House subpanel to take up fraud in biodiesel market

Source: Amanda Peterka, E&E reporter • Posted: Monday, July 9, 2012

Since October of last year, three high-profile fraud cases have rocked the biodiesel industry, sending ripples of uncertainty throughout the market and forcing small producers to idle their plants.

A House Energy and Commerce subpanel this week will hold a hearing on U.S. EPA’s handling of the cases and of rumored fraud investigations that have yet to be announced. The hearing comes as Energy and Commerce Republicans investigate the issue, which they say EPA has exacerbated by not being transparent and by penalizing refiners for purchasing fake renewable fuels credits in good faith.

The Oversight and Investigations Subcommittee plans to call on both private and government witnesses to testify, according to a statement on the hearing. More specific information about witnesses was not available at press time.

Rep. Cliff Stearns (R-Fla.), who led the GOP investigation into the failure of solar panel maker Solyndra, will chair the hearing.

“EPA’s efforts to address the problem so far appear ineffective, and in some respects have harmed the renewable fuels marketplace,” Stearns, Energy and Commerce Chairman Fred Upton (R-Mich.), Energy and Power Subcommittee Chairman Ed Whitfield (R-Ky.) and Rep. Michael Burgess (R-Texas) wrote to EPA Administrator Lisa Jackson in late May.

The hearing was announced a week after a federal jury found a Maryland man guilty of selling $9 million worth of fake renewable fuel credits with his company, Clean Green Fuels LLC (E&ENews PM, June 25).

Earlier this year, EPA also separately accused two Texas-based companies, Absolute Fuels LLC and Green Diesel LLC, of peddling fake credits.

In total, the three biodiesel producers are accused of faking about 140 million credits worth $150 million.

EPA allows refiners to buy and sell the credits in order to meet their obligations under the renewable fuel standard, a provision of the Clean Air Act. The standard requires that the country reach a certain target of biofuel production each year — for biodiesel, the 2012 target is 1 billion gallons.

Reacting to the uncertainty in the marketplace, refiners have been forced to do “due diligence” to make sure credits come from reputable sources. The due diligence, though, has meant that many legitimate small producers have found themselves without a market for their credits (Greenwire, March 12).

The oil industry is calling on EPA to repeal the provision of its renewable fuels regulation that assigns some of the blame for fake credits on the refiners themselves. Refining representatives have had a series of meetings with EPA officials and on June 13 met at the White House to discuss the issue (Greenwire, June 29).

EPA, for its part, has stood by this “buyer beware” provision and issued a new enforcement policy that requires refiners that purchased fake credits to pay penalties and buy new credits to meet their targets.

The statement from the oversight subpanel said the hearing will cover such broad areas as the impacts of fraud on the marketplace, efforts to change regulations and possible long-term solutions to the problem.