FocusUS lawmakers probe RIN biofuels fraud, market confidence

17 July 2012 18:47  [Source: ICIS news]

By Leela Landress

A biodiesel fuel pumpMEDELLIN, Colombia (ICIS)--A rash of fraud cases has forced lawmakers to investigate how the US Environmental Protection Agency (EPA) handles fraudulent Renewable Identification Numbers (RINs) and the impact they are having on the renewable fuels market.

The House Energy and Commerce Subcommittee on Oversight and Investigations last week held a hearing on “RIN Fraud: EPA’s Efforts to Ensure Market Integrity in the Renewable Fuels Program.”

The hearing examined the Environmental Protection Agency’s management of fraud in the production and trade of RINs, which serve as credits for the production and blending of renewable fuels and are used for compliance purposes under the EPA's Renawable Fuels Standard (RFS) regulations.

“Clearly there is a problem with the current situation,” said Oversight and Investigations Subcommittee Chairman Cliff Stearns, a Republican from Florida.

Since November 2011, EPA has identified some 140m invalid or fraudulently created RINs associated with biodiesel fuel, and that number could double in the coming months, according to the committee.

Rodney Hailey, a Baltimore, Maryland-area man, was convicted in June of selling $9m (€7.3m) worth of RINs without producing a gallon of biodiesel.

The fraud has brought the market to its knees, a RIN trader said.

“It only makes it harder to match people up with every new violation that surfaces,” he said.

Congress passed a law in 2007 that required refineries to blend biodiesel with petroleum-based diesel.

In 2012, that RFS mandate required 1bn gallons of biodiesel to be used. To keep track of how the mandate is being completed, producers use a 38-character RIN.

Buyers like refineries can use the RIN to show the EPA they have met their share of the annual mandate, and they can sell credits above their share to other buyers, giving flexibility to buyers who are not close to biodiesel fuel producers.

The biodiesel industry has started using private, voluntary verification services for RIN buyers so they can prove their credits are legitimate and reduce risk.

The US biodiesel industry in May, in a move to stabilise the RIN market, launched of the Genscape RIN Integrity Network dashboard.

The RIN Integrity Network dashboard allows obligated parties who subscribe to the Genscape service to use real-time information to research participating biodiesel producers.

"A handful of isolated fraud cases have paralyzed the biodiesel RIN markets, but the launch of a comprehensive auditing and real-time monitoring program will give the market a great deal of confidence in any biodiesel producer that is participating in the Genscape program,” Joe Jobe, chief executive of the National Biodiesel Board (NBB), an industry lobby group, said in May.

Charles Drevna, President of the American Fuel and Petrochemical Manufacturers (AFPM) has said the EPA’s current buyer beware approach to enforcement is a major problem for the industry.

Under EPA’s current structure, obligated parties who unknowingly purchased fraudulent RINs are required to replace the RINs, incurring high costs that ultimately get passed down to the consumer, Drevna said during the energy committee hearing last week.

"EPA's inability to adequately address the situation and provide obligated parties with assurances that it will not continue to be punished for being victims of fraud in the future is creating significant uncertainty and concern in the marketplace,” Drevna said.

"In order to comply with the RFS without penalty, the system to purchase RINs must work,” Drevna said. “Currently, it does not and refiners must exist in an environment of uncertainty and risk, confounding their ability to comply with the law."

The EPA did not respond to a request for comment.

($1 = €0.81)


By: Leela Landress
+1 713 525 2653

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