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Opinion

EPA green program lays a golden egg for con artists

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Beltway Confidential,Opinion,Joel Gehrke,EPA,Waste and Fraud,Justice Department,David Vitter

An Environmental Protection Agency green energy program continues to lay a golden egg for con artists, as the Justice Department cracked down on yet another multimillion-dollar biofuels scam on Thursday.

"Two men have been indicted by a federal grand jury in Las Vegas for offenses involving the federal renewable fuel program that allegedly netted them more than $37 million," Justice officials announced Thursday. To discuss the alleged crime, though, the press release first had to explain how the scam was made possible by EPA regulations.

"Biodiesel producers and importers could generate and attach credits known as 'renewable identification numbers' or RINs to biodiesel they produced or imported," federal prosecutors said in a statement. "Because certain companies need RINs to comply with regulatory obligations, RINs have significant market value. In addition, in order to create an incentive for biodiesel in the United States to be used in the United States, anyone who exports biodiesel is required to obtain these valuable RINs and provide them to EPA."

The men involved in the Las Vegas scheme allegedly sold $7 million worth of fake RINs and then acquired another $30 million in RINs through an export deal, which they kept for themselves instead of giving to the EPA.

The Las Vegas defendants get no credit for originality. In September, prosecutors filed an indictment for "the largest tax and securities fraud scheme in Indiana history," a plot that hinged on the biofuels mandate. In March, DOJ busted another scammer who had sold fake RINs in order to pay for -- you guessed it -- a $15 million art collection.

“The Renewable Fuel Standard Program was designed to achieve greenhouse gas emission reductions, promote energy independence and expand our nation’s renewable fuels sector,” said Cynthia Giles, assistant administrator for enforcement and compliance assurance at the EPA, in a September statement on the Indiana indictment. “Today’s action supports these goals by protecting the integrity of the biofuel market. Those that cheat the system are breaking the law, and undermine our commitment to protect public health and the environment.”

In fact, the EPA has enabled the fraud in two ways. For one thing, they have given con artists their public stamp of approval.

"EPA's website lists the companies that sell RINs," according to a document produced by the minority staff of the Senate Committee on the Environment and Public Works. However, there is no finalized system in place that verifies whether these companies actually produce the gallons of fuels that the RINs are associated with. "This has led to producers relying on fraudulent RINs purchased from fake companies -- that had been listed on the EPA website," (original emphasis).

Of course, EPA didn't let a little thing like their mistake absolve the companies who had purchased fake RINs at the EPA's behest.

"When the companies were exposed as frauds, EPA held the producers responsible for purchasing illegitimate RINs, fined them for not being in compliance, and required them to purchase more RINs, costing the companies millions of dollars," the Senate committee observed.

Beyond human error, the EPA facilitates the scam through the nature of the mandate (beyond the risk of fraud that faces every government program). Companies purchase RIN credits as a substitute for actually producing the biofuel that the EPA requires (the idea being that the use of the RIN credit guarantees that such fuel is being used somewhere in the economy). They rely so heavily on the credits in part because cellulosic biofuel isn't commercially available at the levels required by the EPA — not even the biofuel refiners can meet it.

The EPA mandate is so unrealistic that a federal court vacated the requirement that gasoline blenders to use 8.65 million gallons of the cellulosic biofuel because the mandate “was based on wishful thinking rather than realistic estimates of what could be achieved,” as the New York Times summarized.

A week later, the EPA increased the biofuels requirement. (More recently, the agency proposed lowering the requirement that refiners "blend 15.21 billion gallons of renewable fuels into conventional transportation fuel next year," which the Washington Examiner's Zack Colman noted is "a cut from the 18.21 billion gallons Congress set as a target for 2014 when it passed the Renewable Fuel Standard in 2005.")

"There are obvious concerns that the RIN program creates an artificial market for some to get rich at the expense of others, including those forced to participate and consumers who drive, just to meet unrealistic RFS mandates," said Sen. David Vitter, R-La., who is trying to build bipartisan support for legislation to reform the program. "Plus, it’s way, way too easy to game the fraud-ridden program."

Vitter spokesman Luke Bolar said that "EPA is in the process of developing a 'quality assurance' program," but it's not finished yet.

If you believe that the EPA will bring a green energy mandate into alignment with market reality, I've got a "renewable identification number" to sell you.

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