September 26, 2012
BY Ron Kotrba
Fallout from the biodiesel RIN credit fraud of 2010—scams to knowingly generate bad RINs run by a handful of companies to pocket millions at the expense of oil companies, traders and the vitality of the diverse U.S. biodiesel industry—continues to cast a shadow on biodiesel despite the recent good news of an increased federal mandate for 2013 and strong production numbers this year. Two notable developments took place in the past week.
Minnesota-based agri-giant Cargill has filed a Clean Air Act citizen suit and breach of contract against International Exchange Services LLC in U.S. district court. According to the official compliant obtained by Biodiesel Magazine, Cargill, which not only produces biodiesel but also buys and sells RINs, bought 1.2 million RINs from International Exchange Services in April 2010 and resold them. Cargill alleges that of those 1.2 million RINs, 1,190,895 were purportedly generated by Double Diamond Biofuels Inc., but the complaint alleges that those RINs, in fact, were not produced by Double Diamond Biofuels and were later deemed invalid. In the compliant, Cargill says it requested International Exchange Services to correct the transfer of invalid RINs, which International Exchange Services allegedly refused in a letter dated May 23, 2012.
In the complaint, Cargill notes that it informed the appropriate federal and state officials of its intent to file a civil suit and of International Exchange Services’ alleged violation of the renewable fuel standard, and states that no federal lawsuits have been filed to correct the alleged noncompliance.
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Cargill states that not only is this a violation of the renewable fuel standard, which requires correcting the transfer of invalid RINs, and as such a violation of the Clean Air Act, for which every day the act goes uncorrected is another violation and open to daily penalties of up to $37,500, but it also amounts to breach of warranty. The complaint alleges that International Exchange Services made various warranties to Cargill under the Uniform Commercial Code, including an expressed warranty that the RINs were good; a warranty of good title; an implied warranty that the RINs were fit for purpose; and an implied warranty of merchantability. Cargill demands a jury trial.
Also late last week, two Republican House representatives, Pete Olson and Marsha Blackburn, introduced the contentious “Stop RIN Fraud Act of 2012.” I say this is contentious because even though Big Oil, which includes the ultimate parties currently on EPA’s hook to replace bad RINs, is strongly in favor of the legislation, the National Biodiesel Board is equally strongly opposed. Remember the July Congressional hearings, where it appeared as if nonlegislative corrective measures would suffice in improving EPA’s administrative regulation of the RIN market? So does the National Biodiesel Board. In a statement given to Biodiesel Magazine last week, NBB’s Vice President of Federal Affairs Anne Steckel 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.”
This year is an election year, so it is of interest to note that Rep. Blackburn, a Republican, had nothing but contemptuous remarks to the EPA—an agency led by the Democratic Obama administration—during the July hearings. “You can tell them what you will do to them, but not what they need to do—that’s backwards. You’re dropping the ball here.” She said the industry has defined the necessary due diligence and industry best practices, but, she added, “They’re waiting on you to sign off on this. How long will it take you to sign off on these best practices?” EPA’s Byron Bunker said determining what role each of the parties play in that due diligence process is important, and that this must be worked out. Blackburn cut Bunker off, saying, “What is the cutoff, how long will this take? Two weeks? 30 days? Somebody’s got to bring some leadership to bear.” The final damning comment Blackburn gave EPA during those July hearings was, “Small producers are going out of business, and maybe that’s your goal.”
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Rep. Olson flat out said he supports the repeal of the renewable fuel standard, so isn’t it logical to be wary of legislation he proposes to change how the RFS is administered?
As of the morning of Sept. 26, the text of the bill was not yet received from the Government Printing Office, but here’s what the summary says: “To amend the Clean Air Act to require the Administrator of the Environmental Protection Agency to establish a system for the certification of the validity of credits to be used for compliance with the renewable fuel program, and for other purposes.” What other purposes?
Since the text was not available at the time this article was published, it is not clear what action the legislation proposes to take on who would ultimately be liable, if anyone, to replace RINs that are verified by a quality assurance program (QAP) and later found to be invalid; or whether the legislation would be retroactive. It is pretty clear EPA’s proposed fix would not be retroactive, as the agency’s Gina McCarthy writes in an August letter to Rep. Gene Green, a Democratic co-sponsor of the Stop RIN Fraud Act of 2012, stating, “Since the agency understands that purchasing decisions made before a final rule need to reflect the certainty the rule will provide, EPA is investigating mechanisms that would allow the industry to implement the QAP program as soon as the proposal is made, allowing all RINs produced in 2013 to be covered under the new policy.”