RIN fraud schemes shake industry

By Agri-Pulse staff

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, July 3, 2012 -The conviction last week of a Maryland man on charges he sold some $9 million in fraudulent renewable energy credits based on biodiesel he never produced is the latest in ongoing developments that have shaken the biodiesel industry, raised question of confidence in how EPA is running the credit system, and antagonized the oil industry.                                

The level of concern has ratcheted to the point that the White House called in EPA officials, and oil and biodiesel industry leaders to discuss the state of the system that produces Renewable Identification Numbers, or RINs, a 38-digit number assigned to specific quantities of biofuels.

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A federal jury in Baltimore on June 25 found Rodney Hailey guilty of 42 counts of fraud, money laundering and Clean Air Act violations for selling 35 million fraudulent credits. EPA officials said that the verdict “returns some integrity” to the renewable fuel credit system.

But a number of lawmakers in Congress have persisted in their criticism of EPA operation of the credit system since an investigation of Hailey's operation was announced last fall, followed by the launch of two subsequent investigations, including one detailed April 30 when a Houston firm was suspected of selling more than 60 million fake RINs, defrauding brokers and oil companies of some $84 million.

Rep. Cliff Stearns, R-Fla., the chairman of a House Energy subcommittee, says he will hold meetings on the issue later this month. In a recent letter Stearns, Energy Committee Chairman Fred Upton, R-Mich., and other committee members sent to EPA Administrator Lisa Jackson, the lawmakers said “the production of and trade in fraudulent or invalid RINs has developed into a large and growing problem,” yet “EPA's efforts to address the problem so far appear ineffective, and in some respects have harmed the renewable fuels marketplace.”

The biodiesel industry, which says there is already a likelihood that plants will close and jobs will be lost jobs if Congress does not renew a $1-per-gallon production tax credit that expired at the end of last year, has already seen some plant closures because of falling RIN prices.

“Folks are a little nervous, given the news about fake RINs floating around out there,” said a biodiesel industry source. “We've lost some plants and some of these small companies that are continuing to operate can't get anything for the RINs they have.” RINs that ran about $1.45 each two months ago are now priced at about $1.20 for the bigger biodiesel producers. Most of the smaller producers must sell their RINs to bigger operations at a 15-cent discount, and many of them are not finding buyers.

Meanwhile, the oil industry and brokers who are vulnerable to bogus credits are not happy with EPA provisions that require buyers to validate the legitimacy of the RINs they are purchasing. Though a cap on fines allowed most of the bigger oil companies and refiners to limit their liability to some $350,000, suits and countersuits among credit brokers and production companies have littered the trail left by the various investigations.

The National Biodiesel Board launched an RIN auditing program aimed at protecting buyers from fraud.

Nonetheless, the fallout from the fraudulent RIN schemes prompted a recent meeting at the White House where climate change, oil, refinery and biodiesel industry leaders expressed concerns about the RIN system to Heather Zichal, deputy assistant to President Obama for energy and and Gina McCarthy, EPA assistant administrator for air quality.

“We are in the beginning stages of doing some brainstorming on how best to deal with these problems,” Zichal said Monday. “We are having robust, ongoing dialogues with the oil industry and the biofuels industry” to eliminate the potential for fraud in the RIN program.

Elsewhere, a spokesperson for Rep. Gene Green, D-Texas, whose district has a strong biodiesel production industry, confirmed that Green and Rep. Adam Kinzinger, R-Ill., are considering introducing legislation that would eliminate the “buyer beware” provision in EPA regulations establishing the RINs. Though no timetable has been set for the bill, the congressmen are reportedly looking at other provisions that would give the biodiesel facilities in their districts a greater opportunity to sell their credits at an adequate price.


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