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    EPA Failing to Enforce Their Own Rules to Prevent Fraud

    The inefficiency of the Environmental Protection Agency (EPA) at enforcing their very own rules designed to curb fraud and government waste, is costing companies millions.  Some experts predict that such fraud will only grow into the new year. Nowhere is this more apparent than within the bureaucratic nightmare that is the Renewable Fuel Standard (RFS).

    The RFS has already been the subject of widespread criticism for driving up corn and animal-feed prices in the middle of a drought by forcing farmers to meet ethanol quotas.  This in turn, creates higher food costs for the consumer. Former Rep. Bob Beauprez (R-CO) referred to the standard as "one of the worst and most costly boondoggles ever foisted on the American public."

    And now, recent reports show that an RFS implementation mechanism is leading to rampant fraud and abuse, with an inability of the EPA to enforce rules being the main culprit.

    The latest program being examined by Congress is the little known tradable biodiesel product known as Renewable Identification Numbers (RINs), a program which could easily join an ever-growing government rap sheet of failed energy policies.  

    RINs are required for petroleum producers to meet renewable fuel goals established by the RFS.  Liz Arnold at the Denver Post explains the complicated system:

    Under the RFS program, the government requires the use of 36 billion gallons of renewable fuels by 2022. When a producer makes renewable fuel like ethanol or biodiesel, the producer is required to generate a renewable identification number or RIN to match the quantity of fuel produced. Petroleum fuel producers are required to buy RINs from renewable fuel suppliers to earn credits to meet the renewable fuel rules. RINs are often traded between companies to help achieve compliance in renewable fuel percentages.

    Arnold compares the system to a similar scheme witnessed in the carbon tax credit market, referring to the RFS and RINs as "a fake market with real dollars".

    One would assume such a complicated system would require tremendous levels of oversight, and yet the EPA is severely lacking in this area, leading to "hundreds of millions of fraudulent RINs in circulation".  

    One example of the fraud involves an executive at Clean Green Fuel LLC named Rodney Hailey, who in June was convicted in a scam that generated and sold RINs without producing any quantities of biodiesel.  Hailey made nearly $10 million off of the scheme.  Similar cases have been reported in Texas and Alabama.

    The EPA has essentially admitted to having little control over these fraudulent RINs, announcing that there are over 140 million invalid numbers in circulation, with that amount expected to continue to rise.

    The waste resulting in such lackadaisical oversight stretches even beyond the scammers.  Any businesses that may have purchased a false RIN without knowing that it was invalid are prosecuted regardless, driving up costs and hurting businesses in an already uncertain economy.

    There is a way to stop the abuse, however.  A bi-partisan measure known as the Stop RIN Fraud of 2012 would force the EPA to actually do their job.  Nick Snow at Oil and Gas Journal writes:

    “The bipartisan measure, the Stop RIN Fraud Act of 2012, would require the US Environmental Protection Agency to certify that Renewable Identification Numbers (RIN), which refiners and blenders can trade to help them meet their biodiesel production quotas, are valid before they can go on the market.” 

    Imagine that.  Validating a tradable product before it goes on the market.

    The Stop RIN Fraud Act has received support on all sides, but the pressure for it to pass must continue.  For all its bureaucracy, the EPA’s ineffectiveness at stopping this fraud must be held accountable for future credits and structure. It would be a vital step for energy producers already facing burdensome regulations and an uncertain economy. 

    Follow Rusty on twitter @rustyweiss74