A driver unloads corn at a refining facility in Jewell, Iowa. (Sergio Flores/Bloomberg News)

The agency also said it had received comments earlier this year from a group of associations whose members represent about 90% of retail sales of motor fuel in the United States indicating that none of its members has seen any transactional problems with the current RIN trading structure.

“Several commenters stated that the reports EPA proposed are, effectively a ‘solution in search of a problem,’ ” EPA added.

Although the agency in a March Notice of Proposed Rulemaking suggested five reforms for the RINs market, after hearing comments, it finalized just two.

“Given all the factors, we have decided that the most appropriate action at this time is to collect more data and conduct additional, enhanced market monitoring and analysis,” the agency said. “We do not find that the concerns and analytic findings raised to EPA to date warrant restructuring the RIN market at this time.”

The reforms will require the agency to employ a third party outside of the regulatory process to monitor the RIN market, EPA said.

“We believe the net benefit of this action will be to support increased confidence in the RIN market and reduce perceived market risk,” EPA said.