Section 80.1429(f) of the existing regulations provides that any person who uses a renewable fuel for an application other than transportation fuel, heating oil or jet fuel use must retire RINs if RINs were received with that renewable fuel.  Section 80.1429(f) was intended to require that the person that uses RIN generating fuel for a non-qualifying purpose retire RINs received with the fuel so that they cannot be used for RFS compliance.  This approach makes sense since the party that uses the fuel for a non-qualifying purpose is the party that is choosing the non-qualifying use and has the most direct knowledge about how the fuel is used.  We propose to amend the regulations to require any person who uses fuel for which RINs were generated for a non-qualifying purpose to retire the appropriate type and number of RINs, regardless of whether RINs were received with the fuel.  Parties using a renewable fuel need only review the PTDs associated with the fuel to ascertain if RINs were generated for the fuel, or if the biofuel is RIN-less.   If RINs were generated and have been separated from the fuel, the RINs are bought and sold in the marketplace under the assumption that the associated fuel will be put to a qualifying use.   We believe that any person using fuel for which RINs have been generated for a non-qualifying use should make the RIN system whole by retiring an equivalent number and type of RIN.   This approach would place the burden of ensuring an appropriate number of RINs is retired if the fuel is not used for a qualifying purpose on the party with the best knowledge about how the fuel is used.  In order to accomplish this, we propose to remove and reserve paragraph 80.1429(f) of the regulations and propose adding a new section 80.1433 to require parties that use or designate for use fuel for which RINs were generated in an application other than transportation fuel, heating oil, or jet fuel to retire an appropriate number and type of RINs within specified timeframes.   We further propose new subsection 80.1460(g) which would prohibit a person from using qualifying renewable fuel for which RINs were generated in an application other than as transportation fuel, heating oil, or jet fuel, unless the requirements of  80.1433 have been met. The proposed amendments would require retirement of applicable RINs within a 10-20 day period (depending on whether the fuel was purchased with assigned RINs or not).   As discussed below, EPA is proposing that a similar RIN-retirement provision apply to exporters of fuel or which RINs were generated.  The 10-20day RIN retirement requirement would replace the existing annual exporter RVO calculation and compliance demonstration.

	Since parties using RIN-generating fuel for purposes other than as transportation fuel, heating oil or jet fuel would be required to retire RINs for such fuel under today's proposal, we believe that it would also be appropriate to allow obligated parties who may have purchased the original RINs generated for this fuel to use those RINs for compliance purposes, under certain conditions.   We propose to amend 40 CFR 80.1460(c)(2) and (3) to prohibit obligated parties who acquire RINs for fuel that is ultimately used for non-qualifying purposes from using these RINs for compliance, where the obligated party itself used the fuel for a non-qualifying purpose but failed to retire an appropriate number of RINs, or knows that the fuel associated with the RINs they generated for that fuel was used for a non-qualifying purpose, but the party or parties engaged in that fuel use failed to retire an appropriate number of RINs.  We also propose to amend section 80.1460 to prohibit the use of a fuel for which RINs have been generated for a purpose other than as transportation fuel, heating oil or jet fuel unless the party engaged in that use complies with the requirements of 80.1433.  Amending the regulations in this manner will provide obligated parties with assurance that a RIN that was properly generated for a fuel that was designated and intended by the fuel producer to be used as a transportation fuel, heating oil or jet fuel may be used for compliance purposes, even if a third-party uses the fuel associated with the RIN for a non-qualifying purpose, so long as a sufficient number of RINs are retired as required by 80.1433.

	4. 	Treatment of Improperly Separated RINs

	Section 80.1431(a)(1)(viii) provides that a RIN that was improperly separated pursuant to 80.1429 is invalid.  Under section 80.1460(c)(1), obligated parties may not use invalid RINs for compliance purposes.   EPA proposes to remove 80.1431(a)(1)(viii) of the regulations, and instead add section 80.1460(h), identifying the improper separation of RINs as a prohibited act.  The net effect of these changes would be to allow obligated parties to use RINs that were improperly separated for compliance purposes, since the RINs would no longer be considered invalid.   However, improper RIN separation would be a prohibited act under the regulations.

	EPA also seeks comment on whether the RFS regulations should instead maintain section 80.1431(a)(1)(viii), but also require a more comprehensive and robust mechanism to allow parties that acquire separated RINs and EPA to evaluate whether the RINs were properly separated and used for a qualifying purpose.  The goal would be to make it easier for EPA and obligated parties to determine whether RINs are valid.   These mechanisms could require a designate and track approach, with corresponding recordkeeping and reporting requirements, similar to the program set forth in the diesel sulfur regulations at 40 C.F.R. Part 80, Subpart I.  In general, under Subpart I, each time custody of fuel is transferred from one facility to another facility, the transferor must designate the fuel and record its volume. The party who receives custody of the fuel must record the same information, to ensure that each party relies on the same designation and volume for its own compliance purposes.   Maintaining proper PTDs, with proper designations, is also part of the diesel sulfur program's recordkeeping requirements.  EPA seeks comment on whether the RFS regulations should establish similar designation and track requirements addressed at tracking and recording RIN separation events and end use of renewable fuels.

	Additionally, EPA requests comment on whether we should require RIN separators to include with their quarterly reports additional records related to qualifying separation events that are already required as part of the recordkeeping regulations.  See § 80.1454 for a description of the records that must be retained by parties.  EPA believes requiring this information to be reported quarterly will allow EPA to review the information in a more timely than in the existing structure, where EPA must request it from RIN separators on an ad hoc basis.  Additionally, all parties who separate RINs must sign and certify that the information reported to EPA under the RFS program is true and accurate.

	Inaccurate, misleading, and/or false reports submitted to EPA may be used in a criminal prosecution against the submitter and other culpable persons.  Enhanced reporting requirements for RIN separators would facilitate EPA's ability to investigate and prosecute persons who engage in RIN separation violations.   EPA seeks comment on the type and scope of reporting that would most likely assist EPA in identifying RIN separation violators.

      5.	Requirements for Parties that Designate or Use Renewable Fuel in an Application that is not Transportation Fuel, Heating Oil, or Jet Fuel

	EPA is proposing a new section §80.1433 that states the requirements for those parties that designate or use a fuel for which RINs have been generated for a use other than transportation fuel, heating oil, or jet fuel.  As discussed in the amendments to section §80.1429, EPA is proposing to require the retirement of an equivalent number and type of RINs by the party that designates or uses such a fuel for a non-qualifying use.  This approach will make the RIN system "whole" while also minimizing transaction costs for all parties and EPA.  The proposed regulations specify formulas for a party putting fuel for which RINs were generated to a non-qualifying use to use in calculating the number of RINs that should be retired. However, EPA also seeks comment on the alternative of requiring such users to refer to the PTD accompanying the fuel to determine the number and type of RINs to retire. Proposed section 80.1453(a) would require RIN generators and all subsequent transferors of renewable fuel to identify on PTDs the number and type of RINs generated for it.  If this section is finalized it could offer a more accurate and easier system for identifying the correct number of RINs that should be retired in order to make the RIN system whole when biofuel for which RINs were generated are put to a non-qualifying use.

	EPA requests comments on whether we should include a provision to exempt small entities from the requirements proposed in 40 C.F.R. §80.1433.  EPA is taking comment on the extent to which it would be appropriate to relieve certain small entities from the requirement of retiring RINs when they use fuel for which RINs were generated for a non-qualifying purpose.  EPA understands there are instances, such as emergencies, where small parties may have no practical choice but to use fuel that was produced as renewable fuel for a use other than as transportation fuel, heating oil or jet fuel.  This exemption would allow small parties to avoid not only the RIN retirement requirement in 80.1433 itself, but also the RFS2 requirements of registering, recordkeeping and reporting that are associated with being a RIN owner.  EPA envisions that any such exemption  would  apply only to  end users of  fuel for which RINs have been generated who are themselves small entities, and only for a very small amount of fuel.  We seek comment on a possible maximum volume of fuel, such as 200 to some maximum number of gallons per year that would be exempt from 80.1433 requirements for qualified small entities.

	We also seek comment on factors such as the number of employees or value of assets that could be used to identify qualified small entities.   EPA requests comment on the proof and or documentation we should collect in order to identify parties as small entities entitled to the exemption.  We propose that this provision would not apply to parties that designate renewable fuel for a non-qualifying end use.  Instead, the provision would only apply to those parties who actually use fuel for which RINs have been generated for a non-qualifying use, such as a stationary generator.   We believe that it is unlikely that parties engaged in the transfer and re-designation of fuel uses have a need for a small volume exemption to § 80.1433, but EPA solicits comment on this issue.

	C.	Treatment of Confidential Business Information

	EPA is proposing to summarize and publish registration and QAP information required under 40 CFR 80.1450 (b) and (c) from independent third-party auditors and renewable fuel producers and importers that are registered with the RFS program, and that such summarized information shall not be considered confidential.  This information does include QAP plans and independent engineering reviews.  In cases where QAP plans and independent engineering reviews include proprietary information, we propose that registrants provide the Agency with two versions of those documents, one clearly marked as containing CBI, with appropriate areas denoted as CBI, and a second public version with CBI information redacted.

	Additionally, we are proposing to publish monthly, quarterly and/or annual averaged information, required to be reported under 40 CFR 80.1451(b) for renewable fuel producers and importers, on a corporate and/or facility-by-facility basis, and that such averaged information shall not be considered confidential.

	We believe that the added transparency of making this information available to the public, along with the implementation of the QAP process, will strengthen the RFS program and act as a deterrent to fraudulently generated RINs.  We welcome comment on these proposals to publicize this registration and reporting information.

D.	Proposed Changes to Section 80.1452  -  EPA Moderated Transaction System  (EMTS) Requirements  -  Alternative Reporting Method for Sell and Buy Transactions for Assigned RINs

	Reporting and product transfer document (PTD) requirements, found in sections 80.1452 and 80.1453, respectively, currently state that the reportable event for a RIN purchase or sale occurs on the date of transfer.  Sellers must report the sale of RINs within five (5) business days of the reportable event via the EPA Moderated Transaction System (EMTS).  Buyers must report the purchase of RINs within ten (10) business days of the reportable event via EMTS.  The date of transfer is the date on which title of RINs is transferred from the seller to the buyer.  Some buyers and sellers of assigned RINs have expressed concerns with these requirements stating they have difficulty determining the date of transfer since title of the renewable fuel is not transferred until the fuel physically reaches the buyer.  Some transactions, for example those by rail or barge, may take several weeks, and their current accounting systems do not include a means for capturing the buyer's receipt date.

	EPA understands this concern, but also recognizes that some regulated parties have modified their accounting systems to address the current reporting and PTD requirements in RFS2.  We also believe that for parties separating, retiring, and selling or buying separated RINs, the current reporting and PTD requirements are effective and should remain unchanged.  Therefore, at this time EPA is not proposing to replace existing requirements, but is instead proposing an additional, alternative method for reporting sell and buy transactions involving assigned RINs only.

	The proposed alternative method for sell and buy transactions of assigned RINs would redefine the reportable event for both the seller and the buyer, introduce a unique identifier that the seller must provide to the buyer, and require the buyer to report the date of transfer.  Buyers and sellers would need to agree on which method they would be using to report transfers of assigned RINs; either the current method or the alternative method.  EPA believes that this alternative would provide the regulated community with the flexibility to address their reporting concerns and also provide EPA with the data necessary to effectively administer and enforce transactions of assigned RINs.  EPA welcomes comment on this proposed alternative method for reporting assigned RIN buy and sell transactions.

	We propose that sellers of assigned RINs under the alternative method be required to do the following:

   *          Within five (5) business days of shipping renewable fuel with assigned RINs, report a sell transaction, using the alternative method, via EMTS;
   *          Include in the EMTS sell transaction report other required information per section 80.1452; and
   *          Provide a PTD to the assigned RIN buyer with a unique identifier, also reported via EMTS, in addition to the information in section 80.1453.  The date of transfer is not required for the alternative method.

We propose that buyers of assigned RINs under the alternative method be required to do the following:

    *          Within five (5) business days of receiving a shipment of renewable fuel with assigned RINs, report a buy transaction, indicating use of the alternative method, via EMTS;
    *          Include in the EMTS buy transaction report other required information per section 80.1452;
    *          Include in the EMTS buy transaction report the unique identifier provided by the seller; and
    *          Include in the EMTS buy transaction report the date the renewable fuel was received, i.e. the date of transfer.

If this proposed alternative method is finalized, the EMTS would be modified to accept such transactions.  EPA would provide additional instruction and guidance at the time of the new EMTS version release.  EPA invites comment on all aspects of this proposal.

IX.	Impacts

	The quality assurance program that we are proposing in today's NPRM would provide a voluntary mechanism for regulated parties to verify that RINs are validly generated, provide an affirmative defense against violations if a regulated party transfers an invalidly generated RIN or uses it for compliance, and provide clarity regarding the responsibility of regulated parties to replace invalidly generated RINs.  The proposed program would not change the volume requirements of the RFS program, but instead would merely help to ensure that those volume requirements are met.  Likewise, the proposed changes to the regulations governing export of renewable fuel, separation of RINs from wet gallons, and qualifying uses of renewable fuel would also be intended to ensure that the RFS volume requirements are met with qualifying renewable fuel.  As a result, there would be no change to the expected impacts of the RFS program in terms of volumes of renewable fuel consumed or the associated GHG or energy security benefits.  Instead, the primary impacts of the quality assurance program would be improved liquidity in the RIN market and improved opportunities for smaller renewable fuel producers to sell their RINs.

	The quality assurance program that we are proposing in today's action would be voluntary.  As a result, there would be no obligatory costs.  There would likely be costs associated with an individual party's participation in the quality assurance program.  However, the fact that the quality assurance program would be voluntary means that a decision to participate will be made independently by each regulated party, and thus we cannot estimate the costs that might be incurred for the nation as a whole.  Furthermore, any costs incurred would only be borne if the industry believed that those costs were less than current costs in the marketplace resulting from efforts to verify, acquire, and trade RINs.

	In the discussion below, Section IX.A addresses direct costs associated with implementing Quality Assurance Plans (QAPs), such as the time required to develop a QAP and the associated recordkeeping and reporting, site visits to renewable fuel production facilities, costs for accounting services, etc.  Section IX.B addresses potential costs associated with RIN replacement mechanisms that would be required under Option A.

	A.	Direct Costs for Implementing QAPs

	Currently, there are approximately 485 biofuel producers operating more than 600 biofuel production facilities.  These numbers are expected to increase as the biofuel market expands.  While it is unlikely that all biofuel producers would opt to participate in the quality assurance program, that was the assumption for these cost estimates in order to reflect the maximum potential cost of the program.

	EPA staff met with seven parties who are already developing RIN validation programs for the biofuels industry.  We also met with several industry groups and obligated parties which have been affected by RIN fraud.  These parties all provided informal estimates of the costs associated with this type of quality assurance program which was used to inform our cost calculations.

	For those biofuel producers who opt into the quality assurance program, each biofuel production facility must be visited and assessed as part of any audit conducted under the proposed quality assurance program.  An auditor would use an approved QAP as the basis for the verification of biofuel produced and RINs generated at a facility.  In order to verify production, the auditor must conduct site visits, review documents, and contact entities that do business with the facility.  The proposed components of audits are described in Section VII.

	We are proposing that production facilities should be visited on a quarterly basis.   New production facilities would be visited prior to verification of any RINs and, subsequently, according to the standard quarterly schedule.  We expect that each visit could take from one to several days, depending on the size and complexity of the facility, the availability of records, changes since the last audit, etc.  For some components of the audit, we propose to require ongoing, or batch-level, monitoring.  The QAP would be required to provide details of the means for collection and evaluation of the data collected on an ongoing basis.

	Tables IX.A-1, IX.A-2, and IX.A-3 below itemize the activities anticipated for each biofuel production facility audit.  The estimates include costs incurred by the biofuel producer (Table IX.A-1), the auditor (Table IX.A-2), and the EPA (Table IX.A-3).  This table does not include costs associated with the RIN replacement mechanism that some QAP providers may acquire to cover loss in the event of RIN fraud.  These costs are discussed separately below.

                                  Table IX.A-1
              Costs to the Biofuel Producer for Implementing a QAP

 Category
                                    Manager
                                      Time
                                  Prof./Tech.
                                      Time
                                    Clerical
                                      Time
                                      No.
                                    Per yr.
                                    Capital
                                       $
                                     Total
                                     Hours
                                     Total
                                       $
 Site Visit
                                       1
                                       16
                                       4
                                       2

                                       42
                                     3,588
 Reporting
                                       2
                                       12
                                       4
                                       3

                                       54
                                     4,560
 Recordkeeping
                                       0
                                       0
                                       2
                                       3

                                       6
                                      222
                                                                          TOTAL

                                      102
                                     8,370

                                 Table IX.A-2
                Costs to the QAP Auditor for Implementing a QAP

 Category
                                    Manager
                                      Time
                                  Prof./Tech.
                                      Time
                                    Clerical
                                      Time
                                      No.
                                    Per yr.
                                    Capital
                                       $
                                     Total
                                     Hours
                                     Total
                                       $
 Auditor:

 Contract Init.
                                       4
                                       4
                                       2
                                       1
                                      530
                                       10
                                     1,428
 Site Visit
                                       4
                                       16
                                       0
                                       1
                                     1,060
                                       20
                                     3,036
 Follow-up
                                       2
                                       28
                                       5
                                       3
                                     1,060
                                      105
                                     12,459
 Monitoring
                                       2
                                       50
                                       0

                                       52
                                     5,020
 Consultants

                                       4
                                     1,000

                                     4,000
 Reporting
                                       0
                                       4
                                       12

                                       16
                                     1,656
 QAP Prep
                                       2
                                       16
                                       4

                                       22
                                     3,808
 EMTS
                                       0
                                       25
                                       0

                                       25
                                     2,400
 Recordkeeping
                                       0
                                       12
                                       25

                                       37
                                     2,077
                                                                          TOTAL

                                      250
                                     38,839

                                  Table IX.A-3
                    Costs to the EPA for Implementing a QAP

 Category
                                    Manager
                                      Time
                                  Prof./Tech.
                                      Time
                                    Clerical
                                      Time
                                    Capital
                                       $
                                     Total
                                     Hours
                                     Total
                                       $
 Implementation

                                       3

                                       3
                                      267
 EMTS Data Management

                                       1

                                       1
                                       89
                                                                          TOTAL

                                       4
                                      356

 	1.	Time and Cost Assumptions

	The specific times estimated for each task are shown in Tables IX.A-1, IX.A-2, and IX.A-3.  These estimates are based on a number of basic assumptions.  An initial site visit of the facility to be audited is assumed to require two days, and include estimated travel and per diem costs.  For simplicity, we have estimated an average $600 for airfare, $150 for lodging, and $80 for the per diem expenses.  It is assumed that a plant manager would meet briefly with the auditor, and that a plant chemist or other professional would escort the auditor throughout the visit.  Some clerical support would be required to locate files for the related document reviews.

	It was assumed that an auditor would travel and spend half a day on contract initiation.  Any follow up site visits were assumed to be shorter in duration, as the auditor would now be familiar with the facility and its normal operation.  A substantial amount of the auditor's time would be spent in follow up documentation of the facility, such as checking feedstock suppliers, process fuel suppliers, doing volume and mass balances, and monitoring the ongoing operation of the facility.  It was assumed that an auditor would employ specialized consultants and/or local agents to perform some portion of the audit support.

	In addition to tracking facility operation, an auditor would also be responsible for preparing the QAP, maintaining recordkeeping, monitoring and/or brokering activities on EMTS, and assisting with RFS reporting requirements.

	2.	Labor Cost Assumptions

	The labor costs used in this cost estimation are average mean wages for each labor category, as provided in the Bureau of Labor and Statistics Report dated May 2011.  Based on this data, we used the following hourly wages for each employee type:

		Managerial			$55.04 per hour
		Technical/Professional	$47.81 per hour
		Clerical			$18.35 per hour

Doubling to account for company overhead and benefits, and for convenience, rounding up to the dollar, gives the following hourly rates:

		Managerial			$110 per hour
		Technical/Professional	$96 per hour
		Clerical			$37 per hour

For the Agency costs, the work was assumed to be performed by a GS-13 technical employee, doubled and rounded up, for an hourly rate of $89.

	3.	Cost Estimate Results

	We made our total cost estimate based on the number of registered biofuel producers in the CDX as of July 2011, assuming that all parties choose to participate in the voluntary quality assurance program.  This assumes 485 RIN generators with 600 biofuel production facilities.  This results in a total cost for the program of $27,576,450.  If all parties are participating in the program and all RINs are verified, this results in a per RIN cost of less that $0.01.  However, these costs are assumed to be linear and there are no economies of scale.  Therefore, the per RIN cost will vary depending on the number of RINs generated by each fuel producer.  The following section includes a number of scenarios based on the size of the plant, and the QAP options that can be chosen.

	B.	Costs for RIN Replacement Mechanisms

      For reasons described previously, some QAP providers may choose a replacement mechanism to insure against invalid RINs.  Such mechanisms would be required under Option A, but would not be required under Option B.  There is large uncertainty in estimating the costs of these mechanisms because it is an entirely new market.  Informal discussions with potential QAP auditors, as well as other parties involved in similar markets or financial surety mechanisms in general, have suggested a broad range of potential costs.  For these reasons the costs for such a mechanism were not included in the analysis above, and EPA welcomes comments on the cost impacts of any potential financial surety mechanisms.

      In order to fully inform cost impacts of the various QAP options, we discuss the relevant cost factors of the three possible types of mechanisms discussed in Section IV above.  The discussion includes RIN banks, RIN escrow accounts, and other traditional financial instruments. As noted previously, these mechanisms are not intended to be inclusive of all possible ways a RIN replacement mechanism could work, and are merely suggestions of potential pathways Option A auditors might follow.

	A RIN bank is a managed repository of valid audited RINs which are available to all members of the bank for replacement purposes.  The costs associated with a RIN bank are directly proportional to the value of the RINs banked, and the number of banked RINs required to meet the obligations of the bank members.  There would also be bank management costs, which would be impacted by the number of bank members, and how the bank is managed in terms of RIN deposit, withdrawal, update, and replacement.  In addition, bank managers would need to come up with a system to maintain current year RINs in the bank, which may involve additional costs for the sale of expiring RINs and any differential in the value of the RIN at the time of deposit and the time of sale or release.  These costs would be born by the members of the bank, but would likely be passed on to RIN purchasers to the maximum extent possible.  These parameters will vary so much from bank to bank that it is impossible to estimate an average per RIN cost across the entire program.  However, it is reasonable to assume that the cost would be effectively the per RIN value of banked RINs plus some fractional percentage to cover management costs.

	A RIN escrow account would work very much like a RIN bank, but would be funded by a single auditor instead of a group of auditors, and would be supervised and managed by a third-party escrow agent.  The advantage of this option is that an auditor would have total control over the funding of the escrow.  However, an auditor using an escrow account would be solely responsible for the funding of the account, and so would be required to maintain a balance equal to a much larger percentage of its potential replacement responsibility than it might be if using a RIN bank.  The cost of a RIN escrow account is entirely dependent upon the number and value of the RINs covered by the escrow.

	Traditional financial instruments, such as surety bonds, letters of credit, or expanded insurance coverage, are also options under Option A.  The costs for this type of coverage is dependent on the level of risk determined by the surety provider, as well as the value of the RINs to be covered.  This type of financial instrument would most likely provide a maximum dollar amount of coverage, which would translate into a per RIN cost depending on the number of RINs covered, relative to the number of RINs audited by the the QAP provider purchasing the financial protection.  EPA has learned that the cost of these policies vary greatly among the parties looking into these options.  For this reason, this type of financial protection was not included in the cost analysis outlined above.

X.	Public Participation

	We request comment by [Insert date 30 days after publication in the Federal Register] on all aspects of this proposal.  This section describes how you can participate in this process.

	A.	How do I submit comments?

	We are opening a formal comment period by publishing this document.  We will accept comments through [insert date 30 days after date of publication in the Federal Register].  If you have an interest in the program described in this document, we encourage you to comment on any aspect of this rulemaking.  We request comment on various topics throughout this proposal.

	Your comments will be most useful if you include appropriate and detailed supporting rationale, data, and analysis.  If you disagree with parts of the proposed program, we encourage you to suggest and analyze alternate approaches to meeting the goals described in this proposal. You should send all comments, except those containing proprietary information, to our Air Docket (see ADDRESSES) before the end of the comment period.  If you submit proprietary information for our consideration, you should clearly separate it from other comments by labeling it ``Confidential Business Information (CBI).''  You should send CBI directly to the contact person listed under FOR FURTHER INFORMATION CONTACT instead of the public docket.  This will help ensure that no one inadvertently places proprietary information in the docket.  If you want us to use your confidential information as part of the basis for the final rule, you should send a non-confidential version of the document summarizing the key data or information.  We will disclose information covered by a claim of confidentiality only through the application of procedures described in 40 CFR Part 2.  If you do not identify information as confidential when we receive it, we may make it available to the public without notifying you.

	B.	Will there be a public hearing?

	We will hold the hearing on XXXdateXXX at XXXlocationXXX.  It will start at 9:00 a.m. and continue until everyone has had a chance to speak.  If you would like to present testimony at the public hearing, we ask that you notify the contact person listed above under FOR FURTHER INFORMATION CONTACT at least ten days before the hearing. You should estimate the time you will need for your presentation and identify any needed audio/visual equipment.  We suggest that you bring copies of your statement or other material for the EPA panel and the audience.  It would also be helpful if you send us a copy of your statement or other materials before the hearing.  We will make a tentative schedule for the order of testimony based on the notifications we receive.  This schedule will be available on the morning of the hearing.  In addition, we will reserve a block of time for anyone else in the audience who wants to give testimony.  We will conduct the hearing informally, and technical rules of evidence won't apply.  We will arrange for a written transcript of the hearing and keep the official record of the hearing open for 30 days to allow you to submit supplementary information.  You may make arrangements for copies of the transcript directly with the court reporter.

XI.	Statutory and Executive Order Review

A.	Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review

	Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is a "significant regulatory action" because it raises novel legal and policy issues.  Accordingly EPA submitted this action to the Office of Management and Budget (OMB) for review under Executive Orders 12866 and 13563 and any changes made in response to OMB recommendations have been documented in the docket for this action.

	This action is being proposed today as a result of several cases of fraudulently generated RINs.  As discussed above, several biodiesel production companies have been identified as having generated RINs that did not represent qualifying renewable fuel.   While these invalid RINs represented a very small amount (about 5%) of the nationwide biodiesel volume in the 2009 - 2011 timeframe, the net result is that this fraud has impacted the liquidity of the biodiesel RIN market as some biodiesel RINs are perceived as having less value than others.  In addition, as a result of fraudulent activities, obligated parties have been subject to monetary penalties and the additional cost of purchasing new RINs to cover the invalid RINs, even though they purchased the original RINs in good faith believing that they were valid.  These issues have raised novel legal and policy issues for the RFS program and EPA believes it is necessary put in place an additional regulatory mechanism that could provide an alternative way to assure that RINs used for compliance are valid to restore confidence in the RIN market and level the playing field for large and small producers.

B.	Paperwork Reduction Act

	The information collection requirements in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.  The Information Collection Request (ICR) document prepared by EPA has been assigned EPA ICR number 2473.01.

	The RFS program requires that specified volumes of renewable fuel be used as transportation fuel, heating oil, and/or jet fuel each year.  Obligated parties demonstrate compliance with the RFS standards through the acquisition of unique Renewable Identification Numbers (RINs) assigned by the producer or importer to every batch of renewable fuel produced or imported.  Validly generated RINs show that a certain volume of qualifying renewable fuel was produced or imported.  The RFS program also includes provisions stipulating the conditions under which RINs are invalid, the liability carried by a party that transfers or uses an invalid RIN, and how invalid RINs must be treated.

	In this action we are proposing a voluntary quality assurance program intended to provide a more structured way to assure that the RINs entering commerce are valid.  The voluntary quality assurance program for RINs would provide a means for regulated parties to ensure that RINs are properly generated, through audits of production facilities conducted by independent third parties using quality assurance plans (QAPs).

	The annual public reporting and recordkeeping burden for this collection is estimated to be 320 hours per response.  A document entitled "Supporting Statement for Renewable Fuels Standard (RFS2) Voluntary RIN Quality Assurance Program (Proposed Rule)" has been placed in the public docket.  The supporting statement provides a detailed explanation of the Agency's estimates by collection activity.  The estimates contained the supported statement are briefly summarized here:

	TOTAL NO. OF RESPONDENTS:  485
	TOTAL BURDEN HOURS:   192,270
	TOTAL COST TO RESPONDENTS:  $ 4,062,000

Burden is defined at 5 CFR 1320.3(b).

	An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.  The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR Part 9.

	To comment on the Agency's need for this information, the accuracy of the provided burden estimates, and any suggested methods for minimizing respondent burden, EPA has established a public docket for this rule, which includes this ICR, under Docket ID number EPA-HQ-OAR-2012-0621.  Submit any comments related to the ICR to EPA and OMB.  See ADDRESSES section at the beginning of this notice for where to submit comments to EPA.  Send comments to OMB at the Office of Information and Regulatory Affairs, Office of Management and Budget, 725 17th Street, NW, Washington, DC 20503, Attention: Desk Office for EPA.  Since OMB is required to make a decision concerning the ICR between 30 and 60 days after [Insert date of publication in the Federal Register.], a comment to OMB is best assured of having its full effect if OMB receives it by [Insert date 30 days after publication in the Federal Register.].  The final rule will respond to any OMB or public comments on the information collection requirements contained in this proposal.

C.	Regulatory Flexibility Act

	The Regulatory Flexibility Act generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.  Small entities include small businesses, small organizations, and small governmental jurisdictions.
For purposes of assessing the impacts of this rule on small entities, small entity is defined as: (1) A small business as defined by the Small Business Administration's (SBA) regulations at 13 CFR 121.201 (see table below); (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. The following table provides an overview of the primary SBA small business categories potentially affected by this regulation:

Industry

Defined as small entity by SBA if:
NAICS [a] codes
Petroleum refineries

<=1,500 employees.
324110
		[a] North American Industrial Classification System.

	The program proposed in today's action is a voluntary quality assurance program intended to provide a more structured way to assure that RINs entering commerce are valid.  As a result of the recent fraud issue, obligated parties are reluctant to purchase RINs from smaller refiners because of the uncertainty of their validity.  While this voluntary program could be beneficial for both larger and smaller refineries it could be particularly beneficial for smaller petroleum refineries if they choose to participate.  In the current climate, these smaller producers have been forced to offer their RINs at a significant discount relative to RINs from larger producers, assuming they can find obligated parties or distributors willing to purchase them at all.  While there will be some cost to opt into the program, we believe these costs will be offset by leveling the playing field between larger producers and small producers, allowing small producers to effectively compete in the market.

	After considering the economic impacts of this action on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. This action will not impose any requirements on small entities. We continue to be interested in the potential impacts of the proposed rule on small entities and welcome comments on issues related to such impacts.

D.	Unfunded Mandates Reform Act

	This rule does not contain a Federal mandate that may result in expenditures of $100 million or more for State, local, and tribal governments, in the aggregate, or the private sector in any one year. The agency has determined that this action does not contain a Federal mandate that may result in expenditures of $100 million or more for the private sector in any one year.  Because the program outlined in this proposal is optional, entities subject to this rule will have the flexibility to participate or not.  Thus, this action is not subject to the requirements of sections 202 or 205 of the UMRA.  This action is also not subject to the requirements of section 203 of the UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments.

E.	Executive Order 13132 (Federalism)

	Executive Order 13132, entitled "Federalism" (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure "meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications."  "Policies that have federalism implications" is defined in the Executive Order to include regulations that have "substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government."

	This action does not have federalism implications.  It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132.  These rules will apply to manufacturers of on-highway engines and not to state or local governments. Thus, Executive Order 13132 does not apply to this action.

      In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and local governments, EPA specifically solicits comments on this proposed rule from State and local officials.

F.	Executive Order 13175 (Consultation and Coordination with Indian Tribal Governments)

	This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000).  This rule will be implemented at the Federal level and impose compliance costs only on engine manufacturers who elect to participate in the program. Thus, Executive Order 13175 does not apply to this rule.

	EPA specifically solicits additional comment on this proposed action from tribal officials.

G.	Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks

	EPA interprets Executive Order 13045 as applying only to those regulatory actions that are based on health or safety risks, such that the analysis required under section 5-501 of the Order has the potential to influence the regulation.  This rule is not subject to Executive Order 13045 because it does not establish an environmental standard intended to mitigate health or safety risks.

H.	Executive Order 13211 (Energy Effects)

	This action is not a "significant energy action" as defined in Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy.  We have concluded that any energy impacts of this rule will be negligible because the voluntary QAP audit process would ensure that the volume consumption goals of the statute are met while addressing the unique features of the RFS program that have resulted in inefficiencies and poor liquidity in the RIN market.

I.	National Technology Transfer Advancement Act

	Section 12(d) of the National Technology Transfer and Advancement Act of 1995 ("NTTAA"), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs the agencies to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials, specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies.  NTTAA directs EPA to provide Congress, through OMB, explanations when the EPA decides not to use available and applicable voluntary consensus standards.

	This proposed rulemaking does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards.

J.	Executive Order 12898:  Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations

	Executive Order 12898 (59 FR 7629, February 16, 1994) establishes federal executive policy on environmental justice.  Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.

	Today's action proposes a voluntary set of regulatory provisions that could provide regulated parties with a specific mechanism for demonstrating that they have conducted due diligence to verify the validity of RINs.  Therefore, EPA has determined that this action will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations.

XII.	Statutory Authority

Statutory authority for the rule finalized today can be found in section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural and compliance related aspects of today's rule, including the recordkeeping requirements, come from Sections 114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a).

List of Subjects in 40 CFR Part 80

Administrative practice and procedure, Air pollution control, Diesel fuel, Environmental protection, Fuel additives, Gasoline, Imports, Oil imports, Petroleum.

Dated: _______________________

______________________________
Lisa P. Jackson,
Administrator.

For the reasons set forth in the preamble, 40 CFR part 80 is amended as follows:

PART 80 -- REGULATION OF FUELS AND FUEL ADDITIVES

1.	The authority citation for part 80 continues to read as follows:
Authority: 42 U.S.C. 7414, 7542, 7545, and 7601(a).

Subpart M -- [Amended]

2.  Section 80.1401 is amended by adding the definitions of "A-RIN", "B-RIN", "Independent Third-Party Auditor", "Quality assurance plan", "Quality assurance audit", and "Verified RIN" to read as follows:

§80.1401	Definitions.

*     *     *     *     *

A-RIN means a RIN verified by a registered independent third-party auditor using a QAP that has been approved under §80.1469(a) following the audit process described in §80.1472.

B-RIN means a RIN verified by a registered independent third-party auditor using a QAP that has been approved under §80.1469(b) following the audit process described in §80.1472.

Independent Third-Party Auditor means a party meeting the requirements of §80.1471(b) that conducts QAP audits and verifies RINs.

Quality Assurance Plan, or QAP, means the list of elements that an independent third-party auditor will check to verify that the RINs generated by a renewable fuel producer or importer are valid.

Quality Assurance Audit means an audit of a renewable fuel production facility conducted by an independent third-party auditor in accordance with a QAP that meets the requirements of §80.1469.

Verified RIN means a RIN generated by a renewable fuel producer that was subject to a QAP audit executed by an independent third-party auditor, and determined by the independent third-party auditor to be valid.  Verified RINs include both A-RINs and B-RINs.

*     *     *     *     *

3.  Section 80.1426 is amended as follows:

a.  By revising paragraph (a)(1)(i)
b. adding paragraphs (a)(1)(iii) and (a)(1)(iv).
c.  By revising paragraphs (c)(1) and (c)(6).
d.  By revising paragraphs (f)(4)(i)(A)(1) and (f)(4)(i)(B).
e.  By adding paragraph (f)(4)(iii).
e.  By revising paragraph (f)(12).
f.  By adding paragraph (f)(13).

§ 80.1426   How are RINs generated and assigned to batches of renewable fuel by renewable fuel producers or importers?

(a) *     *     *

   (1) *     *     *

      (i)  Qualifies for a D code pursuant to § 80.1426(f), or EPA has approved a petition for use of a D code pursuant to § 80.1416, and is demonstrated pursuant to the reporting requirements of § 80.1451 and the recordkeeping requirements of § 80.1454, or other records maintained by the producer, to be produced in accordance with the applicable pathway listed in Table 1 to § 80.1426(f) or a petition approved by EPA pursuant to § 80.1416.

      *    *    *

      (ii)  Is designated on a product transfer document (PTD) for use as transportation fuel, heating oil, or jet fuel in accordance with §80.1453(a)(12); and
      (iv) For renewable electricity, biogas, renewable naptha, biobutanol, or any other renewable fuel designated by EPA that are typically not used as a transportation fuel, is distributed and sold in accordance with §80.1426(f)(10), §80.1426(f)(11), or §80.1426(f)(12), as appropriate.

*     *     *     *     *

(c) *     *     *

   (1) Fuel producers and importers may not generate RINs for fuel that does not satisfy the requirements of subsection (a)(1) of this section.

*     *     *     *     *

   (6) A party is prohibited from generating RINs for a volume of fuel that it produces if the fuel has been produced by a process that uses a renewable fuel as a feedstock, and the renewable fuel that is used as a feedstock was produced by another party, except that RINs may be generated for such fuel if allowed by EPA in response to a petition submitted pursuant to §80.1416 and the petition approval specifies a mechanism to prevent double counting of RINs.

*     *     *     *     *

(f) *     *     *

   (4)	*	*	*
       (i)	*	*	*
      (A)	*	*	*
            (1)  	VRIN shall be calculated according to the following formula:

                            VRIN = EV * Vs * FER / (FER + FENR)

            Where:

            VRIN =	RIN volume, in gallons, for use in determining the number of gallon-RINs that shall be generated for the batch.
            EV =	Equivalence value for the batch of renewable fuel per §80.1415, subject to qualification in paragraph (f)(4)(iii) of this section.
            Vs =	Standardized volume of the batch of renewable fuel at 60 [o]F, in gallons, calculated in accordance with paragraph (f)(8) of this section.
            FER =	Feedstock energy from renewable biomass used to make the transportation fuel, in Btu.
            FENR =	Feedstock energy from non-renewable feedstocks used to make the transportation fuel, heating oil, or jet fuel, in Btu.

*     *     *     *     *

            (B)	Method B.  VRIN shall be calculated according to the following formula:

                                    VRIN = EV * Vs * R

            Where:

            VRIN =	RIN volume, in gallons, for use in determining the number of gallon-RINs that shall be generated for the batch.
            EV =	Equivalence value for the batch of renewable fuel per §80.1415, subject to qualification in paragraph (f)(4)(iii) of this section.
            Vs =	Standardized volume of the batch of renewable fuel at 60 [o]F, in gallons, calculated in accordance with paragraph (f)(8) of this section.
            R =	The renewable fraction of the fuel as measured by a carbon-14 dating test method as provided in paragraph (f)(9) of this section.

*	*	*	*

      (iii)	In determining the RIN volume VRIN according to paragraph (f)(4)(i)(A) or (f)(4)(i)(B) of this section, the equivalence value used to determine VRIN which is calculated according to §80.1415 shall use a value of 1.0 to represent R, the renewable content of the renewable fuel.

*	*	*	*

   (12)(i) For purposes of this section, renewable naptha, biobutanol, or any other renewable fuel designated by EPA that is typically not used as a transportation fuel, is considered renewable fuel and the producer may generate RINs if all of the following apply:

         (A) The fuel is produced from renewable biomass and qualifies for a D code in Table 1 to this section or has received approval for use of a D code by the Administrator;
         (B) The fuel producer has entered into a written contract for the sale and use of a specific quantity of fuel derived from renewable biomass sources with a party that uses that fuel for transportation purposes;
         (C) The fuel produced from the renewable naptha, biobutanol, or other designated renewable fuel for which RINs were generated was sold for use as a transportation fuel and for no other purposes; and
         (D) The renewable naptha, biobutanol, or other designated renewable fuel is used as or in a transportation fuel.

         (ii) Reserved.
         (iii) Reserved.

   (13) For purposes of Table 1 to this section, process heat produced from combustion of gas at a renewable fuel facility is considered derived from biomass if the gas is biogas.

        (i) For biogas directly transported to the facility without being placed in a commercial distribution system, all of the following conditions must be met:

          (A) The producer has entered into a written contract for the procurement of a specific volume of biogas with a specific heat content.
          (B) The volume of biogas was sold to the renewable fuel production facility, and to no other facility.
          (C) The volume and heat content of biogas injected into the pipeline and the volume of gas used as process heat are measured by continuous metering.

        (ii) For biogas that has been gathered, processed and injected into a common carrier pipeline, all of the following conditions must be met:

          (A) The producer has entered into a written contract for the procurement of a specific volume of biogas with a specific heat content.
          (B) The volume of biogas was sold to the renewable fuel production facility, and to no other facility.
          (C) The volume of biogas that is withdrawn from the pipeline is withdrawn in a manner and at a time consistent with the transport of fuel between the injection and withdrawal points.
          (D) The volume and heat content of biogas injected into the pipeline and the volume of gas used as process heat are measured by continuous metering.
          (E) The common carrier pipeline into which the biogas is placed ultimately serves the producer's renewable fuel facility.

         (iii) The process heat produced from combustion of gas at a renewable fuel facility described in paragraph (f)(12)(i) of this section shall not be considered derived from biomass if any other party relied upon the contracted volume of biogas for the creation of RINs.

4.  Section 80.1429 is amended by adding paragraph (b)(10) and revising paragraph (f) to read as follows:

§ 80.1429   Requirements for separating RINs from volumes of renewable fuel.

*     *     *     *     *

(b) *     *     *

(10) Any party that produces a volume of renewable fuel may separate any RINs that have been generated to represent that volume of renewable fuel or that blend if the separated RINs are retired to replace invalid RINs according to §80.1474.

*     *     *     *     *

(f) [Reserved]

*     *     *     *     *

5.  Section 80.1430 is amended by ....  to read as follows:

§ 80.1430   Requirements for exporters of renewable fuel.

(a) 	Any party that owns any amount of renewable fuel, whether in its neat form or blended, that is exported from any of the regions described in §80.1426(b) shall acquire sufficient RINs to comply with all applicable Renewable Volume Obligations under paragraphs (b) through (e) of this section representing the exported renewable fuel.

(b) 	Exporter Renewable Volume Obligations. An exporter of renewable fuel shall determine its Exporter Renewable Volume Obligations from the volumes of the renewable fuel exported.

   (1) Cellulosic biofuel.

      ERVOCB,k = VOLk* EVk

      Where:

      ERVOCB,k= 	The Exporter Renewable Volume Obligation for cellulosic biofuel for discrete volume k in gallons.
      k = 	A discrete volume of renewable fuel that the exporter knows or has reason to know is cellulosic biofuel that is exported in a single shipment.
      VOLk= 	The standardized volume of discrete volume k, in gallons, calculated in accordance with §80.1426(f)(8).
      EVk= 	The equivalence value associated with discrete volume k.

   (2) Biomass-based diesel.

      ERVOBBD,k = VOLk* EVk

      Where:

      ERVOBBDI,k= 	The Exporter Renewable Volume Obligation for biomass-based diesel for discrete  volume k, in gallons.
      k = 	A discrete volume of renewable fuel that is biodiesel or renewable diesel and is exported in a single shipment.
      VOLk= 	The standardized volume of discrete volume k calculated in accordance with §80.1426(f)(8).
      EVk= 	The equivalence value associated with discrete volume k.

   (3) Advanced biofuel.

      ERVOAB,k= VOLk* EVk

      Where:

      ERVOAB,k= 	The Exporter Renewable Volume Obligation for advanced biofuel for discrete volume k,  in gallons.
      k = 	A discrete volume of renewable fuel that is advanced biofuel (including biomass-based diesel, renewable diesel, cellulosic biofuel and other advanced biofuel) and is exported in a single shipment.
      VOLk= 	The standardized volume of discrete volume k, in gallons, calculated in accordance with §80.1426(f)(8).
      EVk= 	The equivalence value associated with discrete volume k.

   (4) Renewable fuel.

      ERVORF,i= VOLk* EVk

      Where:

      ERVORF,i= 	The Renewable Volume Obligation for renewable fuel for discrete volume k, in gallons.
      k = 	A discrete volume of exported renewable fuel that is exported in a single shipment.
      VOLk= 	The standardized volume of discrete volume k, in gallons, calculated in accordance with §80.1426(f)(8).
      EVk= 	The equivalence value associated with discrete volume k.

*	*	*	*	*

(e) 	For renewable fuels that are in the form of a blend at the time of export, the exporter shall determine the volume of exported renewable fuel based on one of the following:

*	*	*	*	*

6.  Section 80.1431 is amended by revising paragraph (a)(1)(viii) and paragraph (b) to read as follows:

§ 80.1431   Treatment of invalid RINs.

(a) *     *     *

	(1) *     *     *

      (viii) [Reserved]

*	*	*	*

(b) Except as provided in § 80.1473, the following provisions apply in the case of RINs that are invalid:
	(1) Upon determination by any party that RINs owned are invalid, the party must keep copies and adjust its records, reports, and compliance calculations in which the invalid RINs were used. The party must retire the invalid RINs in the applicable RIN transaction reports under § 80.1451(c)(2) for the quarter in which the RINs were determined to be invalid.
	(2) Invalid RINs cannot be used to achieve compliance with the Renewable Volume Obligations of an obligated party or exporter, regardless of the party's good faith belief that the RINs were valid at the time they were acquired.
	(3) Any valid RINs remaining after invalid RINs are retired must first be applied to correct the transfer of invalid RINs to another party before applying the valid RINs to meet the party's Renewable Volume Obligations at the end of the compliance year.

7.  Section 80.1433 is added to read as follows:

§80.1433 	Requirements for parties that designate or use fuel for which RINs were generated for an application that is not transportation fuel, heating oil, or jet fuel.

(a)	Any party that designates or uses any amount of fuel originally produced as renewable fuel, whether in its neat form or blended, for an application that is not transportation fuel, heating oil, or jet fuel shall retire an appropriate number and type of RINs according to one of the following equations and as specified in paragraph (b).

      (1)       Except as provided as (a)(5), Cellulosic biofuel.

   RINRETCB,i= Σ(VOLk* EVk)i

   Where:

   RINRETCB,i= 	The quantity of cellulosic biofuel RINs that must be retired for day i, in gallons.
   k = 	A discrete volume of fuel which the party used in an application other than as transportation fuel, heating oil or jet fuel and which the party knows or has reason to know would have qualified as cellulosic biofuel if not put to a non-qualifying use.
   VOLk= 	The standardized volume of discrete volume k, in gallons, calculated in accordance with §80.1426(f)(8).
   EVk= 	The equivalence value associated with discrete volume k.

   (2) Except as provided as (a)(5), Biomass-based diesel.

   RINRETBBD,i= Σ(VOLk* EVk)i

   Where:

   RINRETBBD,i= 	The quantity of biomass-based diesel RINs that must be retired for day i, in gallons.
   k = 	A discrete volume of fuel which the party used in an application other than as transportation fuel, heating oil or jet fuel and which the party knows or has reason to know would have qualified as biomass-based diesel if not put to a non-qualifying use.
   VOLk= 	The standardized volume of discrete volume k,  in gallons, calculated in accordance with §80.1426(f)(8).
   EVk= 	The equivalence value associated with discrete volume k.

   (3) Advanced biofuel.

   RINRETAB,i= Σ(VOLk* EVk)i

   Where:

   RINRETAB,i= 	The quantity of advanced biofuel RINs that must be retired for day i, in gallons.
   k = 	A discrete volume of fuel which the party used in an application other than as transportation fuel, heating oil or jet fuel and which the party knows or has reason to know would have qualified as advanced biofuel if not put to a non-qualifying use..
   VOLk= 	The standardized volume of discrete volume k,  in gallons, calculated in accordance with §80.1426(f)(8).
   EVk= 	The equivalence value associated with discrete volume k.

   (4) Renewable fuel.

   RINRETRF,i= Σ(VOLk* EVk)i

   Where:

   RINRETRF,i= 	The quantity of renewable fuel RINs that must be retired for day i, in gallons.
   k = 	A discrete volume of fuel which the party used in an application other than as transportation fuel, heating oil or jet fuel and which the party knows or has reason to know would have qualified as renewable fuel if not put to a non-qualifying use.
   VOLk= 	The standardized volume of discrete volume k,, in gallons, calculated in accordance with §80.1426(f)(8).
   EVk= 	The equivalence value associated with discrete volume k.

      (5)       If the party has reason to know that the fuel would have qualified as cellulosic diesel if not put to a non-qualifying use, he must choose either the formula specified in paragraph (a)(1) or that in paragraph (a)(2) to calculate the number and type of  RINs that must be retired.

(b)	For the purposes of calculating the number of RINs that must be retired under paragraphs (a) of this section:

      (1)	If the equivalence value for the discrete volume k can be determined pursuant to §80.1415 based on its composition, then the appropriate equivalence value shall be used in the calculation pursuant to paragraph (a).
      (2)	If the discrete volume k is known to be biomass-based diesel but the composition is unknown, the EVk shall be 1.5.
      (3)	If neither the category nor composition of discrete volume k can be determined, the EVk shall be 1.0.

(c)	VOLk  shall be based on one of the following:

      (1)	Information from the supplier of the blend of the concentration of fuel originally produced as renewable fuel in the blend;
      (2)	Determination of the renewable portion of the blend using Method B or Method C of ASTM D 6866 (incorporated by reference, see §80.1468), or an alternative test method as approved by the EPA; or
      (3)	Assuming the maximum concentration of the renewable fuel in the blend as allowed by law and/or regulation.

(d)	[Reserved]

(e)	All RINs retired pursuant to this section shall be identified in EMTS according the following schedule:

      (1)	Within ten (10) business days of the designation or use of a fuel for which RINs were generated for a use other than as transportation fuel, heating oil, or jet fuel, where assigned RINs were received with the fuel.
      (2)	Within twenty (20) business days of the designation or use of a fuel for which RINs were generated for a use other than as transportation fuel, heating oil, or jet fuel, where assigned RINs were not received with the renewable fuel.

(f)	Any volume of fuel which is designated or used for a purpose other than as transportation fuel, heating oil or jet fuel cannot be redesignated or used as renewable fuel.

8.  Section 80.1450 is amended by revising paragraph (g) and adding paragraph (j) to read as follows:

§ 80.1450   What are the registration requirements under the RFS program?

*     *     *     *     *

(g) Any independent third-party auditor described in §80.1471 must register with EPA as an independent third-party auditor and receive an EPA issued company identification number prior to conducting quality assurance audits pursuant to §80.1472. Registration information must be submitted at least 30 days prior to conducting audits of renewable fuel production facilities. The independent third-party auditor must provide to EPA the following:

   (1) The information specified under § 80.76, if such information has not already been provided under the provisions of this part.

   (2) Documentation of  professional qualifications as described in §80.1450(b)(2)(i)(A) and §80.1450(b)(2)(i)(B).

   (3) Documentation of professional liability insurance as described in §80.1471(c).

   (4) Any quality assurance plans as described in §80.1469.

   (5) Name, address, and company and facility identification number of all renewable fuel production facilities that the independent third-party auditor intends to audit under §80.1472.

   (6) An affidavit from each renewable fuel producer or foreign renewable fuel producer stating its intent to have the independent third-party auditor conduct a quality assurance audit of any of the renewable fuel producer's or foreign renewable fuel producer's facilities.

   (7) An affidavit stating that an independent third-party auditor is independent, as described in paragraphs §80.1471(b), of any renewable fuel producer or foreign renewable fuel producer.

   (8) Proof of a RIN replacement instrument, if applicable, as described under §80.1470.

   (9) The name and contact information for each person employed by the independent third-party auditor to conduct audits or verify RINs.
    (10) Registration updates.  --
      (i) Any independent third-party auditor who makes changes to his quality assurance plan(s) that will allow him to audit new renewable fuel production facilities, as defined in § 80.1401 that is not reflected in the producer's registration information on file with EPA must update his registration information and submit a copy of an updated QAP on file with EPA at least 60 days prior to producing the new type of renewable fuel.
      (ii) Any independent third-party auditor who makes any other changes to a QAP that will affect the third-party auditor's registration information but will not affect the renewable fuel category for which the producer is registered per paragraph (b) of this section must update his registration information 7 days prior to the change.
      (iii) Independent third-party auditors must update their QAPs at least 60 days prior to verifying RINs generated by a renewable fuel facility uses a new pathway.
       (iv) Independent third-party auditors must update their QAPs at least 60 days prior to verifying RINs generated by any renewable fuel facility not identified in their existing registration.
   (11) Registration renewal.  Registrations for independent third-party auditors expire at the end of the calendar year, December 31, after EPA has approved a registration under this paragraph (g) unless:
      (i)  The independent third-party auditor resubmits all information, updated as necessary, described in §80.1450(g)(1) thru (g)(7) no later than October 31; and
      (ii) The independent third-party auditor submits an affidavit affirming that he or she has only verified RINs using a QAP approved under §80.1469, notified all appropriate parties of all potentially invalid RINs as described in §80.1471(d), and fulfilled all of his or her RIN replacement obligations under §80.1474.
   (12) Revocation of Registration.
   	(i) The Administrator may issue a notice of intent to revoke the registration of a third-party auditor if the Administrator determines that the auditor has failed to fulfill any requirement of this subpart. The notice of intent shall include an explanation of the reasons for the proposed revocation.
      (ii) Within 60 days of receipt of the notice of intent to revoke, the independent third-party auditor may submit written comments concerning the notice, including but not limited to a demonstration of compliance with the requirements which provide the basis for the proposed revocation.  Communications should be sent to the following address: XX  The Administrator shall review and consider any such submission before taking final action concerning the proposed revocation.
      (iii) If the auditor fails to respond in writing within 60 days to the notice of intent to revoke, the revocation shall become final by operation of law and the Administrator shall notify the independent third-party auditor of such revocation.
      (iv) EPA may deny the registration of an independent third-party auditor if the independent third-party auditor employs any person that was previously employed by an independent third-party auditor whose registration was revoked.
*    *    *
(j) Registration shall be on forms, and following policies, established by the Administrator.

9.  Section 80.1451 is amended as follows:

a.  By revising paragraphs (a)(1)(ix), (a)(1)(x), (a)(1)(xi), (a)(1)(xii), and (a)(1)(xiii).
b.  By adding paragraphs (a)(1)(xiv), (a)(1)(xv), and (a)(1)(xvi).
c.  By revising paragraphs (c)(2)(x), (c)(2)(xi), (c)(2)(xii), (c)(2)(xiii), (c)(2)(xiv), (c)(2)(xv), and (c)(2)(xvi).
d.  By adding paragraphs (c)(2)(xvii) and (c)(2)(xviii).
e.  By revising paragraph (g).
f.  By adding paragraph (h).

§ 80.1451   What are the reporting requirements under the RFS program?

(a) *     *     *

(1) *     *     *

(ix) The total current-year RINs by category of renewable fuel, as those fuels are defined in §80.1401 (i.e., cellulosic biofuel, biomass-based diesel, advanced biofuel, renewable fuel, and cellulosic diesel), retired for compliance that are invalid as defined in §80.1431(a).

(x) The total prior-year RINs by renewable fuel category, as those fuels are defined in §80.1401, retired for compliance.

(xi) The total prior-year RINs by renewable fuel category, as those fuels are defined in §80.1401, retired for compliance that are invalid as defined in §80.1431(a).

(xii) The total cellulosic biofuel waiver credits used to meet the party's cellulosic biofuel RVO.

(xiii) A list of all RINs generated prior to July 1, 2010 that were retired for compliance in the reporting period.

(xiv) A list of all RINs that were retired for compliance in the reporting period and are invalid as defined in §80.1431(a).

(xv) Any deficit RVO(s) carried into the subsequent year.

(xvi) Any additional information that the Administrator may require.

*     *     *     *     *

(c) *     *     *

(2) *     *     *

(x) The total current-year RINs retired that are invalid as defined in §80.1431(a).

(xi) The total prior-year RINs retired.

(xii) The total prior-year RINs retired that are invalid as defined in §80.1431(a).

(xiii) The number of current-year RINs owned at the end of the quarter.

(xiv) The number of prior-year RINs owned at the end of the quarter.

(xv) The number of RINs generated.

(xvi) The volume of renewable fuel (in gallons) owned at the end of the quarter.

(xvii) The total 2009 and 2010 retired RINs reinstated.

(xviii) Any additional information that the Administrator may require.

*     *     *     *     *

(g) All independent third-party auditors.  Any party that is an independent third-party auditor as defined in §80.1471 that verifies RINs must submit to EPA reports according to the schedule, and containing all the information, that is set forth in this paragraph (g).

(1)(i) For RINs verified beginning on January 1, 2014, RIN generation verification reports for each facility audited by the independent third-party auditor shall be submitted according to the schedule specified in paragraph (f)(2) of this section.

(ii) The RIN generation verification reports shall include all the following information for each batch of renewable fuel produced or imported verified, where "batch" means a discrete quantity of renewable fuel produced or imported and assigned a unique batch-RIN per §80.1426(d):

(A) The RIN generator's name.

(B) The RIN generator's EPA company registration number.

(C) The renewable fuel producer EPA facility registration number.

(D) The importer EPA facility registration number and foreign renewable producer company registration number, if applicable.

(E) The applicable reporting period.

(F) The quantity of RINs generated for each batch according to §80.1426.

(G) The production date of each batch.

(H) The fuel type of each batch.

(I) The volume of denaturant and applicable equivalence value of each batch.

(J) The volume of each batch produced.

(K) The volume and type of each feedstock used to produce the batch.

(L) Which batches met the definition of Renewable Biomass.

(M) The quantity and type of co-products produced.

(N) Any additional information the Administrator may require.

(2) RIN verification activity reports shall be submitted to EPA according to the schedule specified in paragraph (f)(2) of this section. Each report shall summarize RIN verification activities for the reporting period. The quarterly RIN verification activity reports shall include all of the following information:

(i) The submitting party's name.

(ii) The submitting party's EPA company registration number.

(iii) The number of current-year RINs verified at the start of the quarter.

(iv) The number of prior-year RINs verified at the start of the quarter.

(v) The total current-year RINs verified.

(vi) The total prior-year RINs verified.

(vii) The number of current-year RINs verified at the end of the quarter.

(viii) The number of prior-year RINs verified at the end of the quarter.

(ix) A list of all RINs subject to the audit that were not verified or that were identified as Potentially Invalid RINs (PIRs) pursuant to 80.1474, along with a narrative description of why the RINs were not verified or were identified as PIRs.

(x) Any additional information that the Administrator may require.

(3) All reports required under this paragraph (g) must be signed and certified as meeting all the applicable requirements of this subpart by the independent third-party auditor or a responsible corporate officer of the independent third-party auditor.

(h) All reports required under this section shall be submitted on forms and following procedures prescribed by the Administrator.

10.  Section 80.1452 is amended by adding paragraph (g) as follows.

§ 80.1451   What are the requirements related to the EPA-Moderated Transaction System (EMTS)?

*     *     *     *     *

(g)  Alternative method of reporting buy and sell transactions in EMTS.  For buyers and sellers of assigned RINs that agree to utilize this alternative reporting method, the reporting requirements of paragraph(c) of this section are modified as follows:

   (1)	The seller of assigned RINs shall do the following:

      (i)	Report the sell transaction in EMTS within five (5) business days of shipping, and;
      (ii)	Indicate that the alternative reporting method is being utilized; and
      (iii)	Report the date the renewable volume is shipped in place of the date of transfer (c)(7) in the EMTS sell transaction report; and
      (iv)	Report a unique identifier and provide a product transfer document (PTD) that meets all requirement of § 80.1453 and that includes the unique identifier agreed upon by the buyer and seller.

   (2)	The buyer of assigned RINS shall do the following:

      (i)	Report the buy transaction in EMTS within five (5) business days of receipt;
      (ii)	Indicate that the alternative reporting method is being utilized;
      (iii)	Include the unique identifier provided by the seller under paragraph (g)(1)(iii) in the EMTS buy transaction report; and
      (iv) Report the date the renewable volume is received in place of the date of transfer (c)(7)  in the EMTS buy transaction report.

11.  Section 80.1453 is amended as follows:

a.  Revising paragraph (a) introductory text and paragraph (a)(5); and
b.  Adding paragraphs (a)(12), and (a)(13).

§80.1453	What are the product transfer document (PTD) requirements for the RFS program?

(a) On each occasion when any party transfers ownership of neat and/or blended renewable fuels or separated RINs subject to this subpart, the transferor must provide to the transferee documents identifying the renewable fuel, designated fuel uses, and any RINs generated for the fuel (whether assigned or separated) which include all of the following information, as applicable:

*	*	*	*

   (5)  Name and blend level of all blending components in a product containing renewable fuel, if applicable.

*	*	*	*

   (12) For the transfer of renewable fuel with or without RINs, an accurate and clear statement on the product transfer document of the fuel type from Table 1 to § 80.1426, and designation of the fuel use(s) intended by the transferor, as follows:

      (i)  Ethanol. "This volume of neat or blended ethanol is designated and intended for use as transportation fuel or jet fuel in the 48 U.S. contiguous states and Hawaii. Any use by the end user in another application in the 48 U.S. contiguous states and Hawaii is a violation of 40 C.F.R § 80.1460(g), unless the requirements in § 80.1433 are met."
      (ii) Biodiesel. " This volume of neat or blended biodiesel is designated and intended for use as transportation fuel, heating oil or jet fuel in the 48 U.S. contiguous states and Hawaii. Heating oil may only be used to heat interior spaces of homes or buildings. Any use by the end user in another application in the 48 U.S. contiguous states and Hawaii is a violation of 40 C.F.R § 80.1460(g), unless the requirements in § 80.1433 are met."
      (iii) Renewable Heating oil.  "This volume of heating oil is designated and intended to be used to heat interior spaces of homes or buildings. Any use by the end user in another application the 48 U.S. contiguous states and Hawaii is a violation of 40 C.F.R § 80.1460(g), unless the requirements in § 80.1433 are met."
      (iv) Renewable Diesel.  "This volume of neat or blended renewable diesel is designated and intended for use as transportation fuel, heating oil or jet fuel in the 48 U.S. contiguous states and Hawaii.  Any use by the end user in another application in the 48 U.S. contiguous states and Hawaii is a violation of 40 C.F.R § 80.1460(g), unless the requirements in § 80.1433 are met."
      (v) Naphtha. " This volume of neat or blended naphtha is designated and intended for use as transportation fuel or jet fuel in the 48 U.S. contiguous states and Hawaii.  This naphtha may only be used as a gasoline blendstock or jet fuel. Any use by the end user in another application in the 48 U.S. contiguous states and Hawaii is a violation of 40 C.F.R §80.1460(g), unless the requirements in § 80.1433 are met."
      (vi) Butanol. "This volume of neat or blended butanol is designated and intended for use as transportation fuel or jet fuel in the 48 U.S. contiguous states and Hawaii.  This butanol may only be used as a gasoline blendstock or jet fuel. Any use by the end user in another application in the 48 U.S. contiguous states and Hawaii is a violation of 40 C.F.R § 80.1460(g), unless the requirements in § 80.1433 are met."
      (vii) Renewable fuels other than ethanol, biodiesel, heating oil, renewable diesel, naptha or butanol.   "This volume of neat or blended renewable fuel is designated and intended to be used as transportation fuel, heating oil, or jet fuel in the 48 U.S. contiguous states and Hawaii.  Any use by the end user in another application in the 48 U.S. contiguous states and Hawaii is a violation of 40 C.F.R §80.1460(g), unless the requirements in § 80.1433 are met."

   (13) For purposes of verification, in order for facilities to meet the renewable process electricity production requirement for the biogas-derived cellulosic diesel and cellulosic naphtha pathways, all conditions below apply.
      (i) The quantity of renewable process electricity produced must be measured by continuous metering.
      (ii) The electricity must be used to provide power to process units or process equipment at the facility.
      (iii) The electrical energy must derive from raw landfill gas, waste heat from the production process, unconverted syngas from the F-T process, fuel gas from the hydroprocessing or combined heat and power (CHP) units that use non-fossil fuel based gas or other renewable sources.

12.  Section 80.1454 is amended as follows:

a.  By adding paragraph (b)(7).
b.  By revising paragraphs (m), (n), (o), and (p).
c.  By adding paragraph (q).

§ 80.1454   What are the recordkeeping requirements under the RFS program?

*     *     *     *     *

(b) *     *     *

   (7) Records related to the implementation of a QAP under §80.1469.

*     *     *     *     *

(m) Requirements for independent third-party auditors. Any independent third-party auditor (as described at §80.1471) must keep all of the following records for a period of at least five (5) years:

   (1) Copies of all reports submitted to EPA under §80.1451(g), as applicable.

   (2) Records related to the implementation of a QAP under §80.1469 for each facility including records from facility audits and ongoing and quarterly monitoring activities.

   (3) Records related to the verification of RINs under §80.1471(e).

   (4) Copies of communications sent to and received from renewable fuel producers or foreign renewable fuel producers, feedstock suppliers, purchasers of RINs, and obligated parties.

   (5) Copies of all notes relating to the implementation of a QAP under §80.1469.

   (6) List of RINs reported to EPA and renewable fuel producers or foreign renewable fuel producers as potentially invalidly generated under §80.1474 compliance.

   (7) Records related to the professional liability insurance requirement under §80.1471(c).

   (8) Copies of all records related to any financial assurance instrument as required under §80.1470 under a quality assurance plan implemented under §80.1469(a).

   (9) Such other records as may be requested by the Administrator.

(n) The records required under paragraph (e) of this section shall be kept through calendar year 2022.

(o) On request by EPA, the records required under this section and under §80.1453 must be made available to the Administrator or the Administrator's authorized representative. For records that are electronically generated or maintained, the equipment or software necessary to read the records shall be made available; or, if requested by EPA, electronic records shall be converted to paper documents.

(p) The records required in paragraphs (b)(3) and (c)(1) of this section must be transferred with any renewable fuel sent to the importer of that renewable fuel by any foreign producer not generating RINs for his renewable fuel.

(q) Copies of all reports required under §80.1464.

13.  Section 80.1460 is amended as follows:

a.  By revising paragraphs (c)(2) and (c)(3).
b.  By adding paragraphs (g), (h), and (i).

§ 80.1460   What acts are prohibited under the RFS program?

*     *     *     *     *

(c)  *     *     *

   (2) Use a validly generated RIN to meet the person's RVOs under §80.1427, or separate and transfer a validly generated RIN, if the person using the validly generated RIN to meet the person's RVO used the fuel for a non-qualifying purpose, but failed to retire an appropriate number of RINs as required by 80.1433.

   (3) Use a validly generated RIN to meet the person's RVOs under §80.1427, or separate and transfer a validly generated RIN, if the person using the validly generated RIN to meet the person's RVO, at the time they purchased the RIN, knew or had reason to know that the fuel associated with the purchased RINs was used for a non-qualifying purpose and that the party or parties engaged in that non-qualifying use failed to retire an appropriate number of RINs as required by 80.1433.

*     *     *     *     *

(g) Failing to retire RINs when fuel for which RINs have been generated is used or designated for use in an application other than transportation fuel, heating oil or jet fuel.  No person shall use or designate for use fuel for which RINs were generated, in an application other than transportation fuel, heating oil, or jet fuel unless the requirements of 80.1433 have been met.

(h)  RIN Separation Violations.  No person shall do any of the following:

   (1)	Separate RINs in EMTS using the wrong separation reason code
   (2)  Separate RINs in EMTS without having a qualifying separation event pursuant to 80.1429
   (3)  Separate more than 2.5 RINs per gallon of renewable fuel that has a valid qualifying separation event pursuant to §80.1429.
   (4)  Separate RINs outside of the requirements in §80.1452(c).
   (5)  [Reserved]
   (6)  Improperly separate RINs in any other way not listed in paragraphs (i)(1)-(5) of this section.

 (i) Independent third-party auditor violations.  No person shall do any of the following:

(1) Fail to fully and competently implement a QAP approved under §80.1469.

(2) Fail to notify appropriate parties of potentially invalid RINs under §80.1474(b).

(3)  Identify a RIN as verified in accordance with §80.1471(e) that is invalid under §80.1431.

14. Section 80.1461 is amended by revising paragraphs (a)(1) and (a)(2) as follows.

§ 80.1461 Who is liable for violations under the RFS program?

*    *    *    *    *

(a) *     *     *

      (1) Any person who violates a prohibition under §80.1460(a) through (d) or §80.1460(g) through (h) is liable for the violation of that prohibition.

      (2) Any person who causes another person to violate a prohibition under §80.1460(a) through (d) or §80.1460(g) through (h) is liable for a violation of §80.1460(e).

15.  Section 80.1469 is added as follows:

§80.1469 Requirements for Quality Assurance Plans

This section specifies the requirements for two types of Quality Assurance Plan (QAP).

(a) Option A QAP Requirements.

	(1) Feedstock-related components.

		(i) Components requiring ongoing monitoring:

         (A) Feedstocks are renewable biomass as defined in §80.1401.
         (B) Feedstocks are being separated according to a separation plan, if applicable under §80.1426(f)(5)(ii).
         (C) Crop and crop residue feedstocks meet land use restrictions, or alternatively the aggregate compliance provisions of §80.1454(g).
         (D) If applicable, verify that feedstocks with additional recordkeeping requirements meet requirements of §80.1454(d).
         (E) Feedstocks are valid for the D code being used, and are consistent with information recorded in EMTS.
         (F) Feedstock is not renewable fuel for which RINs were previously generated.
         (G) Feedstock is consistent with production process and D code being used as permitted under Table 1 to Section 80.1426 or a petition approved through section 80.1416.

		(ii) Components requiring quarterly monitoring:

         (A) Separated food waste or separated yard waste plan is accepted and up to date, if applicable under §80.1426(f)(5)(ii).
         (B) Separated municipal solid waste plan is approved and up to date, if applicable under §80.1426(f)(5)(ii).(C) Contracts or agreements for feedstock acquisition are sufficient for facility production.
         (D) Feedstock processing and storage equipment are sufficient and are consistent with engineering review.
         (E) If applicable, accuracy of feedstock energy (FE) calculation factors related to feedstocks, including average moisture content m and feedstock energy content E.

	(2) Production process-related components.

		(i) Components requiring ongoing monitoring:

         (A) Production process is consistent with that reported in EMTS.
         (B) Production process is consistent with D code being used as permitted under Table 1 to §80.1426 or a petition approved through §80.1416.

		(ii) Components requiring quarterly monitoring:

         (A) Mass and energy balances are appropriate for type and size of facility.
         (B) Workforce size is appropriate for type and size of facility, and sufficient workers are on site for facility operations.
         (C) If applicable, process-related factors used in feedstock energy (FE) calculation are accurate, in particular the converted fraction CF.

	(3) Renewable fuel-related components.

		(i) Components requiring ongoing monitoring:

         (A) Standardization of volumes pursuant to §80.1426(f)(8) are accurate.
         (B) Renewable fuel type matches the D code being used.
         (C) RIN generation matches wet gallons produced.
         (D) Fuel shipments match production volumes.
         (E) If applicable, renewable content R is accurate pursuant to 80.1426(f)(9).
         (F) Equivalence value EV is accurate and appropriate.

		(ii) Components requiring quarterly monitoring:

         (A) Renewable fuel was intended and sold for qualifying uses as transportation fuel, heating oil, or jet fuel.
         (B) Certificates of analysis verifying fuel type and quality, as applicable.
         (C) Verify existence of quality process controls designed to ensure that fuel continues to meet applicable property and quality specifications.
         (D) Volume production is consistent with that reported to EPA and EIA, as well as other federal or state reporting.
         (E) Volume production is consistent with storage and distribution capacity.
         (F) Volume production capacity matches RFS registration.

	(4) RIN generation and separation-related components.

		(i) Components requiring ongoing monitoring:

         (A) If applicable, verify that RIN separation is appropriate under §80.1429.
         (B) Verify that appropriate RIN generation calculations are being followed under §80.1426(f)(3), (4), or (5) as applicable.

		(ii) Components requiring quarterly monitoring:

         (A) Verify that annual attestation report is accurate.
         (B) Verify that fuel that is exported was not used to generate RINs, or alternatively that were generated but retired.

(b) Option B QAP Requirements.

	(1) Feedstock-related components requiring quarterly monitoring:

         (i) Feedstocks are renewable biomass as defined in §80.1401.
         (ii) Feedstocks are being separated according to a separation plan, if applicable under §80.1426(f)(5)(ii).
         (iii) Crop and crop residue feedstocks meet land use restrictions, or alternatively the aggregate compliance provisions of §80.1454(g).
         (iv) Feedstocks are valid for the D code being used, and are consistent with information recorded in EMTS.(E) Feedstock is consistent with production process and D code being used as permitted under Table 1 to Section 80.1426 or a petition approved through section 80.1416.
         (v) Feedstock is not renewable fuel for which RINs were previously generated.
         (vi) Separated food waste or separated yard waste plan is accepted and up to date, if applicable under §80.1426(f)(5)(ii).
         (vii) Separated municipal solid waste plan is approved and up to date, if applicable under §80.1426(f)(5)(ii).
         (viii) If applicable, accuracy of feedstock energy (FE) calculation factors related to feedstocks, including average moisture content m and feedstock energy content E.

	(2) Production process-related components requiring quarterly monitoring:

         (i) Production process is consistent with that reported in EMTS.
         (ii) Production process is consistent with D code being used as permitted under Table 1 to §80.1426 or a petition approved through §80.1416.
         (iii) Mass and energy balances are appropriate for type and size of facility.
         (iv) If applicable, process-related factors used in feedstock energy (FE) calculation are accurate, in particular the converted fraction CF.

	(3) Renewable fuel-related components requiring quarterly monitoring:

         (i) Renewable fuel type matches the D code being used.
         (ii) RIN generation matches wet gallons produced.
         (iii) If applicable, renewable content R is accurate pursuant to 80.1426(f)(9).
         (iv) Equivalence value EV is accurate and appropriate.
         (v) Renewable fuel was intended and sold for qualifying uses as transportation fuel, heating oil, or jet fuel.
         (vi) Certificates of analysis verifying fuel type and quality, as applicable.
         (vii) Volume production capacity matches RFS registration.

	(4) RIN generation and separation-related components requiring quarterly monitoring:

         (i) If applicable, verify that RIN separation is appropriate under §80.1429(b)(4).
         (ii) Verify that appropriate RIN generation calculations are being followed under §80.1426(f)(3), (4), or (5) as applicable.
         (iii) Verify that fuel that is exported was not used to generate RINs, or alternatively that were generated but retired.

(c) Each QAP shall represent a specific RIN-generating pathway as provided in Table 1 to §80.1426 or as approved by the Administrator pursuant to §80.1416, and shall contain elements specific to particular feedstocks, production processes, and fuel types as applicable.

(d) Submission and approval of a QAP.

   (1) Each independent third-party auditor shall annually submit a QAP to the EPA which demonstrates adherence to the requirements of paragraphs (a) and (c) or (b) and (c) of this section, as applicable, and request approval on forms and using procedures specified by the Administrator.

   (2) No third-party independent auditor may present a QAP as approved by the EPA without having received written approval from the EPA.

   (3) A QAP is approved on the date that EPA notifies the third-party independent auditor of such approval.

   (4) EPA may revoke its approval of a QAP for cause, including, but not limited to, an EPA determination that the approved QAP has proven to be inadequate in practice.

   (5) EPA may void ab initio its approval of a QAP upon EPA's determination that the approval was based on false information, misleading information, or incomplete information, or if there was a failure to fulfill, or cause to be fulfilled, any of the requirements of the QAP.

(e) Conditions for revisions of a QAP.

   (1) A new QAP shall be submitted to EPA according to paragraph (d) of this section whenever the following changes occur at a production facility audited by a third-party independent auditor using an approved QAP:

      (i) Change in feedstock.
      (ii) Change in type of fuel produced.
      (iii) Change in facility operations or equipment that may impact the capability of the QAP to verify that RINs are validly generated.

   (2)  A new QAP shall be submitted to  EPA according to paragraph (d) of this section whenever RINs are discovered to have been invalidly generated after they were verified by a third-party independent auditor.

   (3) An original QAP ceases to be valid as the basis for verifying RINs until a new QAP, submitted to EPA under this paragraph (e), is approved pursuant to paragraph (d).

16.  Section 80.1470 is added as follows:

§80.1470	 RIN Replacement Mechanisms for Option A Independent Third Party Auditors.

(a) Applicability.  This section applies to independent third party auditors using a QAP approved under Option A pursuant to §80.1469(a) and (c).

(b) Requirements. An independent third party auditor must establish or participate in the establishment of a RIN replacement mechanism. The RIN replacement mechanism must fulfill, at a minimum, the following conditions:

   (1) The RIN replacement mechanism must be capable of fulfilling the independent third party auditor's RIN replacement responsibility, as described in section 1474(c) of this subpart.

   (2) The independent third party auditor is responsible for calculating and maintaining the minimum coverage afforded by the RIN replacement mechanism at all times.

   (3) RINs held by the RIN replacement mechanism (if any) must be identified in a unique EMTS account designated for the exclusive use of the replacement mechanism.

   (4) Distribution and removal of RINs from the replacement mechanism may not be under the sole operational control of the third-party auditor.

   (5) An originally signed duplicate of the agreement or contract establishing the RIN replacement mechanism must be submitted to EPA by the independent third party auditor in accordance with 40 CFR § 1450(g)(7).

   (6) Any substantive change to the agreement establishing the RIN replacement mechanism must be submitted to EPA within 30 days of the change.

17.  Section 80.1471 is added as follows:

§80.1471 Requirements for QAP Auditors

(a) QAP audits conducted pursuant to §80.1472 must be conducted by an independent third-party auditor that is a professional engineer, as specified in paragraphs §80.1450(b)(2)(i)(A) and §80.1450(b)(2)(i)(B).

(b) To be considered an independent third-party auditor under paragraph §80.1471(a):

   (1) The independent third-party auditor shall not be owned or operated by the renewable fuel producer or foreign ethanol producer, or any subsidiary or employee of the renewable fuel producer or foreign ethanol producer.

   (2) The independent third-party auditor shall be free from any interest in the renewable fuel producer or foreign ethanol producer's business.

   (3) The renewable fuel producer or foreign renewable fuel producer shall be free from any interest in the third-party auditor's business.

   (4) The independent third-party auditor must not be debarred, suspended, or proposed for debarment pursuant to the Government-wide Debarment and Suspension regulations, 40 CFR part 32, or the Debarment, Suspension and Ineligibility provisions of the Federal Acquisition Regulations, 48 CFR, part 9, subpart 9.4.

(c) Independent third-party auditors shall maintain professional liability insurance, as defined in 31 CFR 50.5(q), in amounts reasonably related to the risk of invalid verified RINs due to auditor error, omission, or negligence.  Independent third-party auditors shall use insurance providers that possess a financial strength rating in the top four categories from either Standard & Poor's or Moody's, i.e., AAA, AA, A or BBB for Standard & Poor's and Aaa, Aa, A, or Baa for Moody's.  Replacement of any such invalid verified RINs is not subject to the cap on RIN replacement set forth in §80.1474(e).

(d)(1) In the event that an independent third-party auditor identifies a RIN that may have been invalidly generated, the independent third-party auditor shall, within 24 hours, send notification of the potentially invalidly generated RIN to EPA and the renewable fuel producer that generated the RIN.

	(2) The independent third-party auditor shall provide the notification required under paragraph (d)(1) of this section in writing (which includes e-mail or facsimile) and, if requested by the party being notified of a potentially invalidly generated RIN, by telephone.

(e) The independent third-party auditor shall identify RINs generated from a renewable fuel producer or foreign renewable fuel producer as having been verified under a QAP.

   (1)	For RINs verified under QAP Option A pursuant to §80.1469(a), RINs shall be designated as A-RINs.

   (2) For RINs verified under QAP Option B pursuant to §80.1469(b), RINs shall be designated as B-RINs.

   (3) The independent third-party auditor shall not indentify RINs generated from a renewable fuel producer or foreign renewable fuel producer as having been verified under a QAP if a revised QAP must be submitted to and approved by EPA under §80.1469(e).

(f)	(1) Except as specified in paragraph (f)(2) of this section, auditors may only verify RINs that have been generated after the audit required under §80.1472 has been completed.

      (i) For A-RINs, ongoing monitoring must have been initiated.

      (ii) Verification of RINs may continue for no more than 100 days following an audit.

   (2)	Auditors may verify RINs that were generated before the audit required under §80.1472 has been completed, under the following conditions:

      (i) The RINs in question were generated between January 1, 2013 and December 31, 2013 inclusive.

      (ii) The audit is completed between January 1, 2013 and December 31, 2013.

      (iii) The audit is performed in accordance with the elements specified in a QAP that has been approved by the EPA per §80.1469(c).

      (iv) The audit requirements of §80.1472(e)(1) are met for every batch of renewable fuel for which RINs were generated and are being verified.

(g) The independent third-party auditor shall permit any representative of EPA to monitor at any time the implementation of QAPs and renewable fuel production facility audits.

(h) Any person who fails to meet a requirement under (f)(1) of this section shall be subject to a separate violation pursuant to section 1460(f) of this subpart.

18.  Section 80.1472 is added as follows:

§80.1472 Requirements for Quality Assurance Audits

(a) General requirements.

   (1) A quality assurance audit shall be performed in accordance with the elements specified in a Quality Assurance Plan (QAP).

      (i) An audit based on an Option A QAP per §80.1469(a) shall meet the requirements in paragraphs (b) and (c) of this section.
      (ii) An audit based on an Option B QAP per §80.1469(b) shall meet the requirements in paragraphs (b) and (d) of this section.

   (2) An audit shall be performed by an auditor who meets the requirements of §80.1471.

(b) A QAP must have been approved by EPA per §80.1469(c) prior to its use in a quality assurance audit, unless the following circumstances apply:

	(1) The audit was conducted prior to the effective date of this section and
	(2) The audit was based on an Option B QAP.

(c) Frequency of audits.

	(1) Regular schedule.

      (i) The auditor shall audit a renewable fuel production facility at least 4 times per calendar year.

      (ii) The audits specified in paragraph (b)(1)(i) of this section shall be spaced at least 60 days apart.  The 60 day period shall start the day after the previous audit ends.

	(2) Amended schedule due to invalid RINs.

      (i) In the event that invalid RINs are identified, the auditor shall audit the renewable fuel production facility at least 12 times over the following 365 days, beginning the day after the invalid RINs are discovered.

      (ii) The audits specified in paragraph (b)(2)(i) of this section shall be spaced at least 20 days apart.  The 20 day period shall start the day after the previous audit ends.

(d) Requirements for an audit based on an Option A QAP.

   (1) Each audit of a renewable fuel production facility shall verify every element contained in an applicable and approved Option A QAP.

   (2)	(i) Each facility audit shall include an on-site visit to the renewable fuel production facility.
      (ii) An on-site visit shall include verification of all QAP elements that require inspection or evaluation of the physical attributes of the renewable fuel production facility, except for any physical attribute that is verified through remote monitoring equipment per the applicable QAP.

   (3) Each audit shall include direct contact with all feedstock suppliers to the facility to obtain documents related to the feedstocks used in the production of renewable fuel at the facility.

   (4) Each audit shall include a review of documents generated by the renewable fuel producer.

   (5) Each audit shall include direct contact with all purchasers of renewable fuel produced at the facility to obtain documents related to renewable fuel purchased from the facility.

(e) Requirements for an audit based on an Option B QAP.

   (1) Each audit of a renewable fuel production facility shall verify every element contained in an applicable and approved Option B QAP.

   (2) (i) Each facility audit shall include an on-site visit to the renewable fuel production facility.
   	(ii) An on-site visit shall include verification of all QAP elements that require inspection or evaluation of the physical attributes of the renewable fuel production facility.

   (3) Each audit shall include direct contact with all feedstock suppliers to the facility to obtain documents related to the feedstocks used in the production of renewable fuel at the facility.

   (4) Each audit shall include a review of documents generated by the renewable fuel producer.

   (5) Each audit shall include direct contact with all purchasers of renewable fuel produced at the facility to obtain documents related to renewable fuel purchased from the facility.

19.  Section 80.1473 is added as follows:

§80.1473 Affirmative Defenses

(a) Any person deemed liable for a violation of the provisions of either §80.1460(b)(2) or (c)(1), other than the generator of an invalid RIN, will not be deemed in violation if the person demonstrates that the criteria under §80.1473 (c) or (d) are met.

(b) Applicability of affirmative defenses.  The following provisions apply to affirmative defenses asserted under subsection (a) of this section:

   (1) Affirmative defenses only apply to RINs that were invalidly generated and verified through a quality assurance audit using an EPA-approved Option A or Option B QAP.

   (2) Affirmative defenses only apply in situations where an invalidly generated verified RIN is either transferred to another person (violation of §80.1460(b)(2)) or used for compliance for an obligated party's RVO (violation of §80.1460(c)(1)).

   (3) Affirmative defenses do not apply to the generator of an invalid RIN.

(c) Asserting an affirmative defense for invalid A-RINs.  To establish an affirmative defense to a violation of §80.1460 (b)(2) or (c)(1) involving invalid A-RINs, the person must meet the notification requirements of §80.1473(e) and prove by a preponderance of evidence that:

   (1) The RIN in question was verified through a quality assurance audit pursuant to §80.1472 using an approved Option A QAP as defined in §80.1469(a).

   (2) The person did not know or have reason to know that the RINs were invalidly generated prior to being verified by the independent third-party auditor.

   (3) If the person self-identified the RIN as having been invalidly generated, the person notified EPA within 24 hours of discovering the invalidity.

   (4) The person did not cause the invalidity.

   (5) The person did not have a financial interest in the company that generated the invalid RIN.

(d) Asserting an affirmative defense for invalid B-RINs.  To establish an affirmative defense to a violation of §80.1460 (b)(2) or (c)(1) involving invalid B-RINs, the person must meet the notification requirements of §80.1473(e) and prove by a preponderance of evidence that:

   (1) The RIN in question was verified through a quality assurance audit pursuant to §80.1472 using an approved Option B QAP as defined in §80.1469(b).

   (2) The person did not know or have reason to know that the RINs were invalidly generated at the time of transfer or use for compliance, unless a remedial action as defined in §80.1474 was implemented.

   (3) If the person self-identified the RIN as having been invalidly generated, the person notified EPA within 24 hours of discovering the invalidity.

   (4) The person did not cause the invalidity.

   (5) The person did not have a financial interest in the company that generated the invalid RIN.

   (6) If the person used the invalid B-RIN for compliance, the person adjusted its records, reports, and compliance calculations in which the invalid B-RIN was used as required by §80.1431, unless a remedial action as defined in §80.1474 was implemented.

(e) Notification Requirements.  A person asserting an affirmative defense to a violation of §80.1460 (b)(2) or §80.1460(c)(1), arising from the transfer or use of an invalid A-RIN or B-RIN, must submit a written report to the EPA, including all pertinent supporting documentation, demonstrating that the requirements of §80.1473(c) or (d) were met.  The written report must be submitted within 30 days of the person discovering the invalidity.

20.  Section 80.1474 is added as follows:

§ 80.1474  Replacement Requirements for Invalidly Generated RINs.

(a) Responsibility for replacement of invalid verified RINs.

   (1) The generator of the A-RIN and the independent third-party auditor that verified the A-RIN are required to replaceinvalidly generated A-RINs with valid RINs pursuant to the procedures specified in paragraph (b) of this section.

   (2) The generator of the B-RIN and the obligated party that owns the B-RIN are required to replace invalidly generated B-RINs with valid RINs pursuant to the procedures specified in paragraph (b) of this section.

   (3) The producer of an unverified RIN and the obligated party that owns an unverified RIN are required to replace invalidly generated and unverified RINs pursuant to the procedures specified in paragraph (b) of this section.

(b) Identification and treatment of Potentially Invalid RINs (PIRs)

   (1) Any RIN can be identified as a PIR by the RIN generator, an independent third-party auditor that verified the RIN, or EPA.

   (2) For PIRs identified by the RIN generator, the generator is required to notify EPA within 24 hours of the identification, including a detailed explanation of why the RIN is believed to be invalid, and is required to take one of the following corrective actions within 30 days:

   	(i) Retire the PIR, or
   	(ii) Retire a valid RIN meeting the requirements of paragraph (c) of this section.

   (3) For PIRs identified by the independent third-party auditor that verified the RIN, the independent third-party auditor is required to notify EPA and the RIN generator in writing within 24 hours of the identification, including a detailed explanation of why the RIN is believed to be invalid.

   (4)	Within 30 days of being notified by EPA or the independent third-party auditor that verified the RIN that a RIN is a PIR, the RIN generator is required to take one of the following corrective actions:

      (i)	Retire the PIR,
      (ii)	Retire a valid RIN following the requirements of paragraph (c) of this section, or
      (iii) Submit a demonstration in writing to EPA that the PIR is valid.

         (A)	If EPA determines that the demonstration is satisfactory, the PIR will be deemed to be a valid RIN.
         (B) If EPA determines the demonstration is not satisfactory, the PIR will be deemed invalid and the PIR generator must retire the PIR or a valid RIN following the requirements of paragraph (c) of this section within 30 days of notification by EPA.

   (5) Within 60 days of receiving a notification from EPA that a PIR generator has failed to perform a corrective action required pursuant to this section,

      (i)	For A-RINs, the independent third-party auditor that verified the PIR is required to retire valid RINs meeting the requirements of paragraph (c) of this section.

      (ii)	For B-RINs and unverified RINs, the obligated party that owns the PIR is required to either

         (A) Retire the PIR.

         (B) If the PIR has already been used for compliance with the obligated party's RVO, correct the RVO to subtract the PIR.

(c) The following specifications apply when retiring valid RINs to replace PIRs or invalid RINs:

   (1) When a RIN is retired to replace a PIR or invalid RIN, it must be of the same verification type, either A-RIN,B-RIN, or unverified, and of the same D code as the PIR or invalid RIN it is replacing.

   (2) The number of RINs retired must be equal to the number of PIRs or invalid RINs being replaced, subject to paragraphs (d) and (e) of this section.

 (d) Limited Exemption for invalid B-RINs.

   (1) In the event that an obligated party is required to retire or replace a PIR that is a B-RIN pursuant to paragraph (b) of this section, the obligated party will be afforded a "limited exemption" equal to 2% of its annual Renewable Volume Obligation (RVO) for calendar years 2013 and 2014.

   (2)	Limited examptions are calculated as follows:

                             LECB,i = 0.02 x RVOCB,i
                            LEBBD,i = 0.02 x RVOBBD,i
                             LEAB,i = 0.02 x RVOAB,i
                             LERF,i = 0.02 x RVORF,i

   Where:

      LECB,i =	Limited exemption for cellulosic biofuel for year i
      LEBBD,i = 	Limited exemption for biomass-based diesel for year i
      LEAB,i = 	Limited exemption for advanced biofuel for year i
      LERF,i = 	Limited exemption for renewable for year i
                  RVOCB,i =	The Renewable Volume Obligation for cellulosic biofuel for the obligated party for calendar year i, in gallons, pursuant to §80.1407.
                  RVOBBD,i =	The Renewable Volume Obligation for biomass-based diesel for the obligated party for calendar year i after 2010, in gallons, pursuant to §80.1407.
                  RVOAB,i =	The Renewable Volume Obligation for advanced biofuel for the obligated party for calendar year i, in gallons, pursuant to §80.1407.
                  RVORF,i =	The Renewable Volume Obligation for renewable fuel for the obligated party for calendar year i, in gallons, pursuant to §80.1407.

   (3) If the number of invalidly generated B-RINs required to be retired or replaced in a calendar year is less than or equal to LE as calculated in paragraph (d)(2) of this section, the entire RIN retirement obligation is excused.

   (4) If the number of invalidly generated B-RINs required to be retired or replaced in a calendar year is greater than LE as calculated in paragraph (d)(2) of this section, the retirement of a number of B-RINs equal to 2% of the obligated party's RVO is excused.

   (5)	The limited exemption applies only in calendar years 2013 and 2014.

(e) Cap on RIN Replacement for Independent Third Party Auditors of A-RINs.

   (1) If required to replace an invalid A-RIN pursuant to paragraph (b) of this section, the replacement obligation of the independent third party auditor who verified the A-RIN in question shall be no greater than the larger of:

    	(i) The aggregate of:

         (A) 2% of the A-RINs verified by the auditor in the current year, and
         (B) 2% of the number of A-RINs verified by the auditor in each of the previous four   (4) calendar years; or

      (ii) The aggregate of:

         (A)	The largest number of A-RINs that were generated by a single renewable fuel producer and verified by the auditor in the current year, and
         (B)	The largest number of A-RINs that were generated by a single renewable fuel producer and verified by the auditor in the previous four (4) calendar years.

   (2) The cap on RIN replacement does not apply when invalid verified RINs are a result of auditor error, omission, or negligence.

(f)  Failure to Take Corrective Action.  Any person who fails to meet a requirement under paragraph (b)(5) of this section shall be liable for full performance of such requirement, and each day of non-compliance shall be deemed a separate violation pursuant to section 1460(f) of this subpart.