AFPM petitions EPA to redefine obligated party under the RFS

By Erin Voegele | August 08, 2016

On Aug. 4, the American Fuel & Petrochemical Manufacturers filed a petition for rulemaking with the U.S. EPA, asking the agency to move the point of obligation under the renewable fuel standard (RFS) to the owner of hydrocarbons at the rack, which is the same point where fuel excise taxes are collected. Refiners and importers are currently considered obligated parties under the RFS.

Within its petition, the AFPM describes several problems it sees with the RFS, including those related to implementation, compliance and the renewable identification number (RIN) market. The group argues that the “the existing point of obligation for RFS compliances exacerbates the implementation and compliance issues with the RFS.” The organization also argues that the EPA predicated its regulations on faulty assumptions about the administrative burden of a point of obligation and faulty assumptions about the RIN market. “Critically, the EPA also committed to revisiting the point of obligation if it became clear that the RIN market is not functioning as intended,” the AFPM continued in the petition.

“It is clear that the RIN market is not working as intended, particularly in light of EPA’s decision to breach the E10 blend wall and complications with RIN acquisition arising from the ethanol RIN requirement placed on diesel production,” said the AFPM in the petition. “The U.S. hit the E10 blend wall in 2013, when RINs increased from $0.02 to $1.48 per gallon. Although RIN prices have retreated from their record highs, they are still trading at $1.00 or more per credit in the aftermath of EPA’s proposed 2017 RFS volumes. RINs have evolved from their intended purpose of facilitating a program where the use of biofuels would be uneven among regions to a commodity that has become a profit center for large fuel retailers with dominant positions in certain geographic markets. This has dramatically increased the costs of implementation for certain obligated parties and disadvantaged consumers.”

“The problems with the renewable fuel standard (RFS) are pervasive and AFPM will continue to fight for its repeal, but until that happens the EPA has the responsibility to ensure that the program is operating as effectively as possible, which today it is not,” said AFPM President Chet Thompson. “EPA committed to reconsidering the point of obligation if it became clear that the Renewable Identification Numbers (RINs) market is not functioning as it intended. And, with RIN prices trading recently at a dollar or more, this is certainly the case. Moving the point of obligation closer to the point of compliance would make the RFS program more sensitive to market needs and reduce consumer costs, and provide some relief until Congress can take appropriate action.”

The AFPM isn’t the only entity petitioning the EPA in hopes of changing the definition of obligated party. On June 13, Valero Energy Corp. issued a petition to U.S. EPA Administrator Gina McCarthy asking the agency to redefine obligated party under the RFS. In February, Valero made a similar request.

Valero has asked EPA to redefine obligated party as “the entity that holds title to the gasoline or diesel fuel, immediately prior to the sale from the bulk transfer/terminal system…to a wholesaler, retailer or ultimate consumer.”

According to Valero, “currently the obligation for RFS is placed on refiners and importers—the point of obligation is the refinery gate and the entity that imports—regardless whether the refiner or importer have the ability to affect the amount of renewable fuels blended and sold to consumers.” Valero claims this placement has created problems that impair the RFS program’s proper functioning and prevent it from ensuring that renewables enter the transportation fuel market. “The inefficiencies of the point of obligation’s current placement harm renewable fuel producers, independent refiners, retailers and U.S. consumers,” said Valero in the letter. “Among the most significant is that, because it prevents the value of renewable identification numbers (RINs) from being passed through to consumers, it only minimally encourages renewable fuel consumption.”

On June 22, the House Energy and Commerce Committee’s Energy and Power Subcommittee held a hearing on the renewable fuel standard (RFS). During the hearing, Janet McCabe, acting assistant administrator at the U.S. EPA, was asked a variety of questions related to RFS regulation, rulemaking and program implementation, including questions related to RFS obligated parties and the potential to redefine the point of regulation under the program.

She noted that the issue of point of obligation is currently being addressed by the agency, noting that several petitions have been summited in support of changing the point of obligation from refiners to other parties. While McCabe was unable to offer a timeline for EPA’s response to those petitions, she did indicate that EPA believes it would have the authority to make changes to the point of obligation via rulemaking.

A full copy of AFPM’s petition can be downloaded from the AFPM website.