Gas station signs announcing “Biodiesel” or “Contains ethanol” have become commonplace in America. We’re vaguely aware that billions of gallons of such renewable fuel are now being blended into our finished gasoline and diesel fuels. This is the Renewable Fuel Standard at work, the EPA’s byzantine invitation to fraud.
The RFS program is Environmental Protection Agency’s system to assure that the amount of renewable fuel being used in motor fuel meets the requirements of the law. Believe it or not, the EPA monitors every gallon of renewable fuel in our motor fuel with a unique serial number called a Renewable Identification Number, or RIN. The EPA does not assign the RIN, nor does it maintain a registry for these numbers. And that’s where the horror story begins.
Producers assign RINs — credits that can be bought and sold like shares of stock. What’s more, the EPA puts the burden on refiners and importers to ensure the credits they purchase are valid.
What’s to keep a dishonest producer from generating RINs in his computer without manufacturing any corresponding renewable fuel connected to those numbers? Nothing, evidently. Since last November, the EPA has accused three companies of selling RIN credits without producing any fuel to back up the credits. Clean Green Fuel of Baltimore sold more than 32 million possibly phony credits; Absolute Fuels of Lubbock, Texas, more than 48 million; and Green Diesel LLC of Houston, more than 60 million.
Clean Green Fuel owner Rodney R. Hailey was charged with wire fraud, money laundering and violating the Clean Air Act. He allegedly netted at least $9 million, but his business “consisted solely of generating false RINs” and “marketing them to brokers and oil companies,” Maryland U.S. Attorney Rod J. Rosenstein wrote in an indictment.
What did Hailey do with his alleged ill-gotten gains? Federal agents seized a Gulfstream III jet ($2.5 million), along with 10 cars and trucks, including a Bentley Continental ($267,000), a Mercedes-Benz ($200,000), a 2011 Cadillac Escalade ($85,085), a couple of Ferraris, a Rolls-Royce and a Maserati. The affidavit also listed real estate holdings totaling more than $5.3 million.
Absolute Fuels CEO Jeffrey Gunselman allegedly created fake credits worth approximately $62 million and used the money for similarly lavish living.
Green Diesel of Houston received an EPA “notice of violation” — a warning that legal action will be taken unless a problem is resolved — for allegedly generating more than 60 million invalid biomass-based diesel RINs.
To whom did they sell the allegedly fake RINs? Here is the real hitch. The EPA puts the burden on refiners and importers to do the due diligence — sufficient investigation — to ensure the RINs they buy are valid. The EPA is explicitly saying “buyer beware.”
A fuel industry insider said, “When folks do their own investigating, EPA will not tell us what their idea of acceptable due diligence looks like. There is no guarantee that what you consider to be due diligence will keep the agency from coming after you anyway.”
As of this week, the EPA has issued “notices of violation” to 30 companies that unknowingly bought fake RINs to comply with their production obligation. Charles T. Drevna, president of the American Fuel & Petrochemical Manufacturers, last week told a hearing of the House Committee on Oversight and Government Reform, “EPA officials should have alerted members of my trade association when they suspected that some companies registered with the agency were producing fraudulent credits.
“Penalizing refiners who unknowingly bought fraudulent RINs from sellers registered with EPA is unjust, irresponsible and bad policy because it punishes crime victims instead of criminals.”
The best solution is to eliminate this system entirely.
Examiner Columnist Ron Arnold is executive vice president of the Center for the Defense of Free Enterprise.
