NGL Crude Logistics, LLC Clean Air Act Settlement

(Washington, DC - September 27, 2018) The U.S. Environmental Protection Agency and the U.S. Department of Justice today announced a settlement with NGL Crude Logistics, LLC that resolves allegations that the company entered into a series of transactions in 2011, that resulted in the generation of more than 36 million invalid renewable fuel credits. NGL will pay a civil penalty of $25 million and retire 36 million valid renewable fuel credits.

On this page:

• Overview of Company
• Overview of the Renewable Fuel Standard Program
• Violations
• Litigation
• Mitigation
• Pollutant Impacts
• Health and Environmental Benefits
• Civil Penalty
• Comment Period
• Contact

Overview

NGL is a midstream energy provider that transports crude oil, and markets and supplies fuel products, including some renewable fuel products. NGL is headquartered in Tulsa, Oklahoma.  At the time of the violations, NGL was known as Gavilon, LLC.

Overview of the Renewable Fuel Standard Program

The original Renewable Fuel Standard program (RFS1) was created under the Energy Policy Act of 2005, and established the first renewable fuel volume mandate in the United States. RFS1 required 7.5 billion gallons of renewable fuel be blended into gasoline by 2012.

The Energy Independence and Security Act of 2007 expanded the program, which became known as the RFS2 program. The RFS2 program reduces greenhouse gas (GHG) emissions by setting a national mandate for renewable fuels that meet specific GHG emissions reduction standards. The RFS2 regulations created a market based program to assure that the national mandate will be met.

Renewable fuel producers and importers generate renewable fuel credits, known as Renewable Identification Numbers or RINs, for each gallon of renewable fuel that meets the GHG emissions reduction standards. The program requires refiners and importers, known as obligated parties, to retire a specific number of RINs each year based on the amount of petroleum fuel that they produce and import.

The RFS program was designed to reduce GHG emissions by 138 million metric tons when fully implemented in 2022. The reductions would be equivalent to taking about 27 million vehicles off the road. (See: section on "Greenhouse Gas Emissions" in EPA Finalizes Regulations for the National Renewable Fuel Standard Program for 2010 and Beyond.)

Violations

The settlement resolves allegations made in an October 4, 2016, Complaint against NGL for violations of the RFS2 regulations. The EPA and the DOJ alleged that in 2011, NGL, then known as Gavilon, LLC, entered into a series of transactions with Western Dubuque, LLC that resulted in the generation of more than 36 million invalid biomass-based diesel RINs.

The allegations were as follows: NGL purchased biodiesel with RINs from other companies, separated and sold the RINs to third parties, and then sold the biodiesel to Western Dubuque as a methyl ester "feedstock." Methyl esters are a class of chemical compounds that include, but are not limited to, biodiesel.

Western Dubuque then reprocessed this "feedstock" and generated a second set of RINs for the reprocessed fuel. Western Dubuque sold all of the biodiesel it produced from NGL’s “feedstock” and RINs it generated in 2011 to NGL. The EPA and the U.S. Department of Justice also alleged that Western Dubuque violated a number of RFS2 regulations because the RINs it generated were not produced using a qualifying feedstock or qualifying process.  The United States settled it claims against Western Dubuque on October 4, 2016. See: the Western Dubuque Biodiesel, LLC case.

Litigation

The United States and NGL litigated the case for over a year and a half. On May 24, 2017, the Court denied NGL’s Motion to Dismiss. On July 3, 2018 the Court ruled for the United States on its claims against NGL. Specifically, the Court ruled that in 2011, NGL:

• failed to retire RINs when it designated the biodiesel it sold to Western Dubuque as a “feedstock.”
• Illegally transferred invalid RINs that Western Dubuque generated from NGL’s methyl ester “feedstock.”
• NGL caused Western Dubuque to commit prohibited acts.

On September 27, 2018, the Court ordered the summary judgment order unsealed and publicly available.  View the summary judgement order.

Mitigation

NGL will purchase and retire 36 million valid biomass-based diesel RINs to offset the harm caused by its alleged violations.

Pollutant Impacts

Biomass-based diesel RINs represent renewable fuel that displaces petroleum diesel fuel and achieves GHG emissions reductions. When two RINs are generated for the same volume of fuel, the invalid RINs distort the actual GHG emissions achieved. This has a negative impact on the goals of the RFS program and the integrity of the RIN market.

The EPA estimates that the illegal generation of RINs in this case resulted in excess greenhouse gas emissions of about 151,319 metric tons of carbon dioxide equivalent emissions. 

Health and Environmental Benefits

In order to ensure the GHG emissions reductions from the RFS program are achieved, and to protect the program's integrity and maintain a level playing field for regulated companies, EPA pursues enforcement actions against renewable fuel producers and other parties involved in the generation of invalid RINs.

Civil Penalty

NGL will pay a civil penalty of $25 million. The penalty is based, in part, on the company’s limited ability to pay a larger penalty.

Comment Period

The proposed settlement, lodged in the U.S. District Court for the Northern District of Iowa, is subject to a 30-day public comment period and final court approval. The public comment period will begin when the Department of Justice publishes a notice of the settlement in the Federal Register.   The settlement will be available at the Department of Justice website.

For more information, contact:

Jeffrey A. Kodish
Air Enforcement Division
U.S. Environmental Protection Agency
1595 Wynkoop Street (8MSU)
Denver, CO  80202-1129
[email protected]