EPA program subject to ‘illegal exploitation’ — report

Source: Marc Heller, E&E reporter • Posted: Wednesday, September 21, 2016

U.S. EPA’s renewable fuel credits system is open to fraud that’s becoming more organized, said a former director of the agency’s law enforcement branch.

Doug Parker, former head of the Criminal Investigative Division, said in a report for Valero Energy Corp. that EPA needed to reorganize its renewable fuel standard program to make it less vulnerable to criminal fraud, particularly in the system of renewable identification numbers, or RINs.

Parker is president of E&W Strategies, a Washington, D.C.-based consulting firm. Valero is among the companies suing EPA over the renewable fuel standard program.

“As the former senior law enforcement who initiated and oversaw a nationwide effort aimed at investigating significant fraud in this program, I believe the existing regulatory and oversight framework will continue to provide opportunities for illegal exploitation and lead to competitive distortions in this sector,” Parker said.

RFS fraud appears to be transitioning from individuals to “much more sophisticated organizations,” which EPA has been unable to thwart, Parker said. And some of the fraudsters are tied to international criminal networks, he said.

The federal government has prosecuted a handful of RFS fraud cases in the past few years. In 2015, a federal judge sentenced four Florida residents to prison for selling more than $15 million in fake biodiesel credits, among other violations (Greenwire, Aug. 28, 2015).

Parker said the system of RINs — credits assigned, by volume, to renewable fuels blended into other fuel — is built in a way that encourages fraud. Rising prices for the credits have given fraudsters an incentive, Parker said.

RINs are assigned to fuel until it’s blended. At that point, companies can trade or hold credits for future compliance with renewable fuel mandates.

The system would be less tempting, Parker said, if RINs, like commodities, were traded on an open market. And he said making blenders rather than refiners and importers responsible for meeting the RFS mandate — the so-called point of obligation — would improve accountability.

Moving the point of obligation has been a rallying cry for Valero and other refiners, and EPA officials have said they’re considering the idea.

“Fraud thrives when opportunities for exploitation and large-scale illicit gain meet as they have done within the RFS,” Parker said.

RFS fraud has so far been confined largely to biodiesel, said Parker. Still, he said the system as a whole remains at risk.

A spokesman for the National Biodiesel Board, Ben Evans, said he didn’t see much new in the report. And the Renewable Fuels Association, representing ethanol producers, said the issue doesn’t apply to their industry.

“While there were a few isolated cases of RIN fraud in the biodiesel sector, fraud has not been an issue at all with ethanol RINs,” said the RFA’s Senior Vice President Geoff Cooper in a statement.

An EPA spokeswoman said the agency was working with the federal Commodity Futures Trading Commission to fight fraud, including sharing compliance data, through a formal interagency agreement. “The Agency continues to monitor all facets of the implementation of this program, including the RIN market,” she said.