Case No. 3: EPA issues Green Diesel violation for 60M bad RINs
The U.S. EPA issued a Notice of Violation to Houston-based Green Diesel LLC April 30 for generating more than 60 million invalid biomass-based diesel (D-Code 4) renewable identification numbers (RINs) under the federal renewable fuel standard (RFS2) program. The opening of the investigation into Green Diesel LLC follows EPA last fall charging Maryland-based Clean Green Fuel LLC and Texas-based Absolute Fuels LLC for fraudulently producing biomass-based diesel RINs.
In its NOV, EPA stated that D-Code 4 RINs generated by Green Diesel LLC beginning at least July 16, 2010—just two weeks after the renewable fuel standard (RFS2) final rule became effective—through and including July 15, 2011, are invalid. The notice goes on to say that the company violated the law by generating RINs without producing the requisite volume of renewable fuel and by creating or transferring to another person RINs that are considered invalid.
In a statement provided from EPA, the agency said, “Congress adopted the renewable fuel standard program to reduce the nation's dependence on foreign oil and help grow the nation's renewable energy industry. When fuel credits are generated or used that do not represent qualifying renewable fuel, it undermines Congress' goals in creating the program, creates market uncertainty and is a violation of the standard. EPA enforcement of the standard deters fraud and abuse in the system, helps to restore certainty in the market and ensures that the goals of Congress are met.” EPA said it cannot discuss the details of ongoing enforcement matters.
One biodiesel fuel trader told Biodiesel Magazine that the NOV issued to Green Diesel LLC has been “a long time coming,” and said rumors suggest more NOVs are coming down the pike. The trader said with Green Diesel LLC being a rather large NOV, it will definitely impact the market.
Jess Hewitt, chairman of Gulf Hydrocarbon and strategic partner with Lee Enterprises, said he was shocked that the EPA managed to find another plant that was generating RINs but not producing requisite volumes of biodiesel. The Green Diesel LLC methyl ester plant was built in India and shipped to Texas, located at the Westway Terminal in Houston. He said as far as he knew, the plant never functioned properly. He also said Green Diesel LLC is connected to a failing conglomerate of companies under parent company Fuel Streamers, which is shutting down and laying people off.
Just last week EPA announced the amount of administrative settlements levied against 30 obligated parties and renewable fuel exporters due to the purchase of invalid biodiesel RINs. Hewitt said reaction to the settlement was “50/50,” meaning that while no one wanted to be found liable for buying bad RINs, some were relieved that the damage is finally known.
In March, trading company and RIN broker OceanConnect filed a lawsuit against EPA for the agency’s handling of the RIN scandals, stating that it has done its due diligence but the EPA has not done theirs. “We filed the lawsuit because we felt there was no other remedy at our disposal,” said Eric Rubury, president of OceanConnect LLC. He told Biodiesel Magazine that through its chosen approach and settlement enforcement, EPA is punishing honest market participants while doing nothing to replace the biodiesel that was never produced with the invalid RINs, doing nothing to restore stability in the marketplace, and doing nothing to prevent further fraud.
“At the level of 60 million RINs, there are quite a few parties that purchased them,” Rubury said. “It almost doubles [the number of invalidated RINs] already out there.” Rubury said he has good reason to believe more NOVs will be issued eventually—reason more than, as he put it, “whispers in the marketplace” that already exist. He also said the very fact that obligated parties have to replace those fraudulent RINs bought in good faith from companies registered with and approved by EPA is a de facto fine of more than $100 million, given current market prices.
He said imagine how much counterfeit money there would be on the market if the treasury department took the same measures to protect against counterfeiters as the EPA takes in protecting against fraudulent actors in the biodiesel market. RINs, after all, are a form of currency. The amount of counterfeit currency on the market would be in excess of 10 percent. “This has been a catastrophic failure by the EPA,” Rubury said.
EPA must recognize that these cases of fraud are exceptional events, Rubury said, and the only solution is for the agency to devise a correspondingly exceptional approach to remedy the situation. EPA must also monitor for fraud much more closely than it has thus far, he added.
Whatever actions EPA might take in the future will not change the fact that these isolated cases of RIN fraud have had a devastating effect on small-scale biodiesel producers, which, as a result, have found it impossible to move their RINs.
To help, earlier this year the National Biodiesel Board established a RIN Integrity Task Force, subsequently partnering with Genscape to create what the NBB refers to as its phase one, short-term solution to the problem—a RIN audit protocol to which biodiesel producers and obligated parties can subscribe for a fee. Other independent RIN verification measures have also been developed, such as the RIN 9000 program established by Lee Enterprises Consulting, which is making its list of participating biodiesel plants available to obligated parties at no cost. CEO Wayne Lee said given the problems in the biomass-based diesel RIN market, obligated parties may choose to simply take over some biodiesel operations themselves to satisfy obligations while ensuring RIN integrity.
Hewitt said he hears the majors say they will only buy RINs from large biodiesel players with big balance sheets, noting the vast majority of small plants are doing everything right and should not be punished because of their production capacities.