EPA says it’s pressing for quick launch of audits for battered biodiesel program

Source: Amanda Peterka, E&E reporter • Posted: Tuesday, February 12, 2013

LAS VEGAS — U.S. EPA is eager to get the biodiesel market on its feet after a series of fraud cases, a top agency official told an industry conference here last week.

Bryan Bunker, acting director of the EPA Office of Transportation and Air Quality’s compliance division, said the agency wants to build “high confidence” in the program by establishing third-party auditors for renewable fuel credits and protecting refiners from liability for invalid credits.

“We’re eager to see this kind of program out there, to see it happen and to have people start validating [credits], do this kind of oversight,” Bunker said, “so we propose that the program start right away.”

The quality assurance program that EPA announced Jan. 31 topped the agenda at the annual National Biodiesel Board event.

The proposal is EPA’s response to three cases in which individuals faked millions of dollars’ worth of renewable identification numbers (RINs), selling them to refiners that use them to reach their obligations for biodiesel, an advanced biofuel made from soybean oil, recycled cooking grease or animal fat. EPA fined the refiners as well as the companies accused of producing the fake credits, setting off backlash in the oil industry.

Since the fraud cases came to light, small biodiesel producers in particular have suffered as refiners opted to buy biodiesel from larger, more well-known companies. The price of RINs, meanwhile, has plummeted. The whole experience has been “very painful,” said Joe Jobe, CEO of the National Biodiesel Board.

EPA’s proposed fix defines the minimum requirements needed for audits of RINs, 38-digit numbers that are tied to gallons of biodiesel and traded in the marketplace to help refiners meet their obligations under the renewable fuel standard.

The agency has proposed two options for audits, which will verify volumes of biodiesel production, feedstocks and production processes and whether RINs were generated properly. Under the first option, third parties would conduct the audits continuously. In the second, audits would be done quarterly.

If RINs verified under the first option are later found to have been faked, then the third-party auditors will be responsible for replacing the invalid credits. Under the second, refiners would be responsible for replacing the RINs.

The proposal reflects extensive outreach with refiners and other stakeholders, Bunker said. Refiners asked for the first option, but the agency heard from other stakeholders that the approach would be too costly and overly rigorous and included the second option.

In either case, third parties that provide audits — such as the company Genscape, which worked with the National Biodiesel Board last year to develop an audit process — will be allowed to go beyond requirements laid out in the proposed rule, and obligated parties would be allowed to choose which auditors they want to use.

The approach, Bunker said, is meant to reflect the degree of risk perceived in the marketplace.

The program is retroactive to Jan. 1, and Bunker said that EPA will not take enforcement actions this year against parties that use invalid 2013 credits that were verified prior to the release of the final rule. Any changes that are made to the program through the rulemaking process will go into effect next year.

Bunker said the agency’s goal is to finalize the rule as quickly as possible; industry observers expect that to be in June. Refiners have complained about how long it has taken the agency to complete its work on the program.

“EPA has uncovered more than 140 million invalid renewable fuel credits that were fraudulently generated by three biodiesel companies, representing between 5 and 12 percent of the biodiesel market,” Bob Greco, head of downstream activities at the American Petroleum Institute, said when the rule was released. “Refiners need EPA to provide certainty in the marketplace for these credits in order to comply with biofuel mandates.”

The House Energy and Commerce Committee has also pressed EPA for answers on how it’s addressing the fraud (E&E Daily, Feb. 8).

The agency has remained silent on whether it is investigating other companies for fraud, but rumors of investigations have circulated for months. Bunker last week defended the agency’s pace.

“I know it seems slow, but for us it’s quite fast,” Bunker said. “And the other thing we tried to do is have it start now. There are a bunch of reasons for that, but one is to get it happening quicker so we can have a smoother, quicker transition and two, so that we can have a final rule that comes out quickly and have this experience over the next few months.”

Jobe of the Biodiesel Board said that the program was a step in the right direction and that it sends a sufficient signal for refiners and producers to start the verification process. The final rule will likely look much like the proposed program, he said.

He applauded the agency’s overall work on the program.

“They worked very hard and were very deliberate and talked to all of the stakeholders involved,” Jobe said. “They were very generous with their time. There was meetings on top of meetings inside of meetings. Everybody had a point of view.”

He added, “That’s not to say that it was fast enough to satisfy us, because once they started that rulemaking process, it put everybody on hold.”