US refiners charge EPA with failure to stop biofuels fraud

11 July 2012 19:55  [Source: ICIS news]

A biodiesel fuel pumpWASHINGTON (ICIS)--The US refining sector on Wednesday charged that federal regulators have failed to take prompt action to stop widespread production of fraudulent biodiesel certificates that have cost industry nearly $200m (€164m) in the last year.

Charles Drevna, president of the American Fuel & Petrochemical Manufacturers (AFPM), told the House Committee on Energy and Commerce that the Environmental Protection Agency (EPA) waited a full year to inform refiners and others of the fraud, leaving them exposed to losses and even non-compliance fines by the EPA.

As noted in a staff report by the House Subcommittee on Oversight and Investigations, the EPA established a system of tradable renewable identification numbers (RINs) that refiners and fuel blenders must obtain as proof that they are using certain volumes of biodiesel in their energy products.

Every gallon of biodiesel manufactured is assigned a RIN, and refiners obtain those numbers on purchase of biofuel supplies.

“When the biofuel is blended into transportation fuel,” the subcommittee report noted, “RINs can be separated from the underlying fuel and traded, much like currency, ultimately to facilitate [refiners and blenders] compliance efforts.”

But over the last year, several purported biodiesel production companies were selling RINs to the fuels industry without actually producing the related biofuel.  Just last month, a federal jury convicted one such fraudulent company, Clean Green Fuels, of selling some $9m worth of illegal RINs.

Drevna said that although the EPA discovered the Clean Green Fuels fraudulent activity in early 2011, “it took EPA more than a year to inform obligated parties”, meaning refiners and others who are obligated under federal renewable fuels mandates to buy biofuels.

After finally announcing that the Clean Green Fuels RINs were invalid, Drevna said, “EPA informed obligated parties that they had 14 days to replace the invalid RINs” and subsequently charged the defrauded companies with violations of the Clean Air Act, “effectively punishing the victim of the fraud". 

He noted that at least 24 companies purchased the fraudulent Clean Green Fuels RINs. 

The EPA contends that refiners and blenders had an obligation to be sure that the biofuels and RINs they were buying were in fact legitimate.

In his testimony before the subcommittee, Drevna said that despite numerous requests from refiners and other victim companies, “EPA has declined to identify any due diligence steps that would at minimum provide an obligated party legal protection if they unknowingly purchase and invalid RIN”.

“Again, this ‘buyer beware’ policy amounts to punishing the victims of fraud,” Drevna said.

Byron Bunker, acting compliance director of EPA’s office of transportation and air quality, told the subcommittee that the agency “understands the seriousness and urgency of the fraudulent RIN issue and has been diligently working with industry to alleviate uncertainties in the renewable fuels market for obligated parties and [biofuels] producers alike.

But Bunker did not indicate how soon the EPA might establish a system of safeguards to prevent RINs fraud.

Drevna said that while AFPM appreciates discussions EPA has been holding with refiners and others to resolve the problem, he said that “we need resolution on legal certainty before the end of this year”.

Although not testifiying at Wednesday's hearing, the National Biodiesel Board (NBBin May this year set up an online network through which the board said RINs stakeholders can establish the validity of purchases.

($1 = €0.82)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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