Audit faults EPA oversight of credit trading

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, September 11, 2013

U.S. EPA lacks proper controls of credit trading that occurs in the renewable fuel standard, the agency’s independent auditor said in a new report.

EPA’s Office of Inspector General found in a report completed last week that the agency lacks an electronic monitoring system to track the third-party reviews of biofuel facilities established after a series of fraud cases in the biodiesel industry. The auditor warned that inadequate monitoring could lead to more fraud.

“Until the EPA tracks submitted materials, the agency cannot be sure that program participants comply with applicable regulations, which affects program integrity and could lead to additional fraud cases,” the inspector general said.

Under EPA’s credit-trading program, refiners are allowed to buy and sell credits obtained by blending ethanol and biodiesel into petroleum-based fuels, and those credits can be used toward their annual obligations under the federal biofuels mandate.

In three separate cases over the past two years, though, individuals defrauded the government of millions of dollars by selling credits for biodiesel gallons that were never produced.

Earlier this year, the agency proposed a rule that would create a quality assurance program in which third-party auditors could review and certify that renewable fuel credits were legitimate. Biofuel producers would be required to submit their independent reviews to the agency, and refiners who purchase certified credits would be exempt from liability if those credits turned out to be invalid (Greenwire, Feb. 11).

In an effort to stem the fraud, EPA allowed biofuel producers to begin using the program before it was finalized. But the inspector general found that while EPA receives hard-copy reviews of biofuel facilities, it does not have a system in place to accept them electronically.

Without electronic submission, the agency cannot track reviews or determine whether there’s overlap in third-party reviews of fuel credit trading activity, the inspector general said. Such overlap could create conflicts of interest, such as in the case where the same third party is doing reviews of multiple EPA requirements for a renewable fuel producer or importer.

“While the EPA has control activities in place over the RFS program, monitoring control activities is important to ensure that the program works as intended and parties submit required information,” the inspector general said.

The agency said that it intends to put an electronic reporting system in place by the end of this year.