Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

equirements by roughly 10 to 30 percent between 2009 and 2015. Our proposed 20 percent
cap lies in the midrange of these values.
As a result, we believe that a cap of 20 percent appears to be a reasonable way to
limit RIN rollover and provide some assurances to renewable fuel producers regarding
demand for renewable fuel. A cap of 20 percent would also ensure that many previous-year
RINs can still be used for current year compliance, providing some flexibility in the event of
market disruptions.
Despite the flexibility it would provide, a cap of 20 percent would not be guaranteed
to be sufficient to address every potential future supply shortfall or fluctuation in the
renewable fuels market. Thus we request comment on whether a higher cap, such as 30
percent, would be more appropriate. On the other hand, since EIA is projecting that a cap of
20 percent will be more than what is necessary in the first few years of the program to
address rollover, we also request comment on whether a smaller cap, such as 10 percent,
would be appropriate.
We also request comment on whether the Agency should adopt a provision allowing
the cap to be raised in the event that supply shortfalls overwhelmed the 20 percent cap.
Under this conditional provision, the Agency would monitor standard indicators of
agricultural production and renewable fuel supply to determine if sufficient volumes of
renewable can be produced to meet the RFS program requirements in a given year. Prior to
the end of a compliance period, if the Agency determined that a supply shortfall was
imminent, it could raise the cap to permit a greater number of previous-year RINs to be used
for current-year compliance. Although this approach would not change the required
volumes, it could create some additional temporary flexibility.
In addition to our proposed 20 percent cap, we also evaluated an alternative approach
for addressing the RIN rollover issue. Under this alternative, we would not employ a
uniform cap at all, but rather would require current-year RINs to be applied towards an
obligated party's RVO before any previous-year RINs were considered. This "last-in, firstout"
(LIFO) approach would eliminate the possibility that previous-year RINs could be used
to generate new excess current-year RINs, forcing them to expire. Although it would focus
the RIN rollover correction on obligated parties and would tailor it to the specific
circumstances of each party, this alternative approach would also create the need for an
additional regulatory prohibition. Under this approach, RINs held by non-obligated parties
would not automatically expire. As a result, non-obligated parties could in essence serve as a
bank of previous-year RINs, thus permitting the rollover to continue despite the imposition of
a LIFO protocol. To prevent this, the LIFO approach would have to include a requirement
that non-obligated parties be prohibited from owning previous-year RINs. If a non-obligated
party were to own a current-year RIN on December 31 and hold it until January 1, that RIN
would automatically expire. In order to enforce this provision, the Agency would also need
to keep track of and receive reports on all RIN transactions for non-obligated parties by their
transaction date.
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