EPA accuses biodiesel makers of faking 33.5M fuel credits

Source: Amanda Peterka, E&E reporter • Posted: Thursday, December 19, 2013

U.S. EPA slapped an Indiana-based biodiesel company and its subsidiary with a violation notice today over accusations that they generated 33.5 million fake renewable fuel credits in an effort to defraud the government.

All the renewable fuel credits produced by E-Biofuels LLC, a subsidiary of Imperial Petroleum, between July 1, 2010, and June 2, 2011, were invalid, EPA said. Refiners purchased the credits to show compliance with the federal biofuel mandate’s requirements for biodiesel, which is made from soybean oil, animal fats or used cooking grease.

The 33.5 million fake credits are currently worth about $10 million, according to Sutherland Asbill & Brennan LLP, a Washington, D.C., law firm with clients that must comply with the renewable fuel standard. The Clean Air Act authorizes EPA to assess a civil penalty of up to $37,500 a day for violations.

The agency is also sending notices to refiners that purchased the allegedly fake credits requiring that they be replaced, the firm said. EPA also plans to present refiners that purchased the fake credits with an administrative settlement agreement to resolve any civil violations.

In September, the government filed fraud charges against Imperial and E-Biofuels, as well as several company executives. In court documents, the Securities and Exchange Commission alleged that E-Biofuels purchased finished biodiesel from middlemen and portrayed those purchases in invoices as raw feedstocks for its own renewable fuel production.

Between fiscal 2010 and 2011, according to the accusations, the company sold the finished biodiesel for double its purchase price and collected illegal tax benefits for the fuel. When the scheme crumbled, Imperial’s stock plummeted and investors lost $60 million, the SEC said. Indiana officials called it the largest tax and securities fraud scheme in their state’s history (E&ENews PM, Sept. 18).

This is the fourth major biodiesel credit fraud case to come to light in the past 2½ years. In all, companies have produced and sold more than 170 million fake biodiesel credits. Two of the cases so far have resulted in convictions.

EPA has proposed a quality assurance program to verify that renewable fuel credits are legitimate (Greenwire, Feb. 11). The program would also provide refiners with an affirmative defense should they purchase those credits to show compliance with the federal biofuels mandate.

The program will be finalized early next year, EPA Director of Transportation and Air Quality Christopher Grundler told lawmakers last week.

American Fuel & Petrochemical Manufacturers, whose members have received notices of violation in the past for purchasing fraudulent credits, said in a statement today that it is still worried about the breadth of fraudulent activity in the biodiesel sector.

“We still, however, do not know the full scope of the fraudulent activities within the biodiesel industry except to recognize that it is extensive, pervasive and unfortunately not quantifiable since EPA does not provide details about its ongoing investigations,” AFPM President Charles Drevna said in the statement.

Biodiesel producers, though, argue that the charges against Imperial and E-Biofuels don’t signal that there is a lingering fraud issue in the sector because the fraud happened before recent attempts to stem it by the private sector and EPA (Greenwire, Sept. 20).