U.S. Reps. Pete Olson, R-Texas, and Marsha Blackburn, R-Tenn., introduced the Stop RIN Fraud Act of 2012 (H.R. 6444) Sept. 20 to shore up weaknesses in the U.S. EPA’s renewable identification number (RIN) program.

The RIN program allows fuel producers and refiners to comply with the renewable fuel standard (RFS), which requires them to blend a certain amount of renewable fuel into petroleum stocks every year. Each gallon of renewable fuel is assigned a RIN, which are traded between companies to meet their obligations.

A press release from Olson’s office states that, because of the lack of oversight in the RIN market, illicit companies have generated hundreds of millions of fake RINs, costing legitimate producers, refiners and traders hundreds of millions of dollars in losses.

Three companies generated more than 140 million fraudulent biomass-based diesel RINs—approximately 5 to 12 percent of the current biodiesel RIN market—and EPA is investigating other illicit companies. Olson’s press release states, “EPA’s current RIN program makes the unknowing purchasers of RINs responsible for the fraudulent actions of those who knowingly create or trade invalid RINs. The [legislation] would police the program by requiring EPA to certify the validity and authenticity of RINs before they are traded on the market.”

Olson and Blackburn recently requested Congressional Research Service to conduct a study to quantify the damage done.

“I oppose the RFS and support its repeal,” Olson said, “but while it is in place, we should make it free of fraud. This legislation will ensure that EPA polices the program by certifying the validity and authenticity of RINs before they are traded on the market. EPA should not be turning a blind eye to the problem of fraud in the RIN program.”

Blackburn said, “I have seen firsthand through our oversight investigation into the RIN program that it has been ripe for fraudulent activity since its inception. Bad actors have taken advantage of weakness in the EPA’s lack of oversight by generating and selling more than 140 million fraudulent RINs. This legislation will finally help ensure that the EPA or accredited third parties have systems in place that can verify RINs without placing the full oversight burden on refiners and importers.” 

The introduction of the legislation followed Congressional hearings in July in which EPA testified that the agency’s goal is to have new measures in place for the 2013 year, but it wasn’t able to guarantee that a completed version of its plan to better handle RIN fraud in the biodiesel industry would be in effect by then. The rule-making process, needed to enact the affirmative defense change, involves notice of proposal, public comment and rolling out an official ruling.

Anne Steckel, the National Biodiesel Board’s vice president of federal affairs, said, “The clear consensus coming out of the House hearing on this issue in July was that stakeholders should continue developing practical, private-sector solutions while working with the EPA to update the regulation as quickly as possible. Clearly, legislation will not be quick and will only drag out this situation further. Additionally, this bill would remove all responsibility for due diligence from petroleum refiners to verify RINs, which we believe could create new potential for fraud. For these reasons, we are opposed to this bill, and we urge all stakeholders to remain committed to the EPA discussions that have been taking place for months. The EPA already has said it is working on an expedited basis to propose an updated rule by year’s end, and we fully support that effort.”

American Fuel & Petrochemical Assocation President Charles Drevna said, “Although industry and EPA have been working together to resolve the situation, a solution has yet to be agreed upon. U.S. refiners have unknowingly purchased millions of fraudulent renewable identification numbers and paid approximately $200 million in RIN replacement costs. And, it is our understanding that EPA and the FBI continue to investigate more widespread fraud in the biodiesel industry.” 

“This is a problem EPA could have, and should have, resolved by now,” said Jack Gerard, president and CEO of the American Petroleum Institute. “EPA’s failure to act quickly could raise the cost of making fuels in the United States, and it’s time for Congress to provide a solution. The current system is unworkable and could potentially undermine the entire renewable fuel standard. This legislation requires EPA to provide safeguards for refiners that purchase certified credits in good faith so they can begin purchasing credits to comply with next year’s biofuel requirements.”

Just last week the EPA finalized its 2013 biomass-based diesel volume requirements, boosting the mandate from 1 billion gallons this year to 1.28 billion gallons next year. 

Olson said problems with the current RINs system include obligated parties who unknowingly submit RINs later found to be fraudulent have been subject to EPA fines and penalties, and must replace the bad RINs with good ones. Even if an obligated party takes steps to avoid buying RINs later found to be fraudulent, EPA still holds them responsible for the actions of others even if they purchased the RINs in good faith. EPA requires a third-party engineering review before a biofuel producer can generate RINs in the EMTS system. He also said there is no regulatory system in place to ensure that after the plant is reviewed, that it is actually producing the amount of biodiesel that it says it is.

Reps. Gene Green, D-Texas, and Jim Matheson, D-Utah, are also original co-sponsors of the bill.