EPA Enforcement Action Highlights Need For Oversight Of Marine Fuel, RINs Activity

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A recent enforcement action by the U.S. Environmental Protection Agency (EPA) highlights the perils of incorrectly categorizing marine fuels under EPA's Renewable Fuel Standard...
United States Energy and Natural Resources
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Highlights

  • A recent enforcement action by the U.S. Environmental Protection Agency (EPA) highlights the perils of incorrectly categorizing marine fuels under EPA's Renewable Fuel Standard (RFS) and Diesel Fuel programs.
  • Marine fuel players – starting with refiners and all the way to the entities bunkering the boats – should review their practices to ensure compliance.
  • This Holland & Knight alert provides a brief overview of the settlement and EPA rules.

A recent enforcement action by the U.S. Environmental Protection Agency (EPA) highlights the perils of incorrectly categorizing marine fuels under EPA's Renewable Fuel Standard (RFS) and Diesel Fuel programs. Indeed, EPA's requirements for how to designate marine fuel, how renewable identification numbers (RINs) are implicated and the proper sulfur level in maritime applications is not intuitive and may not be fully understood, given the myriad entities involved in bunkering boats and vessels of all sizes. Marine fuel players – starting with refiners and all the way to the entities bunkering the boats – should review their practices to ensure compliance. This Holland & Knight alert provides a brief overview of the settlement and EPA rules.

Enforcement Action Summary

In April 2024, EPA announced the settlement of its enforcement action with an importer and producer of diesel and gasoline over violations for 1) failing to incur a renewable volume obligation (RVO) and retiring RINs for diesel fuel sold for marine use and 2) selling three batches of gasoline with high Reid vapor pressure (RVP). The settlement requires the company to 1) retire 9,004,874 RINs within the next two years and 2) pay a civil penalty of $2,805,420.

With regard to the RFS and diesel rules, EPA alleged that the company improperly excluded more than 100 million gallons of diesel from its RVO calculations, which resulted in its failure to retire more than 9 million RINs between 2013 and 2019. In other words, the marine fuel produced and sold was not categorized as a "transportation fuel" that incurred a RIN obligation, but EPA said it should have. The settlement also covered the gasoline violation – in particular, the civil penalty is for the RVP violations but may also include economic gain for avoiding RIN retirement (the settlement documents do not provide such detail). In addition, by March 31, 2026, the company must retire a total of 9,004,874 unexpired valid RINs in the following categories:

  1. 95,814 unexpired valid RINs to comply with the D3 Cellulosic Biofuel RVO
  2. an additional 1,625,857 unexpired valid RINs to comply with the D4 Biomass-Based Diesel RVO
  3. an additional 343,466 unexpired valid RINs to comply with the D5 (or D3 or D4) Advanced Biofuel RVO and
  4. an additional 6,939,737 unexpired valid RINs to comply with the D6 Renewable Fuel RVO

Overview of Marine Fuel Requirements

This settlement is a reminder that most "marine" fuel use is covered as a transportation fuel under the RFS. Therefore, diesel fuel produced or sold for marine use incurs an RVO, and alternatively renewable fuel used for marine use is a covered use to keep RINs valid.

"Transportation fuel" is defined to include marine applications except for ocean-going vessels, which generally means vessels with Category 3 engines. Therefore, diesel fuel used in marine applications incurs an RVO, while diesel fuel used in ocean-going vessels does not incur an RVO. 

The RFS program covers transportation fuel, which is defined to be fuel for use in:

  1. highway and on-road vehicles
  2. nonroad engines, defined as internal combustion engines that meet any of the following criteria:

    • use in equipment that is self-propelled or serves a dual purpose by both propelling itself and performing another function (such as garden tractors, off-highway mobile cranes and bulldozers)

    • use in equipment that is intended to be propelled while performing its function (such as lawnmowers and string trimmers)

    • by itself or in equipment, it is portable or transportable, meaning designed to be and capable of being carried or moved from one location to another; indicia of transportability include, but are not limited to, wheels, skids, carrying handles, dolly, trailer or platform. See 40 C.F.R. § 1068.30.
  1. locomotive use
  2. marine use, except for ocean-going vessels (generally Category 3 engines)

Marine fuel use for non-ocean-going engine vessels such as tugs, ferries, work boats, refueling vessels and recreational boats incur an RVO when diesel/distillate fuel is used; bunkers used for Category 3 engines will not incur an RVO. Additionally, renewable fuel used in marine fuel is a qualifying transportation fuel use for RINs, while renewable fuel used in Category 3 (ocean-going) engines is not a qualified use for keeping RINs valid.

Sulfur Levels

EPA fuel regulations require marine fuel used in United States' waters to be 15 ppm sulfur – or ultra-low-sulfur diesel (ULSD). "ECA Marine Fuel" used in Category 3 vessels within the U.S. Emissions Control Area (ECA) (generally 200 nautical miles from U.S. coast) must be a maximum of 1,000 ppm sulfur. Outside of the U.S. ECA, Category 3 engines can use "Global Marine Fuel" with a maximum of 5,000 ppm sulfur.

Certified Non-Transportation Distillate Fuel (NTDF)

EPA adopted the new designation of Certified NTDF fuel, or "certified non-transportation diesel fuel," in 2020 and 2021 to distinguish between 15 ppm diesel used in non-transportation fuel use versus transportation fuel use. An example is 15 ppm heating oil, or ultra-low heating oil (ULHO) – this is not a transportation fuel, and therefore its production does not incur an RVO. Under the newer rules, this product can be designated as "Certified NTDF ULHO," which allows for 1) no RVO and 2) commingling in tank with ULSD.

If Certified NTDF is sold for use as a transportation fuel, EPA rules require a change in designation and incur an RVO, even where downstream of the initial refiner/producer. If certified NTDF ULHO is sold to a marine services company, the seller should consider if it should redesignate as "ULSD for transportation fuel use" and incur an RVO, since the use may be more likely to be as a bunker fuel than as heating oil. Indeed, EPA has discouraged entities from selling heating oil (HO) in locations that do not use HO for heating purposes, so sales and purchases of HO in the Gulf of Mexico should be reviewed. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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