By: L. Kyle Williams
Over the past year, several petroleum distributors, and other entities, have advocated for moving the point of obligation under the Renewable Fuel Standard (“RFS”), seeking to remove this responsibility from refiners and importers, and place it on “position holders” or those parties that blend renewable fuel into transportation fuel.
The RFS promotes increased blending of ethanol, biodiesel and other renewable fuels. Obligated parties—currently, refiners and importers—bear the responsibility of complying with annual renewable fuel volume obligations (“RVOs”) established by the U.S. Environmental Protection Agency (“EPA”). These parties ensure the requisite amount of renewable fuels gets blended into the fuel pool, to offset petroleum fuel production and, in turn, they receive Renewable Identification Numbers (“RINs”) for blending, which are credited toward fulfilling their RVO. Obligated parties can either blend the fuels, earning the corresponding RINs, or they can purchase them.
Valero Energy Corp. filed a petition for reconsideration with the EPA, asking it to change the definition of “obligated party”, as provided by the RFS to no longer include refiners or importers, but rather, “the entity that holds title to the gasoline or diesel fuel, immediately prior to transfer from the truck loading terminal or bulk terminal to a retail outlet, wholesale purchaser-consumer or ultimate consumer.” In addition, CVR Energy and the American Fuel and Petrochemical Manufacturers filed separate but similar requests with the EPA. Proponents of moving the point of obligation argue the current system is fraught with inefficiencies, and larger retailers have a competitive advantage by benefitting from profitable RIN sales. In addition, Valero claimed changing the point of obligation will incentivize the growth of renewable fuels, while the current system has the effect of limiting renewable fuel use. In its petition to the EPA, Valero further claimed the existing point of obligation “harm[s] renewable fuel producers, independent refiners, retailers and U.S. consumers.”
On November 10, 2016, the EPA announced that it proposed to deny all requests to change the point of obligation but will take public comment on such proposals to ensure it will “receive input from the wide variety of stakeholders that could be affected.” In its Proposed Denial, the EPA stated, “We are therefore opening a docket to formally receive comments on the petitions submitted to EPA to change the point of obligation in the RFS program from the refiners and importers of gasoline and diesel fuel to other parties, such as blenders or position holders of these fuels.” The comment period will last sixty days, beginning November 10, 2016. The EPA’s announcement comes after many trade associations, retailers and other entities discouraged any changes to the point of obligation, instead, advocating for the continuation of the current system. These parties include the National Association of Truckstop Operators, the American Petroleum Institute, and the National Association of Convenience Stores. According to these organizations, any changes in the point of obligation would harm consumers by negatively impacting the U.S. fuel market and would raise fuel prices.
The EPA has put forth a comprehensive report detailing its rationale for proposing to deny the requests. Its main arguments in favor of maintaining the current regime include: (1) the current program structure appears to be working to achieve the goals of the RFS program; (2) changing the point of obligation is not expected to result in the increased production, distribution and use of renewable fuels; (3) changing the point of obligation would significantly increase the complexity of the RFS program; and (4) changing the point of obligation could cause significant market disruption. While it is not readily known how the effects of the comment period or the recent U.S. Presidential election will impact this requested change, the EPA’s decision is of great importance to the industry and should be closely watched by industry professionals.