EPA Enforcement of RFS2 Heats Up

Source:  Stoel Rives, November 9, 2011.

The Environmental Protection Agency (EPA) is exercising its authority and enforcing the requirements of the Clean Air Act’s renewable fuel standard (RFS) program. The EPA issued twenty-four notices of violation on November 7, 2011, to petroleum refiners, importers and exporters of renewable fuel. Following a filing last month of criminal charges of wire fraud, money laundering, and violations of the Clean Air Act (CAA) against an individual, Rodney R. Hailey, the EPA issued civil notices of violations (NOVs) to the entities that relied upon the allegedly invalid Renewable Identification Numbers (RINs) generated by Mr. Hailey. The companies involved are obligated parties under the RFS program and thereby, subject to Renewable Volume Obligations (RVOs) designed to demonstrate compliance with the renewable fuel standards set by Congress — 36 billion gallons by 2022.

Under the CAA’s current renewable fuel standards (RFS2), various entities throughout the renewable fuel supply chain including generators, importers, distributors, and blenders are subject to the complicated regulatory framework that emphasizes two important policy goals for the United States: (1) decreased reliance upon foreign sources of oil and (2) reductions in greenhouse gas emissions. To track achievement toward these goals, as well as the explicit mandate for renewable fuel, RINs must be generated by producers and importers of renewable fuel through the EPA’s electronic tracking system and be done so in close adherence to the rules administered by the EPA under the RFS2 program. RINs are equivalent to credits that are assigned each gallon of fuel, based upon the amount produced and the type of production process.

Obligated parties, like those issued NOVs by EPA, must acquire sufficient RINs to demonstrate compliance with applicable RVOs. EPA’s electronic RIN trading system provides the framework for producers, importers, exporters, and obligated parties to generate, report, use, and transfer RINs. According to the EPA’s announcement of the enforcement filings against these twenty four obligated parties: “The RFS2 regulations provide that no person shall use invalid RINs to meet their RVOs, regardless of the person’s good faith belief that RINs were valid at the time they were acquired.”

These matters are among the first enforcement actions initiated by the EPA under the RFS2 requirements. EPA is claiming the statutory maximum penalty of $37,500 per day per violation plus the economic benefit afforded the companies. Generally, penalties are subject to negotiation and ultimately reduced upon presentation of relevant information by the respondent. Like with other multi-target enforcement initiatives, those companies that resolve their allegations with EPA early may get the best outcomes. For a detailed assessment of RFS enforcement provisions, see EPA Enforcement of the Renewable Fuel Standard. For more information on Stoel Rives experience with the CAA and RFS2, please contact:

Graham Noyes at (206)386-7615 or jgnoyes@stoel.com
Krista McIntyre at (208) 387-4239 or kkmcintyre@stoel.com
Martin Banks at (801) 578-6975 or mkbanks@stoel.com
Sara Bergan at (612) 373-8819 or sebergan@stoel.com