US Authorities Maintain Environmental Law Enforcement

The US Department of Justice recently announced an enforcement action against Chevron for violations of the Clean Air Act’s Renewable Fuel Standard programme. This action goes some way in demonstrating that US authorities continue to enforce environmental laws despite the widespread sentiment which suggests the contrary.

The Renewable Fuel Standard requires a prescribed volume of renewable fuels to be blended into the US transportation fuel supply annually. Compliance relies on a credit system using Renewable Identification Numbers or RINs. Each gallon of qualifying renewable fuel generates a unique number. Refiners and importers must retire enough credits to meet blending obligations relative to their fossil-based fuel volumes.

Market integrity depends on ensuring each gallon generates only one valid credit. Duplication undermines compliance accounting. Between January 2022 and April 2023, Chevron allegedly double-generated 9,220,075 credits on over 5.4 million gallons of renewable diesel at its El Segundo refinery. Chevron self-reported the matter to the Environmental Protection Agency in June 2023.

Settlement and Remedial Actions

Chevron agreed to several measures to resolve the alleged violations.

• Financial Penalties Chevron will pay a civil penalty of USD $1,072,634. In November 2023, the firm retired 2,228,905 valid credits worth approximately USD $3.6 million to replace invalid ones transferred to third parties.
• Inventory Corrections in January 2024, Chevron retired nearly 7 million invalid credits remaining in its inventory. While the settlement does not necessarily consider this retirement punitive, the cancellation almost certainly resulted in a significant write-down.
• Operational Changes The firm implemented accounting and operational changes to prevent improper credit generation on purchased renewable diesel in the future.

RegTrail Observations

The 10-page Stipulation of Settlement and Order (see here) confirms that Chevron used renewable diesel produced by other firms as a feedstock. These external producers had already generated credits on that fuel. Chevron neither admitted nor denied the alleged violations as part of the settlement. This case showcases the ongoing scrutiny of credit-based compliance systems and the necessity for robust internal controls by energy firms actively participating in the Renewable Fuel Standard programme.