UpdateUS lawmakers probe biofuels fraud, effect on industry

17 July 2012 20:17  [Source: ICIS news]

A biodiesel fuel pump(adds EPA quotes in paragraphs 20-22)

By Leela Landress

MEDELLIN, Colombia (ICIS)--A rash of fraud cases has prompted US lawmakers to investigate how the US Environmental Protection Agency (EPA) handles fraudulent Renewable Identification Numbers (RINs) for biofuels and their market impact.

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 panel examined the EPA’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 Renewable Fuels Standard (RFS) regulations.

“Clearly there is a problem with the current situation,” said subcommittee chairman Cliff Stearns (Republican-Florida).

Since November 2011, the 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 $9.0m (€7.3m) worth of RINs without producing a gallon of biodiesel.

The fraud has brought the market to its knees, an 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, such as refiners, 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 launched the Genscape RIN Integrity Network dashboard in an effort to stabilise the market.

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 paralysed the biodiesel RIN markets, but the launch of a comprehensive auditing and real-time monitoring programme will give the market a great deal of confidence in any biodiesel producer that is participating in the Genscape programme,” National Biodiesel Board (NBB) chief executive Joe Jobe said.

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 the 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 said it is conducting criminal investigations and civil enforcement proceedings against companies suspected of fraud as well as violations of the Clean Air Act. 

“The regulated community has already taken steps to improve its due diligence and tracking of RINs, including the creation of at least three programmes designed to validate the authenticity of RINs,” the EPA said in a statement. “The EPA is concurrently discussing with all affected parties additional market and regulatory measures that may be taken to ensure these problems do not recur.”

The EPA said it worked with refiners and renewable fuel producers to develop a centralised, electronic data transaction system. Real-time RIN transactions total some 20,000/day, the EPA said.

By: Leela Landress
+1 713 525 2653

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