	Introduction

The Energy Policy Act of 2005 (EPAct, P.L. The Energy Independence and Security Act of 2007 (EISA, P.L. Covered parties meet their obligations under the RFS by surrendering renewable fuel credits to EPA equal to the number of gallons in their annual obligation. These credits, known as Renewable Identification Numbers (RINs), are generated when a batch of biofuel is produced, and separated from the fuel by obligated parties (generally gasoline and diesel fuel refiners or blenders). Current RFS Requirements

For 2013, the RFS required the blending of 16.55 billion gallons of renewable fuel in transportation fuels, including at least 1.28 billion gallons of biomass-based diesel substitutes (BBD). Within the overall RFS mandate, there are sub-mandates for specific types of fuel. A gallon of other advanced biofuel (e.g., sugarcane ethanol) may be used to meet the advanced biofuel mandate and the overall mandate, but may not be used to meet the cellulosic or BBD mandates. Once the biofuel has been blended or sold, the RINs are detached, and can then be bought and sold like other commodities. EPA Moderated Transaction System (EMTS)

All RIN transactions, including generation, trade/sale/transfer, separation, and retirement, must be cleared through the EMTS. Under this "buyer beware" system those purchasing or receiving RINs must certify their validity on their own, and they are responsible for any fraudulent RINs they pass on to other buyers or submit to EPA for compliance. The Market for RINs

		RIN Prices

Because RINs may be bought and sold as commodities, there are RIN spot markets. Prices Since January 2013

Spot prices for conventional (corn-based) ethanol RINs rose dramatically at the start of 2013. On January 1, ethanol RINs were trading at roughly $0.07 per gallon, but they spiked to over $1.40 in mid-July, before dropping dramatically in the second half of 2013 ( Figure 6 ). Prices rebounded somewhat in early 2014. Several factors have been identified by stakeholders as potential causes for the run-up in prices. Fraudulent RINs

As noted above, in late 2011 and early 2012, EPA issued Notices of Violations (NOVs) to three companies (Clean Green Fuels, LLC, Absolute Fuels, LLC, and Green Diesel, LLC) that the agency alleges fraudulently generated a combined 140 million biodiesel RINs in 2010 and 2011. In December 2013 EPA issued another NOV to Imperial Petroleum, Inc. (and its subsidiary, e-Biofuels, LLC), and in January 2014 two men were indicted for RIN-related violations. Because of the "buyer beware" nature of the system, obligated parties who purchased the fraudulent RINs must pay fines for each RIN submitted (EPA and the companies have generally settled at about $0.10 per RIN), and must submit valid RINs to offset the fraudulent RINs. Quality Assurance Program

Because of these RIN fraud cases, EPA is looking at establishing a quality assurance program whereby RINs can be certified by third parties registered with EPA. EPA intends that such certification would provide obligated parties with an "affirmative defense" if RINs are later found to be fraudulent—that is, obligated parties would not be liable for civil penalties under the Clean Air Act for the use of such RINs. Key questions include whether such an affirmative defense would also eliminate the requirement to purchase make-up RINs. Establish a system where all certified RINs are valid for RFS compliance regardless of subsequent determination that they are fraudulent or otherwise deficient. How likely is fraud in the future, and what are the implications? The EMTS was established in part to address errors of the first three types. By 2022, the RFS requires the use of 36 billion gallons of renewable fuels, more than double the amount required in 2012. Various policies have been proposed to address these concerns, and the details of those policies will affect RIN markets as well as the relative benefits to different market players.
The federal Renewable Fuel Standard (RFS) was established in the Energy Policy Act of 2005 (EPAct) and significantly expanded in the Energy Independence and Security Act of 2007 (EISA). The RFS requires the use of renewable biofuels in transportation fuel—for 2013, the mandate was 16.55 billion gallons of renewable fuel. Within the larger mandate, there are sub-mandates ("carve-outs") for advanced biofuels (e.g., biomass-based diesel and cellulosic fuels). By 2022, the RFS requires the use of 36 billion gallons of renewable fuels, including 21 billion gallons of advanced biofuels. For 2014, EPA has proposed lower mandates than those scheduled in EISA.
The RFS is a market-based compliance system in which obligated parties (generally refiners and/or terminal operators) must submit credits to cover their obligations. These credits—Renewable Identification Numbers, or RINs—are effectively commodities that can be bought or sold like other commodities. For each gallon of renewable fuel in the RFS program, one RIN is generated. Each RIN is a 38-digit number, with blocks of digits corresponding to various data, including the year the RIN was generated, the producer of the fuel, and the type of fuel. RINs are valid for use in the year they are generated and the following year.
From the beginning of the RFS program, there have been concerns with RIN generation and the RIN market. Because of concerns over transposed digits, allegations of double-counting (intentional or unintentional) and other errors and inaccuracies, when EPA finalized rules for the RFS as expanded by EISA (the "RFS2"), EPA also established a new transaction system in an effort to address these concerns. All RIN transactions must be cleared through this system, called the EPA Moderated Transaction System (EMTS). From the beginning of the RFS2 EPA has maintained obligated parties must exercise due diligence. Under this "buyer beware" system those purchasing or receiving RINs must certify their validity on their own, and they are responsible for any invalid RINs they pass on to other buyers or submit to EPA for compliance.
In late 2011 and early 2012, EPA issued Notices of Violations (NOVs) to three companies that the agency alleges fraudulently generated a combined 140 million biodiesel RINs in 2010 and 2011. In late 2013 EPA issued an NOV to a fourth company; in early 2014 two men were indicted for fraud in a separate case. Because of these RIN fraud cases, EPA is looking at establishing a system whereby RINs can be certified by third parties registered with EPA. EPA is considering whether such certification would provide obligated parties with an "affirmative defense" if RINs are later found to fraudulent—that is, obligated parties would not be liable for penalties under the Clean Air Act for the use of such RINs. Key questions include whether such an affirmative defense would also eliminate the requirement to purchase make-up RINs. EPA proposed a plan in January 2013, but the rule has yet to be finalized.
Most RINs are bought and sold through private contracts. However, there are also spot markets for RINs, and in 2013, spot prices for conventional ethanol RINs rose dramatically. Prices rose from roughly $0.07 per gallon in early January to over $1.40 per gallon in mid-July. Through the second half of 2013, prices dropped even more rapidly, although they rebounded somewhat in early 2014. Various factors have been identified by stakeholders as potentially causing the price increase, including whether sufficient amounts of ethanol can be blended into gasoline to meet the RFS mandates and the extent to which non-obligated parties are speculating in RIN markets.
In the 112th and 113th Congresses several congressional hearings have been held and various bills have been proposed to address both RIN issues and the overall RFS.