The RIN trading program, which began in 2005 and expanded in 2007, stems from a congressional mandate to increase domestic renewable-fuel production. When the EPA drafted regulations implementing the new federal requirements, oil industry officials pressed the agency to include the trading of credits to provide greater flexibility and lower the costs of compliance.
“The overall approach to meeting the mandate makes sense,” said Iowa State University economist Bruce A. Babcock, who also directs the Biobased Industry Center. “You just have to make sure someone’s not out there with a printer running off RINs.”
Even critics of the current system suggest its greatest weakness stems from the fact that lawmakers overestimated how quickly the country could ramp up biodiesel production. Unlike corn ethanol, which is widely produced and enjoyed years of federal subsidies until recently, the biodiesel sector includes fuel made from sources such as soybean and canola oil, algae and cooking waste like beef tallow and chicken fat.
The fact that biodiesel has been scarcer than ethanol, Babcock noted, means “there’s a huge incentive to counterfeit RINs.”
And because credits can change hands multiple times, it is difficult for companies to determine “the pedigree” of a specific identification number tied to a gallon of biodiesel, said Sandra Dunphy, who directs assurance services for the public accounting firm Weaver and has earned the nickname “RINderella” for her mastery of the arcane fuels-trading system.
Legitimate producers of biofuels said the alleged fraud cases have hurt their businesses dramatically.
“The impact has been staggering,” said Jennifer Case, CEO of the San Diego-based company New Leaf Biofuel, which has had a dramatic slowdown in sales since Hailey’s indictment last fall. “We’re being penalized and having our businesses threatened because of a few bad actors.”
The EPA puts the burden on refiners and importers to ensure that the credits they purchase are valid. The agency has sent “notices of violation” to companies that used invalid RINs — including those that purchased credits from Hailey — and says it has 33 pending settlement offers with companies to resolve violations of the renewable fuels requirement.
Charles T. Drevna, president of the American Fuel and Petrochemical Manufacturers, said EPA officials should have alerted members of his trade association when they suspected that some companies registered with the agency were producing fraudulent credits.
“Penalizing refiners who unknowingly bought fraudulent RINs from sellers registered with EPA is unjust, irresponsible and bad policy because it punishes crime victims instead of criminals,” Drevna said.