EPA Mandate Created a $1 Billion Market in Fraudulent Biofuel Credits, Says Criminal Investigator

Ethanol Plant

By Michael Bastasch Published on September 21, 2016

There may be $1 billion worth of fraudulent biofuel credits circulating in the U.S., according to a former Environmental Protection Agency (EPA) criminal investigator.

“Based on my experience, I believe the cost of these fraud schemes to victims and consumers, including taxpayers and obligated parties, is approaching $1 billion,” Doug Parker, the president of E&W Strategies, wrote in a report on ethanol fraud, commissioned by the oil refining Valero Corporation.

Parker, who initiated investigations into ethanol credit fraud while at EPA, argued the federal ethanol mandate, or Renewable Fuel Standard (RFS), is “susceptible to large scale fraud” based on analyses conducted while he worked for the government.

Parker argued RFS fraud risks have grown as the ethanol credit, or RIN, market grew 15-fold in the last six years from $1 billion to $15 billion as federal law requires refiners to blend more ethanol into the fuel supply. It’s also an “opaque” market that allows fraud to flourish, he wrote.

“This level of transparency and market regulation is not present in the RINs market, and the opaqueness of the market is a critical factor that allows criminal conduct to continue,” Parker wrote.

Parker argues shifting the “point of obligation” of complying with the RFS from refiners to those further downstream would help reduce the risk of fraud, advocating for a policy being pushed by refiners as part of an effort to reform the RFS.

Refiners are asking EPA to move the onus of complying with the RFS from their industry to those further downstream. Refiners say complying with the RFS cost them $1 billion in 2015, making it one of their largest costs.

Energy experts expect RFS compliance costs to grow as the EPA mandates refiners blend more biofuels into the fuel supply. But ethanol lobbyists say fear of more fraud are overblown, since virtually all of it has taken place in the biodiesel market, not for conventional ethanol-blended gasoline.

“RIN fraud has not been a reality for ethanol used in the RFS program,” Bob Dinneen, president of the Renewable Fuels Association, told The Daily Caller News Foundation.

Parker catalogued $271 million worth of biofuel credit fraud and $71 million in illicit profit seizures by federal agents — all of which has involved biodiesel credits.

“The author is correct that there have been instances of fraud with biodiesel,” Dinneen said. “But those have been successfully prosecuted, and changes to the program put in place to protect against future abuse.”

Dinneen said the report gives a distorted picture of the ethanol market, which has handled more than 90 billion RINs since its inception.

“We do not believe RIN fraud is a legitimate concern,” Dinneen said. “The RFS is and has been a tremendous success for this nation’s energy and economic future, and consumers across the country.”

Even so, Parker says the breaching of the so-called biofuel “blend wall” has opened the door to more fraud as prices increase.

“Investigators and prosecutors are now also seeing evidence of more traditional organized criminal activity in this sector as the frauds have become larger and more complex,” Parker wrote.

 

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Copyright 2016 Daily Caller News Foundation
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  • m-nj

    the whole bioethanol program should be scrapped, regardless of the impact on midwest farmers and politicians. bioethanol has been proven to NOT be environmentally friendly, to NOT reduce greenhouse gases (as ir was supposed to do when promoted by the left), and to NOT be good for most internal combustion engines. further, the amount of bioethanol mandated to be used in fuel cannot even be met by the amount of bioethanol produced. just stop the madness and move on already…

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