Improper and Illegal RIN Trading Practices

It has come to our attention that certain RIN transactions are being conducted in a manner that is not consistent with the regulations and may subject the violator to civil penalties.

Below are three situations that we have been told have occurred involving RIN transactions. For each situation, the associated problems are explained and proper remedial actions are provided. If a violation has occurred, the remedial actions will help correct the violation. Such remedial acts will be considered by EPA in mitigating any penalty imposed because of the violation.

Situation 1:

Assigned RINs are transferred to a party with a volume of renewable fuel using an invoice as the title-transferring Product Transfer Document (PTD). After the sale has been made, it is discovered that there was either a billing or volume error. Subsequently, the seller "recalls" the RINs originally assigned to the volume of fuel and issues a corrected PTD, typically a reissued invoice, referencing different RINs; i.e., the seller previously sold renewable fuel to the buyer with properly assigned RINs and while correcting the invoice, the seller assigns different RINs to the same volume of fuel.

Problem: First, if the seller in this case is a renewable fuel producer, then transferring a volume of renewable fuel without the correct number of RINs attached is a violation of 80.1128(a)(6). Second, for any party selling renewable fuel with assigned RINs, the practice of "recalling" RINs and reissuing different RINs is a violation. The potential violation results from a) the requirement that assigned RINs must be transferred along with the transfer of a specific volume of renewable fuel, and, b) the prohibition against transferring assigned RINs without simultaneously transferring ownership of a volume of renewable fuel to that same party on the same day. See §80.1126(e); 80.1128(a)(3); 80.1160(b)(4). Third, since ownership of assigned RINs is transferred when ownership of the fuel is transferred, any assigned RINs become the possession of the buyer at the time the RINs are received by the buyer. Therefore, in the situation above, the selling party no longer owns the valid RINs that were originally transferred with the volume of renewable fuel, and the selling party cannot simply "recall" RINs that the party no longer owns in order to issue new RINs.

Remedial Actions:

Where the situation involves an error which requires the party to issue a new invoice but the error does not affect the RINs, such as a billing error, the reissued invoice should reference the original RINs. Under no circumstances should a party assign different RINs to the same volume of fuel that was previously transferred to the buyer with properly assigned RINs.

Remedial Action for Producers who are not Marketers

Where the situation involves a volumetric error, error in calculation in the volume of fuel, or an error in the number of RINs transferred, two situations may arise:
- Too few RINs were transferred (deficit to buyer). The missing RINs are determined by the amount originally transferred and the amount that was supposed to be transferred based on the volume. These missing RINs can be transferred from the seller to the buyer from another or the same batch of RINs, which have not yet been sold. Therefore, no reissuing of RINs occurs, but the party in surplus will make up the deficit.
- Too many RINs were transferred (excess to buyer). The equivalent amount of RINs, based on the volume, is the correct amount that is in possession of the buyer. The excess RINs are RINs sold without renewable fuel. For the excess RINs, both parties should follow the remedial actions in Situation #2.

Remedial Action for Marketers and Producers who are also marketers

Where the situation involves a volumetric error, error in the calculation in the volume of fuel, or an error in the number of RINs that was transferred:
- The regulations allow the amount of RINs to be transferred to vary from 0 to 2.5 times the volume of renewable fuel sold. As long as the number of RINs originally transferred with the volume of renewable fuel does not exceed 2.5 times the volume of fuel, the seller will not be deemed out of compliance.

Situation 2:

Assigned RINs (with a K code of 1) are transferred to a buyer, but no renewable fuel accompanies the RINs.

Problem: The regulations specify that "an assigned RIN cannot be transferred without simultaneously transferring a volume of renewable fuel to the same party." See §80.1128(a)(3). In addition, the regulations state that "no person shall: transfer to any person a RIN with a K code of 1 without transferring an appropriate volume of renewable fuel to the same person on the same day. See §80.1160(b)(4). Thus, an attempt to transfer assigned RINs without a volume of fuel is a violation under EPA regulations and the ownership of the RINs does not transfer to the would-be buyer.

Remedial Actions:

Under no circumstances should any party attempt to transfer assigned RINs without associated renewable fuel or transfer assigned RINs that were acquired without renewable fuel.
If this violation is discovered, the owner of the RINs (the "seller" in this transaction) should immediately inform the "buyer" that they do not own the RINs. In addition,
- If the transaction was not yet reported to EPA, then the parties should transfer the RINs back to the "seller" and keep all documentation of the transaction for their records.
- If the transaction was reported to EPA, then the parties should transfer the RINs back to the "seller" and keep all documentation of the transaction for their records. In addition, both parties must send a letter to EPA Fuels Program indicating that the transaction was a violation and to nullify the transaction in EPA records.

Mailing Addresses:

US Mail:
U.S. Environmental Protection Agency
Fuels Programs (6406J)
1200 Pennsylvania Avenue, NW
Washington, DC 20460

Commercial Delivery:
U.S. Environmental Protection Agency
Fuels Programs
Room 647C; 202-343-9038
1310 L Street, NW
Washington, DC 20005

Situation 3:

A PTD is sent several weeks after the transfer of custody of the fuel, or assigned RINs are transferred after the PTDs are sent.

Problem: The regulations specify that any time a party transfers ownership of a renewable fuel, the transferor must provide to the transferee documents which identify the fuel and provide information regarding assigned RINs. See §80.1153(a). The regulations identify the PTD as the document used by the parties to transfer ownership of a volume of renewable fuel. See §80.1153(a)(5). Because a PTD must be provided "any time" that ownership of a volume of fuel is transferred, we expect that the PTD normally will be transferred with the custody of the fuel or shortly thereafter.

The regulations also require that assigned RINs must be recorded on the PTD used to transfer ownership of the fuel or on a separate document that is transferred to the same party on the same day as the PTD used to transfer ownership of the fuel. The regulations are clear with regard to this issue. See §80.1128(a)(7); Q&As 9.7 and 9.12.

Remedial Actions:

While there is no regulatory requirement addressing the timeliness of transferring the PTD, EPA believes that best industry standards and practices apply. Therefore producing title transfer documents within a week may be average and acceptable, several weeks would appear to be excessive and may be an indication that the document used by the parties to fulfill the PTD requirement was not the same document used by the parties to transfer ownership of the fuel as required by the regulations. EPA would view this situation as especially problematic if the PTD requirements were not fulfilled and the recipient of the renewable fuel had already been selling the fuel to other parties for an extended period of time.
Where an invoice is used as the PTD, parties must either include RIN information on the invoice and/or provide RIN information on a separate document which is transferred to the buyer within 24 hours of the transfer of the invoice and which is uniquely referenced on the renewable fuel PTD. See §80.1153(a)(5).

For more information, contact Scott Christian (Christian.Scott@epamail.epa.gov) 202-343- 9498 or Anthony Miller (Miller.Anthony@epamail.epa.gov) 202-343-9728.

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