Noon: The Renewable Fuel Standard abets fraud
America’s rush to renewables has invited corruption and fraud.
On July 20, representing the latest fraudster to be convicted — but not the first and surely not the last — “a jury found an Indiana man guilty of securities fraud and other crimes connected to a massive biodiesel fraud scheme,” reported Greenwire. It turns out, Jeffrey Wilson and his multistate cohorts pretended to manufacture biodiesel, which allowed them to claim renewable fuel credits — known as Renewable Identification Numbers, or RINs. The Department of Justice said Wilson’s actions resulted in a $20 million loss to investors, $140 million in revenue, and $56 million in criminal profit.
Due to years of reporting with Christine Lakatos, I know more than most about the corruption surrounding green energy, but I hadn’t followed this. I dug further. I found stories of RIN fraud from Florida, Maryland, Nevada, Pennsylvania, and Texas.
Biodiesel RINs have become a valuable commodity because, as a result of the Renewable Fuel Standard, or RFS, refiners are required to blend biofuels into the nation’s fuel supply and the RINs supposedly prove they’ve complied.
The cases of RIN fraud I found are just those of those who’ve been caught. They are fraudsters who found a way to fortune through the flawed RFS — first enacted by Congress in 2005 and expanded in 2007 — which contains a credit-trading program.
Because the law requires ever-increasing quantities of biofuel be produced — even beyond what consumers want or most vehicles can handle — RINs offer refiners a way to presumably meet the mandates while providing the market with what it wants. A Bloomberg graphic explains: “Biodiesel RINs tend to cost more than ethanol RINs or other types because they are scarcer and can be used to satisfy multiple requirements under the Renewable Fuel Standard.”
“RIN swaps,” according to Bloomberg, “are usually agreed upon between companies, traders, and brokers via email, phone, texts, and chatroom messages.” The onus is on the buyers, “if the RINS are found to be fraudulent, the holder has to purchase new credits to replace the phony ones” — and the new credits must be purchased at the current price, which may be higher than the original purchase.
Of course, the refiners’ purchase of RINs — and in the case of fraudulent RINs, the double purchase — is passed on to the consumer. We are stuck holding the bag for the fraudsters’ get-rich-quick scheme that is enabled by the RFS.
“Because refiners can buy them to satisfy their obligations to introduce renewable fuels into the national market,” Scott Irwin, an agriculture economic professor at the University of Illinois, according to The Morning Call, calls the RINs: “valuable.” He explains: “A combination of little regulation, the small-business nature of biodiesel producers and higher-than-expected prices for credits produced a rash of fraud. ... It was kind of set up for fraud.”
Because the EPA, whose expertise is in things like oil spills and air pollution, isn’t equipped to handle these cases of sophisticated financial fraud, Bloomberg reports, it has reached out to the Commodity Futures Trading Commission — “which is itself stretched thin because of its responsibilities under Dodd-Frank.” The lack of oversight made the RFS biodiesel program a “government playground for con artists.”
The biofuel fraud is just one prong in the growing push for RFS reform. Big green groups have recently turned against ethanol and are now seen as a factor in improving the odds that lawmakers might seek changes to the program next year.
Every politician in Washington talks about getting rid of waste, fraud, and abuse. Getting rid of the RFS would go a long way to achieving that goal.
The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc., and the companion educational organization, the Citizens’ Alliance for Responsible Energy. She hosts a weekly radio program: America’s Voice for Energy — which expands on the content of her weekly column.