RFS_Biodiesel

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HOW RFS QUALITY

REQUIREMENTS WILL IMPACT

BIODIESEL PRODUCERS

Douglas L. Batey and

Graham Noyes

Stoel Rives LLP

600 University Street, Suite 3600

Seattle, Washington 98101

206-386-7679, dlbatey@stoel.com

206-386-7615, jgnoyes@stoel.com

RFS Overview

• EPA sets standards for increasing the percentage of renewable fuels for motor vehicles

• Obligated parties: refiners or importers of gasoline in the 48 states

• Demonstrate compliance by owning sufficient credits to show the required percentage of their total gasoline imported or produced

• Credits implemented through Renewable

Identification Numbers (RINs) for each batch of renewable fuel

RINs

• A 38-digit number, containing coded information about the producer and the equivalent number of gallons of renewable fuel represented by the RIN

• Producers and importers must generate a RIN for each batch of renewable fuel produced or imported

• Must be listed on product transfer documents, and reported quarterly to EPA.

Examples of RIN:

Transferability of RINs

• Become freely transferable only after separation from the renewable fuel.

• RINs are separated only by the obligated party or by the blender (if blended into gasoline or diesel)

• After separation, RINs are freely transferable and may be owned by any party.

– Parties holding RINs must be registered with the EPA and must report to the EPA

• Obligated parties may acquire RINs to satisfy their volume requirements by buying renewable fuel or by buying RINs

• RINs have VALUE

What About Biodiesel?

• Biodiesel producers and importers must generate RINs and must register with the

EPA

• RINs for biodiesel (mono-alkyl ester) have a gallon equivalence value of 1.5, nonester renewable diesel has a gallon equivalence value of 1.7

• RINs are separated from the biodiesel when it is blended or exported, and are then freely transferable and can be sold

Biodiesel Quality

• EPA fuel regulations require that motor vehicle fuels and refiners be registered under 40 CFR part 79

– Testing data is required

– Biodiesel typically relies on compliance with ASTM D-6751and testing data of

NBB

• RFS defines “biodiesel” as fuel that is registered with EPA under 40 CFR part 79 and that meets ASTM D-6751

– ASTM D-6751 specifications: flash point, distillation temperature, viscosity, sulfur, copper strip corrosion, cetane, cloud point, carbon residue, free glycerin, phosphorous, etc.

Noncompliance With ASTM

D-6751

• The fuel would not meet the RFS’s definition of “biodiesel”

• The RIN would have reported the fuel as biodiesel and therefore the RIN would be invalid.

• Each party buying or selling the biodiesel or the RIN (after separation) would have acquired, passed on, and reported using the invalid RIN

• The originator and each transferor of the invalid RIN would have violated the RFS

• An obligated party may find itself in violation of its annual volumetric requirement for using invalid RINs.

More Consequences

• A party who causes another party to be in violation will be liable for the violation

• Violators are subject to a civil fine of up to

$32,500 per day of each violation plus any economic benefit or savings from the violation

• A parent corporation is liable for any violations committed by its subsidiary

• RESULT: A CASCADE OF

REGULATORY PROBLEMS AND

POTENTIAL FINES

Quality Problems- 2005

• NREL (National Renewable Energy Laboratory) Completed

Biodiesel Quality Control Survey in 2005

• Collected 27 B100 samples and 50 B20 samples from various downstream locations

• 15% of B100 samples did not meet ASTM D6751

• Most failed due to glycerin and acid number

• 18 of the 50 B20 blends contained either less than 18% or more than 22% biodiesel. B20 samples ranged from 9% to 98% biodiesel

• This survey preceded RIN requirements

2007 Quality Survey

• Contacted 107 producers

• Received samples from 56

• 90% of product in specification

• Large Volume Producers: 99% in spec

• Medium Volume Producers: 32% in spec

• Small Volume Producers: 28% in spec

• BQ 9000 Producers: 98% in spec

What is BQ9000

• Quality Control and Documentation Program Similar to ISO 9000 program

• Tailored to Biodiesel Industry

• Administered by BQ 9000 Accreditation Committee

• Producer and Marketer Categories

EPA Enforcement

• Biodiesel that does not meet ASTM specification

D6751 is not entitled to RIN credit

• Similarly, non-ASTM specification fuel is not entitled to Blender’s Credit

• No known EPA enforcement actions for out of specification fuel

What to Do

• Keep up to date on Developments

– Stoel Rives Law Bulletins

– NBB website or newsletter

• Source from high quality suppliers:

– BQ 9000 and/or

– Large Volume Producer

• Address Risk Contractually

– Responsibility for Fuel Quality

– Storage and Handling Requirements

– Supplier liability for consequential damages for out of specification fuel

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