Legal Alert: EPA Issues Notice of Violation Alleging e-Biofuels, LLC Generated 33.5 Million Invalid RINs; EPA Plans to Seek Fines and Penalties from Refiners and Importers that Used RINs generated by e-Biofuels for RFS Compliance

Yesterday, December 18, 2013, the U.S. Environmental Protection Agency (EPA) issued a Notice of Violation (NOV) of the Clean Air Act’s Renewable Fuel Standard (RFS) to e-Biofuels, LLC and its parent company Imperial Petroleum, Inc. alleging that e-Biofuels generated 33,573,595 Biomass-Based Diesel Renewable Identification Numbers (RINs) (currently worth approximately $10 million) between July 1, 2010, and June 2, 2011, on biodiesel that was never actually produced by e-Biofuels.  Under the RFS, RINs are generated on each gallon of renewable fuel produced.  U.S. gasoline and diesel refiners, importers and blenders (known as “Obligated Parties”) are required to purchase and submit these RINs for compliance with the RFS. 

In addition to issuing an NOV to e-Biofuels and Imperial Petroleum, EPA is also sending notices to Obligated Parties that used the alleged invalid RINs for compliance purposes demanding that the Obligated Parties remove these alleged invalid RINs from their compliance reports and replace the RINs with purportedly valid 2012 or 2013 RINs.  EPA also plans to present an Administrative Settlement Agreement (ASA) to the Obligated Parties to resolve alleged civil violations of the RFS related to the use of alleged invalid e-Biofuels RINs.  If an Obligated Party fails to sign the ASA, EPA presumably would pursue a formal enforcement action against the Obligated Party.

EPA’s invalidation of the RINs generated by e-Biofuels comes on the heels of three prior actions over the past two years in which EPA invalidated at least 140 million RINs, worth at least $150 million.  EPA also entered into settlement agreements with at least 35 Obligated Parties that used the alleged invalid RINs generated by the three other alleged fraudulent generators.  These settlements required the payment of fines and replacement of RINs. 

EPA’s most recent action to request that Obligated Parties replace e-Biofuel RINs and enter into settlements with EPA for violations of the RFS is potentially more surprising and controversial than past actions because e-Biofuels may have generated some amount of renewable fuel—making it potentially difficult for EPA to identify specifically which RINs were validly generated and which RINs were invalidly generated by e-Biofuels.  As a result, certain Obligated Parties may contest EPA’s allegation that they used invalid e-Biofuels RINs.