This article was updated Feb. 24.
The American Petroleum Institute would support a decision by the US Environmental Protection Agency to not change the obligation point for compliance with the federal Renewable Fuel Standard (RFS) because API believes that making the change would create more problems than it would solve, an API official said on Feb. 22.
“Moving the point of obligation does nothing to alleviate the structural problems with the RFS, and will not materially impact the consumption of renewable fuels. Rather, such a change would create significant uncertainty in the RFS program, and in the Renewable Identification Number (RIN) market,” said API Downstream Group Director Frank Macchiarola.
Moving the obligation point also would complicate the program, adding a time and an administrative burden for both EPA and regulated entities, particularly the small and midsize businesses that would be newly designated as obligated parties, he told reporters in a teleconference. “The RFS program is broken, and changing the point of obligation only creates new problems for an additional group of entities,” Macchiarola said.
API planned to submit comments later in the day to EPA on the matter, he noted. The American Fuel & Petrochemical Manufacturers petitioned EPA late last summer to move the obligation point from refiners and blenders to the owner of hydrocarbons at the rack, where excise taxes are collected (OGJ Online, Aug. 5, 2016).
EPA subsequently proposed denying petitions it received from others as well as AFPM, but solicited comments on the action (OGJ Online, Nov. 10, 2016). AFPM submitted final comments in support of its petition late the night of Feb. 22.
Policymakers should concentrate on fixing RFS problems associated with the blend wall and setting fuel policies consistent with vehicle compatibility, Macchiarola said. “Nearly 85% of vehicles on the road today were not designed for higher ethanol blends, such as E15, and many automakers say that using E15 could potentially void automobile warranties,” he said. “These higher ethanol blends threaten engines and fuel systems—potentially forcing drivers to pay for costly repairs, according to extensive testing done by both the auto and oil and gas industries.”
AFPM argued in its Feb. 22 comment that EPA has both sufficient justification and authority to grant the association’s petition to move the obligation point to rack wholesalers. “Doing so will make the RFS program more equitable, ease the administrative burden on EPA, and combat fraud,” the association said.
Move would reduce fraud
The agency continues to announce settlement agreements for fraudulent biofuel credits a decade after it established its Renewable Identification Numbers (RIN) program and nearly 3 years after EPA finalized its Quality Assurance Program, AFPM said. In 2016 alone, EPA announced settlement agreements or notices of violation for at least 121 million fraudulent RINs, the association noted.
“In addition to reducing the opportunity for fraud by shortening the RIN chain of custody between the point of compliance and the point of obligation, moving the point of obligation will also reduce the incentive for fraud,” AFPM said. “In particular, by moving the point of obligation and making necessary changes to [EPA’s Moderated Transaction System], EPA can reduce dysfunction in the RIN market, lowering the price of RINs, and ultimately reducing the financial incentive for criminals to attempt defrauding AFPM’s members.”
In a comment submitted on Feb. 17, Phillips 66 Co., which owns and operates 11 US refineries, said it supports moving the obligation point to rack sellers and called on EPA to begin the rulemaking process. “The proposed modification to the program will reduce the number of paper RIN credits that obligated parties are required to purchase from other entities and simplify obligated volume adjustments associated with exported volumes,” said Lawrence M. Ziemba, the independent’s executive vice-president, refining.
Phillips 66 fundamentally believes the RFS should either be reformed or repealed, Ziemba said. “Although changing the point of obligation would address some program inequities, EPA must recognize that barriers such as retail infrastructure compatibility issues, vehicle warranty concerns, and insufficient advanced biofuel technologies will continue to limit the increased use of renewable fuels,” Ziemba said.
Macchiarola noted that API has been reaching out to other groups on reforming the RFS, and seeing a good deal of support from a wide range of constituencies, including food suppliers, small engine manufacturers, restaurants, and some environmental organizations.
“A broad spectrum of interests understands the RFS is broken and needs to be reformed or repealed,” Macchiarola said. “Some of them come from different viewpoints, but we hope that this broad group, along with growing interest in Congress, will increase prospects for changes.”
Contact Nick Snow at [email protected].