RINS and LCFS - Regulations for renewables in Oil & Gas industry

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The impacts of global warming have been well documented. Climate change concerns have caused governments, organizations, and corporations worldwide to work towards reducing our carbon footprint by setting net zero or carbon neutrality targets. Adopting renewable energy sources has been on the rise to mitigate our carbon emissions. Within the Oil and Gas industry, renewable fuels were introduced as a cleaner energy source with a lower carbon footprint than fossil fuels.

RINS

• In US, to reduce greenhouse gas emissions, congress created the program Renewable Fuel Standard, RFS, in 2005 as a part of the Energy Policy Act – under this act, specific amounts of renewable fuels were mandated to be used for transportation fuel.


• In 2007, under EISA or Energy Independence and Security Act, congress made more changes and expanded the program, now called RFS2, to mandate larger amounts and for a longer period.


• Under this Federal program, RFS2 promotes using Renewable Fuels (RF) in Transportation Fuel.


• Every year EPA sets RF % that should be blended in transportation fuel, which translates into Renewable Volume Obligation (RVO) for the year.


• Renewable Identification Numbers (RIN) are credits generated from the production or use of qualifying RF. RINs are periodically reported to EPA Moderated Transaction System (EMTS) to comply and match with RVOs.

Picture Credit: www.epa.gov

Industry Business Process

• Gasoline or Diesel production invokes Obligations (RVOs) for the Oil Company, OGC (hypothetical).


• To comply with RFS2 regulations, OGC purchases RFs like Ethanol, Biodiesel, and Renewable Diesel. OGC receives RIN Credits that are attached to the fuel.


• OGC also directly purchases unattached RINs, termed "over-the-counter" (OTC) RINs.


• The counterparty provides a Product Transfer Document (PTD) document after the transaction is complete that confirms the RINs detail and the quantity (ratio w.r.t. RF quantity if attached).


• The transaction is also reconciled with EMTS. The details on the EMTS database become official numbers for RIN transactions.


• These RINs that OGC has received are then reported to the government to match the RVOs accrued annually. Once this is done, these RIN Credits are retired. That ends the RIN lifecycle.


• RINs are associated with the year. RINs have a maximum life of 2 years, which means OGC must retire them within 2 years. If not retired, OGC cannot use them to comply RVOs in their 3^rd year.

LCFS

• The state of California (and Oregon now) has Low Carbon Fuel Standard (LCFS) program to reduce Greenhouse Gas emissions.


• LCFS targets a reduction of Carbon Intensity ("CI") of California's transportation fuels by 20% or more by 2030 from a 2010 baseline.


• California Air Resources Board ("CARB") administers the LCFS program and sets annual CI standards for Gasoline, Diesel, and RFs.


• LCFS obligation is created when Gasoline and Diesel are produced or purchased with a CI value higher than the CARB-mandated target.


• LCFS credits are generated from the production or purchase of RF with low CI values and are used to offset obligations generated from transportation fuel.


• All transactions in California are reported by regulated parties in LCFS Reporting Tool (LRT).

Industry Business Process

• Gasoline or Diesel production in California invokes LCFS deficit (RVOs) for OGC.


• OGC purchases RFs like Ethanol, Biodiesel, and Renewable Diesel. OGC receives LCFS Credits that are attached to the fuel.


• OGC also directly purchases unattached LCFS, termed "over-the-counter" (OTC) LCFS.


• Counterparty provides CI value and quantity details


• The transaction is reported to LRT.


• Finally, at the end of each quarter, the Government Reporting user reconciles the credits in LRT for compliance.


• On an annual basis, the reconciled credits in LRT are remitted to CARB and retired from inventory. That ends the LCFS lifecycle.


• LCFS credits do not ever expire, unlike RINs.

 

SAP has delivered solutions to run the business for RINs and LCFS for a few O&G Customers. The high-level architecture involves capturing the RINS and LCFS attributes through Deal Capture and triggering the creation of RINS and LCFS credits (or obligations) in a Renewables Object Workbench framework based on the actual relevant movement. This framework is used to keep track of and process the different statuses of the credits or obligations. This solution keeps evolving and is currently delivered as part of custom development.